The perfect storm has swung into financial markets

Seeing the flow of twitter posts increasing dramatically overnight as concerns over China were heightened this morning following the shortest trading session in Chinese stock market history caused by a 7% drop in the CSI 300 and halted due to newly installed circuit breakers does make one wary that 2016 may just be a difficult year for financial markets around the globe.

But my mind fades back not too long ago, perhaps less than a few weeks when the Fed decided to sneak in a little rate hike while most participants were building up into the festive season. I think that had to be the best decision the Fed had made in 2015 and here's why;

Every time a suggestion was made to hiking rates the market would kick up a volatile temper tantrum and throw it's proverbial toys out the cot and the Fed would become wary of their decision to lift rates. They would appease markets by finding some obscure reason as to why they couldn't hike which would please the market and let them feel that the comfort of complacency wasn't about to end soon.

But reality is action needs to be taken and markets cannot become dependent on central bankers to fuel their demands at will. So when Fed chair Janet Yellen and her merry band of FOMC members saw their gap they took it without questions which is evident in the unanimous decision.

The "free money"madness had gone so far there were some calling for QE 4 which obviously has now burnt itself out with no chance of it happening with the Fed's plan of lifting rate to a target of 1.4% before the year is out. Whether this is sustainable for the US and global economy is another matter altogether but the fact that we are now certain of a shift in policy does help many to begin thinking forward and what strategies would work best in those kind of environments.

$30 #oil Just Got Closer as Yuan Highlights China Turmoil https://t.co/gOG7HGVZeI via @business #ChinaMeltdown $OIL pic.twitter.com/y4qKE2yzih

— Andrew Barden (@abarden) January 7, 2016

 I thought the funniest thing the market did after the announcement was to take things higher and spread a bit of Christmas cheer to all. You'd think that the first moment the market becomes cognisant of a trend change it would weigh in on the market but not so with many analysts suggesting the certainty of knowing was a relief and the market had been expecting an interest rate hike which I can believe but find hard to wrap around my mind when most eyes were away from the screens and fixed on the holidays.

This isn't to say that markets shouldn't have gone higher after the announcement, in fact there's data to the contrary that shows that markets can and are able to continue trending higher until interest rates eventually catch up with the economy but we in a very different time and judging by the lack of buoyancy after the Fed had finally tapered off the last bond purchase and put a stop to QE, the fireworks display didn't look likely to happen.

When China entered the fray in the middle of last year the true strength of the bulls were tested as there was no more ammo to fall back on from the Fed and the market began taking the heat which continued until it reached its peak in late August when the contagion had all but crippled financial markets around the globe.

The Chinese government had started implementing drastic measures to stop the rout but it finally came to a head when government stepped in and started flooding Chinese equities with fresh liquidity in a hope to prop up momentum to the upside and boost confidence which had worked , the only dilemma is the problem was kick down the road.

With Beijing artificially feeding the market and the Fed forced to abandon a rate hike, the market found its form once again pulled off a superb run to quash fears that their was a global stock market meltdown imminent...little did they know.

Intervention has its limitations in the sense that authorities have a set amount of leeway to work with until it all dries up. Once all monetary means have been exhausted (and believe me these markets are hungry for freebies) policymakers are left with very little to support the upward drift in stock valuations besides seeing things through, even if that means finding it out the bottom of the barrel.

We're now faced with the reality of China still being in the pickle it was in last year or perhaps worse and the Fed marching forth on its path to lift rates to its projected target. This makes for very volatile times in 2016 which begs the question if the Fed will allow a degree of flexibility when deciding the next rate hike. My personal feeling is the projected target may be too aggressive and the Fed wouldn't want to stall things so soon after finally reaching its goals.

But the most crucial is will Beijing finally allow the stock market to crash and begin its corrective phase or will they continue to feed the market with magic tricks that hold no substance to the true sentiment in the economy?