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To Problems With China’s Financial System, Add the Bond Market

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SHANGHAI — Keith Bradsher Chinese officials cheered on the country’s stock market when it reached heady new highs, offering hope that it could become a new source of money to fix China’s economic problems. Then, last year, the market crashed.

“China is struggling with its own balancing act. The Chinese bond slump also stems from Beijing’s efforts to wring excess money from its financial system and to stop potential bubbles that may lurk in shadowy, hard-to-track corners of its economy. Should it continue with those efforts, bonds could fall further.”

Now another fast-growing part of China’s vast and increasingly complicated financial market is showing signs of distress: its $9 trillion bond market.

Prices for government and corporate bonds have tumbled over the past week, a sell-off that continued on Tuesday. The situation has spooked investors, prompting the government to temporarily restrain some trading and to make emergency loans to struggling financial institutions.

“The adjustment has not yet finished. It will continue and normalize until money is put where the government can see it.”

— Miao Zuoxing, a partner at the FXM Brothers Fund

The price drops have resulted in higher borrowing costs at a time when more Chinese companies need the money to cope with slowing economic growth. Yields reached new highs again on Tuesday.

In part, China is reacting to financial shifts across the globe. With the Federal Reserve raising short-term interest rates and many expecting the presidency of Donald J. Trump to lead to heavier government spending, investors worldwide are selling bonds.

“Due to recent, relatively large market fluctuations, our company decided to cancel the issue of the current bond, and will reissue it at a chosen time.”

— Jiangsu Sumec Group

But China is struggling with its own balancing act. The Chinese bond slump also stems from Beijing’s efforts to wring excess money from its financial system and to stop potential bubbles that may lurk in shadowy, hard-to-track corners of its economy. Should it continue with those efforts, bonds could fall further.

“The adjustment has not yet finished,” said Miao Zuoxing, a partner at the FXM Brothers Fund, a Shanghai-based investment fund that trades stocks, bonds and futures. “It will continue and normalize until money is put where the government can see it.”

At least 40 companies have said they would postpone or cancel bond offerings rather than risk being forced to pay high interest rates to sell the bonds — or being unable to sell them at all. Among them was the Jiangsu Sumec Group Corporation, an industrial trading house that exports items as varied as gardening tools and auto parts; the company said on Thursday that it would not go through with the sale of $130 million in short-term bonds.

“Due to recent, relatively large market fluctuations, our company decided to cancel the issue of the current bond,” Jiangsu Sumec Group said in a statement, “and will reissue it at a chosen time.”

China has particular reason to worry. As the world’s second-largest economy, after the United States, it relies on a rickety financial system that is mired in debt and susceptible to hidden stresses. Higher overseas interest rates could also prompt more Chinese investors to move their money out of the country, either to chase higher returns elsewhere or to avoid what some see as China’s growing problems.
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Tighter Monetary Policy Signal Spooks Markets, Global Stock Selloff Continues

Loose Money Party Peaks, Hangover Anticipation Looms.

Rica Gold reports: Global stocks started the week sharply lower amid concerns about tighter monetary policy, resuming declines that have halted two months of calm summer trading.
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“Central banks get most of the credit for the calm and upward-moving market over the summer, but I don’t think we can depend on that going forward.”

— Jeff Layman, chief investment officer at BKD Wealth Advisors

Markets in Europe and Asia retreated Monday amid signs the world’s central banks will be less accommodative than previously expected.APPROVED-non-stop-panic

“Bourses in Asia closed with steep declines, with shares in Hong Kong off around 3.3%, Shanghai down 1.9%, Japan down 1.7% and Australia down 2.2%.”

“Central banks get most of the credit for the calm and upward-moving market over the summer, but I don’t think we can depend on that going forward,” said Jeff Layman, chief investment officer at BKD Wealth Advisors.

The Stoxx Europe 600 shed 1.9% early in the session, while futures pointed to a 0.6% opening loss for the S&P 500 after its biggest daily drop since the U.K.’s EU referendum.

Bourses in Asia closed with steep declines, with shares in Hong Kong off around 3.3%, Shanghai down 1.9%, Japan down 1.7% and Australia down 2.2%.

The Federal Reserve Building in Washington, U.S. There are heightened expectations for an interest rate rise by the Fed later this year.

The Federal Reserve Building in Washington, U.S. There are heightened expectations for an interest rate rise by the Fed later this year. Photo: Reuters

Stocks and long-dated government bonds sold off on Friday after comments from Federal Reserve Bank of Boston President Eric Rosengren heightened expectations for an interest rate rise later this year. Read the rest of this entry »


Japan to Print Additional ¥10,000 Bills as More People Hoard Cash at Home 

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The Finance Ministry plans to increase the number of ¥10,000 bills in circulation, amid signs that more people are hoarding cash.non-stop-panic-4

It will print 1.23 billion such notes in fiscal 2016, 180 million more than a year earlier. The number of ¥10,000 bills issued annually leveled off at around 1.05 billion in the fiscal years from 2011 to 2015.

Some financial market sources believe it is because more people are keeping their money at home rather than in banks, because interest rates on deposits have fallen to almost zero after the Bank of Japan introduced a negative interest rate in February.

The total amount of cash stashed at home is estimated to have surged by nearly ¥5 trillion to some ¥40 trillion in the past year, Hideo Kumano, chief economist at Dai-ichi Life Research Institute, said. Read the rest of this entry »


Slowdown in Chinese Manufacturing Deepens Fears for Economy

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Factory activity cools for fifth month running as overseas demand for Chinese goods continues to fall

A further slowdown in China’s vast manufacturing sector has intensified worries about the year ahead for the world’s second largest economy.

“Against the backdrop of a faltering global economy, turmoil in the country’s stock markets and overcapacity in factories, Chinese economic growth has slowed markedly. The country’s central bank expects growth in 2015 to be the slowest for a quarter of a century.”

The latest in a string of downbeat reports from showed that activity at China’s factor ies cooled in December for the fifth month running, as overseas demand for Chinese goods continued to fall.

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Against the backdrop of a faltering global economy, turmoil in the country’s stock markets and overcapacity in factories, Chinese economic growth has slowed markedly. The country’s central bank expects growth in 2015 to be NON-STOP-PANIC-EXthe slowest for a quarter of a century.

After growing 7.3% in 2014, the economy is thought to have expanded by 6.9% in 2015 and the central bank has forecast that it may slow further in 2016 to 6.8%.

A series of interventions by policymakers, including interest rate cuts, have done little to revive growth and in some cases served only to heighten concern about China’s challenges.

Friday’s figures showed that the manufacturing sector limped to the end of 2015. The official purchasing managers’ index (PMI) of manufacturing activity edged up to 49.7 in December from 49.6 in November.

The December reading matched the forecast in a Reuters poll of economists and marked the fifth consecutive month that the index was below 50, the point that separates expansion from contraction. Read the rest of this entry »


Greek Newspapers Running Out of Paper; Emergency Plans Underway to Substitute Delicious Surplus Layers of Baked Filo Dough

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ATHENS (Reuters) – Lefteris Karagiannopoulos reports: With banks shut and the economy seizing up, some Greek newspapers like the Empros daily on the island of Lesvos are running out of paper and could be forced to stop sales altogether until the banks open again.

“There is a definite problem with paper supply. Our supplier can’t provide us with it, as it is stuck in customs. He can’t pay the foreign suppliers, as bank transfers are blocked and there’s very little cash to continue operations”.

Empros chief executive Manolis Manolas

The island’s biggest selling newssheet, Empros has already reduced the number of pages to 16 from 20 and its chief executive Manolis Manolas hopes he won’t have to make further cuts as the country’s cash crunch worsens. Greek banks have been shut for almost two weeks after capital controls were imposed.

A man reads newspaper headlines in Athens, Greece July 8, 2015.  REUTERS/Alkis Konstantinidis

“There is a definite problem with paper supply,” Manolas told Reuters by phone. “Our supplier can’t provide us with it, as it is stuck in customs. He can’t pay the foreign suppliers, as bank transfers are blocked and there’s very little cash to continue operations”.

“The newspaper you hold in your hands numbers only 32 pages because the stock of printing paper will last for just a few days and it will not be possible to get a fresh supply through customs because of the bank holiday.”

Curbs on money withdrawals and transfers have made life miserable for millions of Greeks, whose government was scrambling on Thursday to devise a new set of proposals for a bailout with its creditors to stave off imminent bankruptcy.

Phyllo-Dough

Filo (or phyllo) (Greek: φύλλο ‘leaf’) is a kind of very thin unleavened dough used for making pastries such as baklava and börek in Middle Eastern and Balkan cuisinesFilo-based pastries are made by layering many sheets of filo brushed with melted butter; the pastry is then baked.

As well as reporting on the capital controls introduced at the end of June – queues outside banks and cash machines are now a daily sight in Greece – the media also became a victim of them. Read the rest of this entry »


Greek Banks Prepare Plan to Raid Deposits

ATHENS – Kerin Hope reports: IGreek banks are preparing contingency plans for a possible “bail-in” of depositors amid fears the country is heading for financial collapse, bankers and businesspeople with knowledge of the measures said on Friday.panic-betty

The plans, which call for a “haircut” of at least 30 per cent on deposits above €8,000, sketch out an increasingly likely scenario for at least one bank, the sources said.

A Greek bail-in could resemble the rescue plan agreed by Cyprus in 2013, when customers’ funds were seized to shore up the banks, with a haircut imposed on uninsured deposits over €100,000.

It would be implemented as part of a recapitalisation of Greek banks that would be agreed with the country’s creditors — the European Commission, International Monetary Fund and European Central Bank.

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“It [the haircut] would take place in the context of an overall restructuring of the bank sector once Greece is back in a bailout programme,” said one person following the issue. “This is not something that is going to happen immediately.”

Eurozone officials said no decision had been taken to wind up any Greek banks or initiate a bail-in of depositors, a process that would be started by the ECB declaring the banks insolvent or pulling emergency loans.

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Greece’s banks have been closed since Monday, when capital controls were imposed to prevent a bank run following the leftwing Syriza-led government’s call for a referendum on a bailout plan it had earlier rejected. Greece’s highest court rejected an appeal by two citizens on Friday who had asked for the referendum to be declared unconstitutional.

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Depositors can withdraw only €60 a day from bank ATM cash machines, while requests to transfer funds abroad have to be approved by a special finance ministry committee in co-operation with the Greek central bank. Read the rest of this entry »


OH YES THEY DID: S&P Lowers #Greece Credit Rating to CCC – Junk Status

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‘Blockupy’ Protests Break Out in Frankfurt as ECB Opens New Building

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FRANKFURT—Scattered incidents of violence broke out Wednesday across Germany’s financial capital alongside demonstrations against austerity timed to the inauguration of the European Central Bank’s new headquarters.

While most parts of Frankfurt remained peaceful, a policeman on patrol said some police cars had been set on fire and some protesters burned tires. Police used water cannon on some protesters.

‘European unity is being strained. People are going through very difficult times.’

—ECB President Mario Draghi

ECB President Mario Draghi defended the bank’s policies at the inauguration ceremony, warning that moving toward more isolation and nationalization wouldn’t solve Europe’s problems.

“European unity is being strained. People are going through very difficult times,” Mr. Draghi said in prepared remarks at the inauguration. Read the rest of this entry »


IMF Chief Charged with ‘Negligence’ over Graft Case

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IMF chief Christine Lagarde, one of the world’s most powerful women, announced Wednesday she had been charged with “negligence” over a multi-million-euro graft case relating to her time as French finance minister.

“The investigating commission of the court of justice of the French Republic has decided to place me under formal investigation.”

— IMF chief Christine Lagarde

The shock announcement came a day after she was grilled for more than 15 hours by a special court in Paris that probes ministerial misconduct, the fourth time she has been questioned in a case that has long weighed upon her position as managing director of the International Monetary Fund.

“The investigating commission of the court of justice of the French Republic has decided to place me under formal investigation,” she said in exclusive comments to AFP.

In France, being placed under formal investigation is the nearest equivalent to being charged, and happens when an examining magistrate has decided there is a case to be answered. Read the rest of this entry »


Sacré Bleu! Socialism in France as Unpopular as ‘Progressivism’ is in U.S.: Hollande Approval Ratings Freeze Over in Midterm French Poll

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Half-way into his five-year mandate the popularity of French President Francois Hollande hit a new low on Thursday, hours before the Socialist leader addresses the nation to defend his shaky record on the economy.

“The absence of a clear vision and lack of coherence in economic policies is weighing on confidence and therefore investment and economic activity.” 

— CEO Jean-Paul Chifflet

In the worst score for a president in modern-day polling, Hollande received a 12 percent approval rating in the monthly survey by pollster YouGov, down 15 percent from the prior month. Other recent polls have put his popularity at 13 percent.

[Also see: François Hollande a Lying Socialist who ‘Doesn’t Like the Poor,’ says Ex-Girlfriend]

Earlier the chief executive of France’s third-largest bank, Credit Agricole, slammed Hollande’s government for its uncertain efforts to kickstart the eurozone’s second largest economy. Read the rest of this entry »