USDCNY volumes getting a bit embarrassing now.
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What the Heck is Going on in the Global Markets?
What the Heck is Going on in the Global Markets?
This wasn’t supposed to happen. The week was already on a crummy downhill path globally, and emerging-market currencies were blowing up, when on Friday in China the Caixin’s Purchasing Manager’s Index hit the worst level since March 2009; manufacturing is sinking deeper into the mire.
So the Shanghai stock index plunged 4.3% for the day, and 11.5% for the week, to 3,508, closing at the same level as the bottom of its July rout.
The entire machinery that the Chinese government and the People’s Bank of China had set in motion to bail out the markets during the July rout, which had worked for a couple of weeks, has now proven to be useless. And the markets, thought to be controllable by fiat or manipulation, suddenly regained a will of their own.
Other Asian stock markets plunged too: Hong Kong’s Hang Seng dropped 1.5% on Friday and 6.6% for the week; it’s 5.1% in the hole for the year. The Nikkei fell 3% on Friday and 5.3% for the week.
Europe was next. The German Dax, the British FTSE 100, French CAC 40, the Spanish IBEX 35, the Italian FTSE MIB, they all plunged about 3% for the day and lost between 5% and 6.5% for the week, except for the German Dax which lost nearly 8% for the week. It has now plummeted 18% since its dizzying peak in early April. Easy come, easy go.
Have central banks lost their omnipotence?
That despicable, unpredictable force that central banks were thought to have vanquished – markets with a will of their own – ricocheted in its unruly manner around the world.
In Europe and Japan, the central banks are currently engaging in relentless QE programs to inflate stocks, and China is doing a whole lot more, and yet, this debacle! A few more episodes of this – and folks are going to question the omnipotence of central banks, and they’re going to doubt the central banks’ vaunted ability to inflate the markets. If those doubts spread, not even QE can prop up the markets. Omnipotence only works if people believe in it.
…click on the above link to read the rest of the article…
China Stocks Crash, More Than Half Of Market Halted Limit Down; PBOC Loss Of Control Spooks Global Assets
China Stocks Crash, More Than Half Of Market Halted Limit Down; PBOC Loss Of Control Spooks Global Assets
China sure has its micro-managing hands full these days.
Just hours after the PBOC announced a modestly “revalued” fixing in the CNY, which curiously led to weaker trading in the onshore Yuan for most of the day before a forceful last minute intervention by the central bank pushed it back down to 6.39…
… it was the local stock market spinning plate – which had been relatively stable during the entire FX devaluation process – that China lost control over, and after 7 days of margin debt increases the Shanghai Composite plunged by 6.2% in late trade,tumbling 245 points to 3748, just 240 points above its recent trough on July 8, a closing level some 27% off its June peak. The smaller Shenzhen Composite Index fell 6.6% to 2174.42. This was the biggest single-day rout since July 27.
According to Reuters, “volatility in both indexes spiked in the afternoon in what is becoming a mysteriously recurring pattern in China’s stock markets since Beijing stepped in to avert a full-blown price crash in early summer.”
There were various reasons cited for the selling: one was that with Chinese housing data coming in stronger than expected, that Beijing may limit its future interventions to promote further easing of financial conditions and thus, supporting the market as we warned last night after the housing data came out:
…click on the above link to read the rest of the article…
Riskiest End of the Junk Bond Market Just Blew Up
Riskiest End of the Junk Bond Market Just Blew Up
You wouldn’t know by looking at the US Treasury market, which remained relatively sanguine this week, with only a little panic buying on Tuesday. So 10-year Treasuries ended the week near where they’d started it. But at the other end of the spectrum, the riskiest portion of the junk bond market just blew up spectacularly.
There were a lot of culprits to catch the blame. At the top of the list was the devaluation of the Chinese yuan. It caught the corporate bond markets by surprise, though it shouldn’t have, injected all kinds of stress into them, and drove up bond spreads, with investors demanding a higher yields for riskier bonds. It hit the riskiest segment of the junk bond market with a sledge hammer.
Given the precarious state of the current credit bubble and the pandemic nervousness about it, bond investors were rattled by the moves of the People’s Bank of China. In prior crises, such as the 1997 Asian financial crisis and the 2008-2009 Global Financial Crisis, the PBOC had maintained a fixed exchange rate with the dollar. It didn’t devalue, as other countries were doing, to get out of the crisis. The yuan was seen as stabilizing the markets. Now the yuan is seen as destabilizing the markets.
It didn’t help that the Fed’s cacophony has been pointing at a September rate hike. It would be the first ever in the careers of millennials working on Wall Street. It would bring to an end the 30-year bull market in bonds. Even most middle-aged money managers have not yet experienced the alternative, other than a few short-lived dips and panics. On a visceral level, they simply can’t believe rates can ever rise over the long term. To them, rates can only go down.
…click on the above link to read the rest of the article…
Both ECB And BOJ Warn More QE May Be Response To Chinese Currency War
Both ECB And BOJ Warn More QE May Be Response To Chinese Currency War
Minutes from the ECB’s most recent policy meeting reveal that Mario Draghi and company have a number of concerns about the pace of economic growth in the euroarea and about the outlook for inflation which, much to the governing council’s surprise, “remains unusually low.”
Board members also took note of increasingly volatile EGB markets and made special mention of the second bund VaR shock which took place at the first of June, something the central bank attributes to “overvaluation [and] one?way market positioning related to the public sector purchase programme.” In other words: “our bad.”
The bank gave itself the now customary pat on the back for the “success” of PSPP noting that the “moderate frontloading of purchases” (a reference to the effective expansion of QE that was leaked to a room full of hedge funds at an event in May) was going smoothly, other than the above-mentioned nasty bout of extreme volatility.
As for the economy and inflation, well, that’s not going so hot. “Overall, the recovery in the euro area was expected to remain moderate and gradual, which was considered disappointing from both a longer-term and an international perspective [while] consumer price inflation had remained unusually low.”
Between that rather grim assessment and the comments cited above regarding volatility, one is certainly left to wonder what it is exactly about PSPP that’s going so “smoothly.”
But as interesting as all of that is (or isn’t), the most compelling comments were related to China. Here’s the excerpt:
In particular, financial developments in China could have a larger than expected adverse impact, given this country’s prominent role in global trade.
Consider that, and consider the following statement sent to Bloomberg by an adviser to Japanese PM Shinzo Abe:
…click on the above link to read the rest of the article…
The US-China “Currency War”: Winners and Losers
The US-China “Currency War”: Winners and Losers
American politicians aren’t congratulating the Communist Party in Beijing for its success in following the capitalist proverb “enrich yourself,” but screaming foul play: China falsifies the exchange rate of the yuan so that it can make more money off the USA than vice versa. The accusation, made by everybody from Donald Trump to Bernie Sanders, is that China’s policy is killing good-paying American jobs – and a lot else besides. What’s bad for America can’t be caused by anything done by America, but by Chinese trickery!
America’s right to success
The remedy for the problem is just as obvious as the blame: China must get on board with America’s approved rules for international trade and commerce. If China allows its currency to free-float, then the value of the yuan will adjust, China’s exports to the USA will become more expensive, China and the rest of the world will buy more products from the USA, and jobs will return to the USA.
The assumption is that the global money traders, in their infinite wisdom, would find the “correct” exchange rate between the yuan and the dollar once they have free access to the supply and demand for China’s currency. What would the correct exchange rate be? One that guarantees the success of US firms.
Before this week’s turnaround in response to its slump, China had been moving towards free market convertibility of the yuan. Since 2005, it had allowed its currency to gain almost 30 percent in relation to the dollar, while trying to moderate its increase. Yet the results for the trade balance with the US were exactly the same. What was inferred from this? China hadn’t gone far enough. So how will we know when it’s gone far enough? When America is the winner.
…click on the above link to read the rest of the article…
China Black Swans Not So Rare Anymore as PBOC Shocks Markets
China Black Swans Not So Rare Anymore as PBOC Shocks Markets
Investors should prepare for more surprises out of China after the yuan’s devaluation became the country’s latest unexpected policy move to roil global markets.
That’s the advice from Fraser Howie, co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.” He says Chinese policy decisions are becoming “erratic” as authorities struggle to combat the nation’s deepest economic slowdown in more than two decades.
This week’s tumble in the yuan — the biggest devaluation since 1994 — comes just a month after unprecedented state intervention in the stock market deepened a $4 trillion sell-off. Two years ago, authorities triggered the country’s worst modern-day cash squeeze by restricting the supply of funds to the banking system. The failure of China’s decision makers to telegraph and explain those policy changes has increased volatility worldwide as traders struggle to forecast what happens next in Asia’s biggest economy, Howie said.
“This complete lack of signaling has investors, both foreign and domestic, completely spooked about what’s going on,” Howie, a former managing director at CLSA Asia-Pacific Markets, said in a phone interview from Singapore. “China has a huge influence globally and markets don’t like shocks.”
While investors parse every word in Federal Reserve statements for clues on future U.S. monetary policy, the People’s Bank of China provides few such details, while decisions are often the result of political wrangling, according to Howie.
“We don’t know what their policy is,” he said. “We don’t see minutes of meetings. We don’t get regular announcements, so we get a tremendous lack of transparency.”
Yuan Plunge
The PBOC took markets by surprise when it cut the daily fixing for the yuan by 1.9 percent on Tuesday, ending a four-month peg against the dollar. The currency tumbled 2.9 percent in two days, the most since the country ended a dual-currency system in 1994, while it now trades at the biggest discount to the offshore yuan since 2010.
…click on the above link to read the rest of the article…
China “Loses Battle Over Yuan”, And Now The Global Currency War Begins
China “Loses Battle Over Yuan”, And Now The Global Currency War Begins
Almost exactly seven months ago, on January 15, the Swiss National Bank shocked the world when it admitted defeat in a long-standing war to keep the Swiss Franc artificially weak, and after a desperate 3 year-long gamble, which included loading up the SNB’s balance sheet with enough EUR-denominated garbage to almost equal the Swiss GDP, it finally gave up and on one cold, shocking January morning the EURCHF imploded, crushing countless carry-trade surfers.
Fast forward to the morning of August 11 when in a virtually identical stunner, the PBOC itself admitted defeat in the currency battle, only unlike the SNB, the Chinese central bank had struggled to keep the Yuan propped up, at the cost of nearly $1 billion in daily foreign reserve outflows, which as this website noted first months ago, also included the dumping of a record amount of US government treasurys.
And with global trade crashing, Chinese exports tumbling, and China having nothing to show for its USD peg besides a propped and manipulated stock “market” which has become the laughing stock around the globe, at the cost of even more reserve outflows, it no longer made any sense for China to avoid the currency wars and so, first thing this morning China admitted that, as Market News summarized, the “PBOC lost Battle Over Yuan.”
That’s only part of the story though, because as MNI also adds, the real, global currency war is only just starting.
And now that China is openly exporting deflation, and is eager to risk massive capital outflows, the global currency war just entered its final phase, one where the global race to the bottom is every central bank’s stated goal. Well, except for one: the Federal Reserve. We give Yellen a few months (especially if she indeed does hike rates) before the US too is back to ZIRP, maybe NIRP and certainly monetizing even more things that are not nailed down.
…click on the above link to read the rest of the article…
The Crash in China Continues – and is Engulfing Hong Kong
The Crash in China Continues – and is Engulfing Hong Kong
Efforts of Potent Directors Ignored
When we first commented on the emerging problems with China’s market bubble, we warned that although a bounce from oversold levels was the most likely outcome, it wasn’t set in stone. It appeared to us that Chinese investors were especially prone to falling for the “potent directors fallacy” (a term coined by Robert Prechter of EWI many years ago) – the belief that powerful decision makers, in this case the central bank and the government – would be willing and able support the market no matter what. Willing they have been – able, less so.
Chinese retail investors are shell-shocked
Photo credit: EPA
For a long time it has been the general impression that due to its tight control over the banking system and other sectors in the economy, China’s leadership could just “order the markets around”. Investors who were aware of China’s enormous debt problems and its insanely overvalued real estate markets were regularly baffled by the fact that China’s mandarins were apparently capable of arresting any decline in prices or any emerging credit blow-ups with the flick of a finger. Faith in their abilities is currently being shaken to its core. This is highly relevant to the asset bubbles currently underway in other countries, even though what happens in China has little direct effect due to the country’s closed capital account.
China’s stock market crash just keeps going – the index has now reached an important lateral support level. It will probably bounce from there, but for a variety of reasons this is actually somewhat less certain than it would otherwise be – click to enlarge.
…click on the above link to read the rest of the article…
Panicked Chinese Government Imposes Desperate Measures to “Aggressively” Rescue a Lot More Than Just Crashing Stocks
Panicked Chinese Government Imposes Desperate Measures to “Aggressively” Rescue a Lot More Than Just Crashing Stocks
Stock-market rescue measures, concocted by the government, have been hailing down for days, including an interest rate cut by the People’s Bank of China a week ago. But the collapse proceeded with brutal relentlessness. So now, Premier Li Keqiang pulled out all stops and the State Council is calling the shots in the market, the craziest, most desperate shots.
From July 4 last year through June 12 this year, the Shanghai Stock Exchange (SSE) soared 150%. It was the era when stocks would create unlimited wealth out of nothing in no time, when all comers, from street vendors to farmers, would get their government-promoted chance to get rich quick.
“When our national economy is in its worst shape in more than a decade and many corporates have run into trouble, our stock market suddenly shot up to make everybody happy,” George Chen, Managing Editor for the International Edition of the South China Morning Post, wrote in mid-April. He described the phenomenon this way:
The bulls can always find reasons to defend why the market was up, but I rarely heard anyone explaining the disconnect between the weak real economy and the so-called bull run.
Even the state media probably got over-excited. One Chinese newspaper commentary tried to name the surprising market performance as the latest achievement of President Xi Jinping because the top leadership in the country wanted to “create a new opportunity for wealth redistribution for everyone” to narrow the income gap. Redistribute wealth through the stock market in a socialist country like China? Sounds an exciting new economic theory.
He must have caught some flak from the bulls at the time.
Then came June 13. In the three weeks since, the SSE plunged nearly 30%, including 5.8% on Friday, wiping out nearly $3 trillion in get-rich-quick riches, despite the efforts undertaken by the government and the PBOC to put a stop to it.
…click on the above link to read the rest of the article…
Chinese Stocks Crash Most In 19 Years, Re-Open Limit Down (Despite PBOC Hail Mary)
Chinese Stocks Crash Most In 19 Years, Re-Open Limit Down (Despite PBOC Hail Mary)
Carnage…
- *CHINA STOCK PANIC SELLING TO CONTINUE, CENTRAL CHINA ZHANG SAYS
This leave China’s CSI-300 broad stock index futures up just 7% year-to-date…
- *CHINA CSI 500 STOCK-INDEX FUTURES FALL BY MAXIMUM 10% LIMIT
- *CHINA CSI 500 STOCK-INDEX FUTURES FALL BY LIMIT FOR 2ND DAY
- *HKEX DROPS AS MUCH AS 7.3%, MOST SINCE SEPT. 2011
- *SHANGHAI COMPOSITE INDEX EXTENDS DROP TO 7.5%
- *SHANGHAI COMPOSITE HEADS FOR BIGGEST 3-DAY DROP SINCE 1996
Carnage-er…
- *CHINA’S CSI 300 INDEX FALLS 3.4% TO 4,190.3 AT BREAK
- *CHINA’S SHANGHAI COMPOSITE FALLS 3.8% TO 4,035.48 AT BREAK
- *CHINA’S CSI 500 STOCK INDEX FUTURES EXTEND LOSSES TO 5.7%
- *CHINEXT INDEX PLUNGES 7.8% FOR 3-DAY 20% SLIDE
After The People’s Daily proclaimed… “investors were moved to tears” thanks to the PBOC’s actions…
- *FOUNDATIONS FOR A-SHARES ARE `SOLID’: CHINA SECURITIES JOURNAL
- *CHINA STOCK MARKET TO HAVE 30 YEARS `GOLDEN AGE’: SEC. JOURNAL
…click on the above link to read the rest of the article…
China Cuts Rates (Again) In Desperate Bid To Buoy Stocks, Rescue Economy
China Cuts Rates (Again) In Desperate Bid To Buoy Stocks, Rescue Economy
For the third time since November, China has cut its benchmark lending rate.
Hours ago, the PBoC slashed the 1-year lending rate by 25bps to 5.1% and the 1-year deposit rate to 2.25%. The move comes just three weeks after Beijing cut the reserve requirement ratio for the second time this year and marks a continuation of a heretofore unseen trend in China: easing into a stock market rally.
From the PBoC announcement:
The further decline in deposit and lending rates, the focus is to continue to play a leading role in a good benchmark interest rate, the cost of financing to further promote the social downside, support sustained and healthy development of the real economy. According to the unified deployment of the State Council, November 2014 and March 2015, the People’s Bank has twice lowered the financial institutions lending and deposit benchmark interest rate. With the gradual implementation of the policy measures, financial institutions, lending rates continued to decline, the market interest rates dropped significantly, the overall social financing costs decreased. At present, the domestic economy accelerated restructuring, fluctuations in external demand, China’s economy is still facing greater downward pressure. Meanwhile, the overall level of domestic prices remain low, real interest rates are still higher than the historical average for the continued appropriate use of interest rate instruments to provide space. In view of this, the People’s Bank of China decided as from May 11, 2015, loans and deposits of financial institutions lowered the benchmark interest rate by 0.25 percentage point, to create a neutral appropriate monetary and financial environment for economic structural adjustment and restructuring and upgrading.
…click on the above link to read the rest of the article…
China Considers Launching QE; Shanghai Stocks Soar
China Considers Launching QE; Shanghai Stocks Soar
Nearly two months ago we explained “How Beijing Is Responding To A Soaring Dollar, And Why QE In China Is Now Inevitable” in which we cited Cornerstone who reminded us “that from 2007 to late 2008, U.S. fed funds dropped 500 bp, and then the Fed still needed to do QE? The backdrop for China looks a bit similar. We had a credit bubble, they have a credit bubble. We had a housing bubble, they have a housing/investment bubble. Will China eventually have to go down the same path as the U.S., and the Eurozone? … The PBoC will first cut rates to 0%, before contemplating QE.”
To this we added that “once China, that final quasi-Western nation, proceeds to engage in outright monetization of its debt, then and only then will the terminal phase of the global currency wars start: a phase which will, because global economic growth and that all important lifeblood of a globalized economy – trade – at that point will be zero if not negatve, will see an unprecedented crescendo of money printing by absolutely everyone, before coordinated devaluations mutate into uncoordinated, and when central bank actions morph from “all for one” to “each man for himself.”
We may not have long to wait because just hours ago, MarketNews first among the wire services hinted at what we suggested was the endgame.
- *PBOC DISCUSSING DIRECT PURCHASES OF LOCAL GOVT BONDS: MNI
- *PBOC IS DISCUSSING UNCONVENTIONAL POLICIES: MNI
Bloomberg adds more, citing MNI as saying that the Chinese central bank discussing “adopting unconventional policies to rebuild its balance sheet and reinvigorate economy, including making direct purchases of local government bonds from market.”
Of just as we predicted.
…click on the above link to read the rest of the article…
Why The Record Drop In Chinese House Prices Suggests Beijing Is Already In A Recession
Why The Record Drop In Chinese House Prices Suggests Beijing Is Already In A Recession
Another month, and another confirmation that China’s hard landing is if not here, then likely mere months away.
Overnight, the NBS reported that in March, Chinese house prices dropped in 69 of 70 cities compared to a year ago. According to Goldman’s seasonal adjustments, in March home prices dropped another 0.5% from February, the same as the prior month’s decline, suggesting that theFebruary 28 rate cut hasn’t done much to boost housing spirits.
However, it is the annual data that truly stands out, because with a drop of 6.1% this was the biggest drop in Chinese house prices in history.
To be sure, the PBOC is now scrambling to halt what, unless it is stopped, will become a full-blown hard landing in months, if it isn’t already. As a result, as shown in the chart below it has recently engaged in several easing steps, with many more to come according to the sell-side consensus. So far these have failed to stimulate the overall economy, which continues to be pressured by a deflation-importing world, but have certainly lead to a massive surge in the Chinese stock market.
…click on the above link to read the rest of the article…
Why The Mania Is Getting Scary—-Central Bankers Are Running A Doomsday Machine
Why The Mania Is Getting Scary—-Central Bankers Are Running A Doomsday Machine
If you need evidence that we are in the midst of a lunatic financial mania, just consider this summary from a Marketwatch commentator as to why markets are ripping higher this morning:
“The dovish comments from both Fed Chairwoman Janet Yellen and People’s Bank of China Governor Zhou Xiaochuan are giving markets a big lift, and in the absence of negative data or news, I imagine this will continue to buoy the markets throughout the session,” Erlam said in emailed comments.
Yellen said gradual hikes are likely this year, but that the central bank will movecautiously……. the PBOC governor said he saw “more room” for China to ease policy if the economy stays soft and inflation continues to weaken.
Its just that frightfully simple. If any of the major central banks anywhere on the planet ease or even hint they might, the robo machines and day traders unleash an avalanche of buy orders and the stock averages jerk higher.
Indeed, Zero Hedge captured the motion succinctly this AM. In keeping with Bernanke’s inaugural blog revelation that 98% of monetary policy consists of “open mouth” operations, the markets leapt upwards on cue. That is, if central banker jaws are flapping, then buy!
…click on the above link to read the rest of the article…
How Many More “Saves” Are Left in the Central Bank Bazookas?
How Many More “Saves” Are Left in the Central Bank Bazookas?
Very few, it seems
The master narrative of the global economy shifted six years ago from “China will push global growth for decades to come” to “the central banks can push global growth for decades to come.”
Time after time we’ve witnessed enfeebled global markets jolted out of terminal declines by central bank pronouncements and new money-printing policies. Never mind that the European Central Bank’s (ECB) Mario Draghi had no concrete proposals in hand when he announced the ECB would “do whatever it takes” to save the European Union from the financial consequences of its reckless abandonment of risk management; the mere announcement was enough to trigger a massive reversal in global markets.
The major central banks have tag-teamed one rally in global stock and bond markets after another: the U.S. Federal Reserve goosed markets in 2008, 2009, 2010, 2011, 2012 and 2013, only ending its various quantitative easing (QE) money-emitting programs in late 2014.
The ECB saved the day with Draghi’s “whatever it takes” PR gambit and more recently with its own QE money-printing program.
The Bank of Japan (BOJ) injected monetary amphetamines into global markets with Abenomics, a last-ditch effort by the BoJ and the government of Japan to crush the value of the Japanese yen and import inflation.
The People’s Bank of China (China’s central bank) has kept the credit spigot open wide for years, unleashing one of the greatest credit expansions in recent history.
…click on the above link to read the rest of the article…
