World shares sold off sharply on the first trading day of 2016, as weak manufacturing data from China and a flare up in tensions between Saudi Arabia and Iran (see both below) sent traders scurrying from stocks into safe haven assets. The plunge could likely silence any possible "January effect," which usually sees equities that were sold off in December for year-end tax harvesting rally over the next month as investors scoop them back up at lower prices.

Economy

So what happened in China? Fresh manufacturing surveys revived concerns about Beijing's economic slowdown, triggering market declines so steep that authorities had to halt trading there for the rest of the day. The country's activity contracted for the 10th straight month in December - the official manufacturing PMI stood at 49.7 in December, while the Caixin manufacturing PMI fell to 48.2, both below the 50 level that indicates expansion. The yuan, which begins new extended trading hours today, also hit its lowest point in more than four years in both onshore and offshore trade.

Exacerbating world tensions...Saudi Arabia cut off diplomatic relations with Iran on Sunday, giving diplomats 48 hours to leave the country, after protesters on Saturday stormed and torched the Saudi Arabian Embassy in Tehran. The move was in response to Saudi Arabia's execution of 47 prisoners, including prominent Shiite cleric Nimr Baqr al-Nimr. The two feuding powers are also fighting in the oil arena after the latter signed a historic nuclear deal that will open its oil export taps as fellow OPEC members struggle with a plunge in crude prices. Futures +1.4% to $37.57/bbl.

Meanwhile, the first oil tanker of freely traded American crude oil launched Thursday from the Port of Corpus Christi, marking the end of a long-standing U.S. ban put in place in the 1970s. ConocoPhillips (NYSE:COP) and NuStar Energy (NYSE:NS) loaded the tanker with crude pumped from Eagle Ford, skipping ahead of Enterprise Products Partners (NYSE:EPD), which said it would be the first to export oil in January. Who's buying the cargo? Dutch oil-trading powerhouse Vitol Group. The company has a subsidiary that owns a refinery in Switzerland.

What about gasoline? AAA, which compiles gas price information from around the country, is projecting that prices will stay lower in 2016, estimating an average cost of $2.25-$2.45 per gallon. In 2015, the average price per gallon was $2.40 (Americans saved $540 as a result). AAA also forecast that the national average would stay steady or drop another $0.10 in the coming weeks, and would not go above $3/gallon this year.

Manufacturing in the eurozone accelerated at the fastest pace in 20 months in December, with every country clocking in output growth and job creation (even Greece!). Markit's eurozone manufacturing PMI edged up to 53.2 from 53.1 in November, as the ECB's unprecedented stimulus reached companies and households. "While there is much to be positive about in these figures, the underlying picture is still one of solid yet unspectacular expansion," said Markit's Rob Dobson.

It's looking more likely that Spaniards will have to return to the ballot box again this year. Catalan far-left party CUP is not supporting acting regional head Artur Mas in his bid for another term, forcing new local elections and reducing pressure on Prime Minister Mariano Rajoy's People's Party and opposition Socialists to form a grand coalition against a separatist Catalan administration.

Russia is suing Ukraine for having failed to repay a $3B Eurobond and $75M of interest by Dec. 31. "A corresponding lawsuit will be filed in an English court in compliance with the established procedures," the finance ministry said on its website. Ukraine, which has separately reached an agreement with private creditors to restructure its sovereign obligations, insists the Eurobond is commercial debt and it cannot offer Russia a better deal than other creditors.

Fed Vice Chairman Stanley Fischer feels that it might be necessary for the central bank to increase interest rates if financial markets were overheating, though the first line of defense should be using regulatory tools to prevent bubbles from developing. "If asset prices across the economy - that is, taking all financial markets into account - are thought to be excessively high, raising the interest rate may be the appropriate step," Fischer said in a speech at the annual AEA meeting on Sunday. Also at the conference: San Francisco Fed President John Williams discussed estimates of long-run neutral rates, while Cleveland's Loretta Mester delivered her outlook for the U.S. economy.

Stocks

Star Wars: The Force Awakens is set to surpass Avatar this week as the highest-grossing film of all time in U.S. and Canadian theaters. After a gross of $88.3M in its third weekend, the domestic total for Disney's (NYSE:DIS) The Force Awakens stands at $740.3M - about $10M shy of Avatar's sales in the North American box office. What about globally? While Avatar's total world-wide gross was $2.8B, The Force Awakens currently stands at $1.5B, but the latter hasn't yet opened in China (the world's second largest movie market).

Nokia has officially gained control of French rival Alcatel-Lucent (NYSE:ALU) through a €15.6B all-share deal after the French stock market authority declared the offer successful. "The two companies will begin to progress their integration plans, with the first day as an operationally combined group on January 14, 2016," Nokia (NYSE:NOK) said in a statement. According to interim results, the Finnish firm will hold around 79% of Alcatel shares. NOK +2.6% premarket.

Due to weak global economic conditions and heightened competition, Samsung Electronics (OTC:SSNLF) is expecting a difficult business environment in 2016. Chief Executive Kwon Oh-hyun told employees in a New Year's address that low global growth will persist this year, with greater uncertainty stemming from issues such as financial risks for emerging countries. The comments come amid growing concerns that October-December results for the world's biggest maker of smartphones and chips may be weaker than previously expected.

Fidelity Investments is dropping long-time credit card partners American Express (NYSE:AXP) and Bank of America (NYSE:BAC), ending a 12-year partnership that had generated billions of dollars in fees. The switch is another setback for American Express, which is already reeling from its lost deal with Costco (NASDAQ:COST). Fidelity, which has 24M customers, said its new partners will be Visa (NYSE:V) and U.S. Bancorp (NYSE:USB). AXP -26% vs. V +16% in 2015.

Investors last year poured $347B into exchange-traded funds globally, according to fund-manager BlackRock (NYSE:BLK), setting a new record for the industry. The firm grabbed more than a third of the new funds with $129B. The increase comes as investors are increasingly drawn to the products as a replacement for futures and swaps positions, and tighter regulations and higher capital requirements weigh on derivatives businesses.

Is Mark Zuckerberg the next Iron Man? The Facebook (NASDAQ:FB) founder has decided on a new challenge for 2016: build an artificially intelligent assistant that can help around the home and at work. He likens the invention to Tony Stark's J.A.R.V.I.S., and imagines the system letting friends into his house by recognizing faces, checking in on his new baby, and helping run the company through virtual reality. The challenge comes as Facebook works on many different AI initiatives - through labs in Silicon Valley, New York and Paris - and builds an assistant for users on its Messenger app. FB -2% premarket.

Shire is in advanced talks to acquire Baxalta (NYSE:BXLT) for $46.50-$48 per share, or about $32B in cash and stock, excluding debt, Bloomberg reports. Final details of the transaction are still being negotiated, but the two drugmakers are likely to announce a deal this week. Baxalta would benefit from a lower tax rate if taken over by Shire (NASDAQ:SHPG), and the enlarged company would generate $20B in sales by 2020, with as many as 30 new drugs to launch over five years. SHPG -1.5% premarket.

Tesla Motors delivered 17,400 vehicles in the last three months of 2015, a figure that marks the low end of a 17K-19K forecast by the carmaker in the fall. 507 Model X vehicles were produced during the quarter and 208 were delivered to customers. According to the EV automaker, the "exponential" ramp of Model X builds tracked to a production run rate of 238 vehicles per week by the end of the period. Tesla's (NASDAQ:TSLA) total 2015 deliveries were 50,580 vehicles. TSLA -3.7% premarket.

Fiat Chrysler opened a third lower in Milan this morning as the Italian-American car manufacturer began trading without its former crown jewel - Ferrari (NYSE:RACE). The company distributed an 80% stake in the luxury sports-automaker to shareholders on Sunday, ending 30 years of its exclusive control. The spinoff, first announced more than a year ago, comes after Fiat Chrysler (NYSE:FCAU) sold a 10% stake in Ferrari in an initial share sale on the NYSE in October.

A look at 2015's busted deals: Despite a record-setting year for M&A, 2015 was also full of plenty of no's from U.S. antitrust officials. Staples (NASDAQ:SPLS) & Office Depot (NASDAQ:ODP); General Electric (NYSE:GE) & Electrolux (OTCPK:ELUXY). Sysco (NYSE:SYY) & U.S. Foods; Comcast (NASDAQ:CMCSA) & Time Warner Cable (NYSE:TWC); Thai Union (OTC:TUFRF) & Bumble Bee Seafoods.

Airbus is likely to have ended 2015 with more orders for new aircraft than rival Boeing (NYSE:BA), marking the third consecutive year the European planemaker has emerged on top. According to the latest tallies, Airbus (OTCPK:EADSY) had 1022 net orders by the end of December, while Boeing had 743 (final results will be published in several days). The main reason for Airbus's continued dominance appears to be its re-engined A320neo short-haul aircraft, which has outsold Boeing's 737 Max in this category.

Over the holiday weekend, Airbus (OTCPK:EADSY) also won an agreement from Japan's ANA Holdings (OTCPK:ALNPY) to buy three A380 superjumbos, giving the planemaker a welcome vote of confidence for an aircraft that hadn't won a new customer in over three years. Parent All Nippon Airways will take delivery of the planes from 2018, with plans to use them on its Tokyo to Hawaii route.

Today's Markets

In Asia, Japan -3.1% to 18451. Hong Kong -2.7% to 21327. China -6.9% to 3296. India -2.1% to 25623.
In Europe, at midday, London -2.3%. Paris -3.4%. Frankfurt -3.7%.
Futures at 6:20, Dow -1.6%. S&P -1.5%. Nasdaq -1.8%. Crude +1.4% to $37.57. Gold +1.2% to $1073.10.
Ten-year Treasury Yield -5 bps to 2.22%

Today's Economic Calendar

9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
12:30 PM TD Ameritrade IMX
2:00 PM Gallup US Consumer Spending Measure