China's financial turmoil and its impact on global markets.
The renewed turmoil in China's financial markets in the first trading days of 2016 has undermined investor sentiment, wiping 2.3 trillion dollars off the value of global stock markets and leading to a surge in demand for safe-haven assets. While the Shanghai Composite index rebounded on January 8, it dropped again on January 11 by 5.3%, dragging down the US S&P 500 equity index, which dropped 6% in the first trading week of 2016, its worst start to the year on record and a sign of the extent to which China has become the most important sentiment determinant.
The credibility of Chinese policymaking is undermined, heightening concerns about the country's slowdown and auguring badly for many EMs.
Central banks will be another source of volatility, especially if investors lose confidence in the effectiveness of monetary policy.
A weaker-than-expected dollar will pressure the ECB further to provide more monetary stimulus.
