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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 »

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GLOBAL PANIC UPDATE: China Halts Stock Trading After 7% Rout Triggers Circuit Breaker

Chinese stock exchanges closed early for the second time this week after the CSI 300 Index plunged more than 7 percent.panic-betty

Chinese stock exchanges closed early for the second time this week after the CSI 300 Index plunged more than 7 percent.

Trading of shares and index futures was halted by automatic circuit breakers from about 9:59 a.m. local time. Stocks fell after China’s central bank weakened the currency’s daily reference rate by the most since August.

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“The yuan’s depreciation has exceeded investors’ expectations,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co. “Investors are getting spooked by the declines, which will spur capital outflows.”

Under the mechanism which became effective Monday, a move of 5 percent in the CSI 300 triggers…(read more)

Source: Bloomberg Business


Circuit Breaker! China Halts Stock Market Fall 

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Yifan Xie and Shen Hong report: China’s stock market regulator announced last month that come the New Year it would introduce a circuit breaker–a forced pause to trading–if shares fell too precipitously. On the first trading day of the year, officials had to reach for the newly installed system, twice.

 “The U.S. adopted the circuit breaker system in 1988, and it was only triggered once. The history of China’s circuit breaker is one day, and we’ve triggered it twice.”

An index of the 300 biggest stocks listed in Shanghai and Shenzhen plunged Monday, triggering the circuit breaker and leading first to one 15-minute pause in trading and then a second halt, which closed the markets for the remainder of the day 80 minutes earlier than scheduled.

“Excessive interference with trading will affect market efficiency and become counter-productive.”

— Chief economist Lin Caiyi

The markets opened in negative territory and stayed there as a flurry of bad news arrived: a weaker-than-expected gauge of manufacturing activity and a further slide in the value of the country’s currency. Adding to the bearish mood are worries among investors about the lapse this Friday of a six-month ban on selling shares by major shareholders–those holding 5% stakes or larger in a listed company. The ban was imposed in July last year to stem a meltdown in the stock markets, and its end may lead to more selling.

An investor at a brokerage firm in the Chinese city of Heifi on Wednesday. Individual investors who began selling in mid-June helped unleash a downward spiral of more selling. Photo: Reuters

Markets turned critical 12 minutes into the afternoon session, as the CSI 300 Index fell 5%, prompting the 15-minute suspension. Six minutes after trading resumed, at 1:27 p.m.,the hemorrhaging continued. The CSI 300 index dived further, hitting a 7% limit and bringing the trading day to an end.

[Read the full story here, at China Real Time Report – WSJ]

At the close at 1:34 p.m, the Shanghai Composite Index slumped by 6.9% at 3296.66, and the smaller Shenzhen Composite Index shed 8.2% at 2119.90.

Caught off guard by the plunge, traders speculated that the securities regulator was conducting a test of the new circuit breaker mechanism. Read the rest of this entry »


China Police ‘Summon 11 Over Stock Market Activities’

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Shanghai (AFP) – Chinese police have summoned 11 people including a financial journalist to assist investigations related to illegal stock market activities, state media reported, as the government targets volatility on the exchanges.

The Chinese government launched an unprecedented rescue package as the stock market plummeted 30 percent from mid-June, which included a crackdown on short-selling and funding a state company to buy shares on its behalf.

Authorities have accused a Caijing magazine journalist of allegedly colluding with others to manufacture and spread false information on securities and futures trading, the official Xinhua news agency reported late Tuesday.

The magazine confirmed journalist Wang Xiaolu was subpoenaed by police but defended his actions.

Wang wrote a story in July saying the securities regulator was studying plans for government funds to exit the market. Read the rest of this entry »


Shoddy Chinese-Made Stock Market Collapses

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China’s stock market, a crude knockoff of Western versions, was practically slapped together overnight and featured countless obvious structural weak points.

“Sure, it looked fine from the outside, but anybody who saw it up close knew that it was of such poor quality that it wasn’t built to last.”

SHANGHAI—Proving to be just as flimsy and precarious as many observers had previously warned, the Chinese-made Shanghai Composite index completely collapsed Monday, sources confirmed. Read the rest of this entry »


May You Live In Interesting Times

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The latest drastic step by Beijing is a six-month ban on stock sales by controlling shareholders and executives who own more than 5% of a company’s shares. Any violation of the rule, announced Wednesday night, would be ‘treated seriously’

Shen Hong and Lingling Wei report: Since the last week of June, the Chinese government has intervened in the country’s stock markets nearly every day to stop their steep slide. But the harder NON-STOP-PANIC-EXChinese authorities try, the more it looks like they are losing control.

The Shanghai Composite Index fell 5.9% on Wednesday and is down nearly one-third from its peak on June 12. Since then, $3.5 trillion in value has been erased from companies in the benchmark index—or nearly five times the size of Apple Inc.

China’s bond market and currency also began to get hit Wednesday as worries deepened that a contagion from stock-market losses could further trammel the country’s slowing economy. It felt even more ominous because Chinese officials had rushed out another raft of emergency measures earlier Wednesday to reassure the market.

An investor at a brokerage firm in the Chinese city of Heifi on Wednesday. Individual investors who began selling in mid-June helped unleash a downward spiral of more selling. Photo: Reuters

An investor at a brokerage firm in the Chinese city of Heifi on Wednesday. Individual investors who began selling in mid-June helped unleash a downward spiral of more selling. Photo: Reuters

The moves only heightened what is turning into an epidemic of anxiety among Chinese investors and a crisis of confidence in their leaders. Stocks were volatile early Thursday.

“The more the government intervenes, the more scared I am,” said Li Jun, who runs a fishing and restaurant business in the eastern city of Nanjing. He has spent about 3 million yuan, roughly wsj-chart$500,000, on stocks, using borrowed money for about one-third of the total.

Mr. Li has sold some of his investments every time the market “popped up a little” following a rescue announcement by the Chinese government. “I have no faith” in its ability to halt the losses, he says. Wednesday’s drop left the Shanghai index down 32% from its peak and at its lowest level since March.

The latest drastic step by Beijing is a six-month ban on stock sales by controlling shareholders and executives who own more than 5% of a company’s shares. Any violation of the rule, announced Wednesday night, would be “treated seriously,” China’s securities regulator said.

Early Thursday, China’s central bank said it has provided “ample liquidity” to a company owned by the country’s top securities regulator. The company is lending the funds to securities firms, which then will use the money to buy stocks.

The Chinese government has been praised for driving decades of economic growth and keeping the economy strong during the global financial crisis. In recent years, Chinese authorities have struggled with rising debt levels and the need to reform the economy away from government-driven infrastructure programs and toward consumer spending.

As it fought slower growth and a weakening real-estate market, the government turned its attention to the country’s languishing stock markets.

But Beijing’s inability to stop the recent decline has rattled investors who have long been used to seeing the government use its power to control markets.

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“Beijing’s latest bid to calm the market has had the opposite effect,” said Bernard Aw, market analyst at IG Group. “The panic is spreading, and authorities appear to be grasping at straws to hold back the tide.”

[Read the full text here, at WSJ]

U.S. Treasury Secretary Jacob Lew played down the possible world-wide impact of China’s stock-market mess, though he expressed worry that it could restrain the country’s longer-term growth if Beijing slows its promised economic overhauls. Read the rest of this entry »


Chinese Stock Market Chaos Could Be Worse Than Greek Debt Crisis: ‘The Disorder Could Be Monstrous’

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While the world worries about Greece, there’s an even bigger problem closer to home: China

A stock market crash there has seen $3.2 trillion wiped from the value of Chinese shares in just three weeks, triggering an emergency response from the government and warnings of “monstrous” public disorder.

“If China does not find support today, the disorder could be monstrous.”

And the effects for Australia could be serious, affecting our key commodity exports and sparking the beginning of a period of recession-like conditions.

“State-owned newspapers have used their strongest language yet, telling people ‘not to lose their minds’ and ‘not to bury themselves in horror and anxiety’. [Our] positive measures will take time to produce results,” writes IG Markets.

“All short-selling — the practice of betting that stocks will fall — has been banned, and Chinese media has rushed to reassure citizens.”

“If China does not find support today, the disorder could be monstrous.”

In an extraordinary move, the People’s Bank of China has begun lending money to investors to buy shares in the flailing market. The Wall Street Journal reports this “liquidity assistance” will be provided to the regulator-owned China Securities Finance Corp, which will lend the money to brokerages, which will in turn lend to investors.

The dramatic intervention marks the first time funds from the central bank have been directed anywhere other than the banks, signalling serious concern from authorities about the crisis.

At the same time, Chinese authorities are putting a halt to any new stock listings. The market regulator announced on Friday it would limit initial public offerings — which disrupt the rest of the market — in an attempt to curb plunging share prices.

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“The market crash there is generating headlines, but it’s not going to have the same impact as a comparable crash would in a developed market.”

While the exact amount of assistance hasn’t been revealed, the WSJ reports no upper limit has been set.

All short-selling — the practice of betting that stocks will fall — has been banned, and Chinese media has rushed to reassure citizens.

Yesterday, shares in big state companies soared in response to the but many others sank as jittery small investors tried to cut their losses, Associated Press reports. The market benchmark Shanghai Composite closed up 2.4 percent but still was down 27 percent from its June 12 peak.

Experts fear it could turn into a full-blown crash introducing even more uncertainty into global markets as Europe teeters on the edge of a potential eurozone exit by Greece, after Sunday’s controversial referendum.

For Australia, the market crash in China is likely to impact earnings on key exports iron ore and coal, further slashing government revenue, while also putting downward pressure on the Australian dollar.

Jordan Eliseo, chief economist with ABC Bullion, said it was important to remember that the amount of wealth Chinese citizens have tied up in the stock market is relatively minor compared with western investors.

Stocks only make up about 8 per cent of household wealth in China, compared with around 20 per cent in developed nations. Read the rest of this entry »