what is happening in the financial markets?

Krisis Finansil Cina: Perspektif Kebijakan Moneter, Corporate Finance (Analisa Laporan Keuangan), dan Investment Banking (Valuasi Nilai)
oleh : Sando Sasako
Jakarta, 28 Maret 2016

ISBN 978-602-73508-5-4

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Krisis Finansil Cina
 


Daftar Isi

Kata Pengantar iii
Kata Pengantar dalam buku ‘Corporate Financing’ v

Daftar Isi vii
Daftar Tabel x
Daftar Bagan xi

Pendahuluan 1
Masalah Pengukuran 1
Data, Informasi, Fakta 2
Data Mining 4
Pemilahan Data 5
Business Intelligence 7
Analisa Kuantitatif 8
Analisa Data 8
Self-Organising Map 9
Hambatan bagi Efektivitas Analisa Data 11
Confirmatory Data Analysis 11

Analisa Finansil 11
Standar Akuntansi Keuangan (PSAK, GAAP, IFRS) 12
Peran Perusahaan Audit dalam PSAK 12
Analisa Finansil sebagai Alat Ukur Kinerja Keuangan 12
Analisa Fundamental 13

Rasio-rasio Finansil 14
Pertumbuhan 14
Produktivitas 14
Kontribusi terhadap Stakeholder 14
Dividend Policy Ratios 14

Rasio-rasio Aktivitas Usaha 15
Perputaran aset (asset turnover) 15
Perputaran aset rata-rata (asset turnover) 15
Rasio perputaran aset tetap (fixed assets turnover) 15
Perputaran piutang (receivables turnover) 16
Rata-rata periode penagihan (average collection period) 16
Perputaran inventaris (inventory turnover) 16
Periode inventaris (inventory period) 16

Rasio-rasio Likuiditas 17
Rasio lancar (current ratio, CR) 17
Rasio modal kerja (working capital ratio) 18
Rasio cepat (quick ratio, QR) 18
Rasio kas (cash ratio) 18
Pendapatan lancar (current income) 19
Rasio pendapatan bunga (Time Interest Earned, Interest Coverage) 19
Rasio investasi terhadap kebijakan (investment to policy ratio) 19
Rasio utang lancar terhadap inventaris (current debts to inventory ratio) 19

Rasio-rasio Profitabilitas 19
Marjin laba kotor (gross profit margin) 20
Marjin laba bersih (net profit margin) 20
Return on Equity (ROE) 20
Return on Asset (ROA) dan Return on Capital Employed (ROCE) 20
Return on Capital (ROC) dan Return on Invested Capital (ROIC) 21
Return on Investment (ROI) 21
Beban bunga (Interest Coverage, Times Interest Earned) 22
Beban finansil (financial leverage) 22
Efisiensi beban finansil (efficiency of financial leverage) 22

Rasio-rasio Struktur Modal 23
Rasio utang terhadap modal (debt to equity ratio) 23
Rasio kapitalisasi (capitalisation ratio) 24
Tingkat pertumbuhan ekuitas (equity growth rate) 24
Beban finansil (financial leverage) 24
Rasio utang (debt ratio) 24
Rasio modal saham terhadap aset tetap bersih 24
Rasio utang lancar terhadap modal saham (Current Debts to Net Worth Ratio) 24
Rasio kewajiban total terhadap modal saham (Total Liabilities to Net Worth Ratio) 25
Rasio aset tetap terhadap modal saham (Fixed Assets to Net Worth Ratio) 25

Rasio-rasio Kecukupan Modal 25

Solvabilitas 25
Solvency ratio (SR) 26
Rasio utang terhadap aset (Debt to Asset Ratio, DAR) 26
Rasio utang terhadap modal (Debt to Equity Ratio, DER) 26
Kemampuan laba menutup biaya tetap (Fixed Charge Coverage). 26
Rasio pinjaman terhadap aset (Loan to Asset Ratio, LAR) 27
Rasio pinjaman terhadap simpanan (Loan to Deposit Ratio, LDR) 27

Risks vs Rewards 27
Risiko Mencari Keuntungan 28
Efek Domino Risiko 29
Rent-Seeking Behaviours 30

When the Deal Slips Away 32
Indikator Kesulitan Finansil 34
Indeks Kerentanan 36
Stress Test 38
Indeks Stabilitas Sistem Keuangan 40
Financial Stability Index 43
Indeks Kesehatan Finansil ala IMF 44
Laporan Stabilitas Finansil Global ala IMF 48
Operasi Moneter 48
Inflasi Terencana sebagai Prasyarat Kestabilan Finansil 50

Dinamika Pasar Finansil 52
Dinamika Aset Finansil 53
Kerapuhan Sistem Finansil 54

Krisis Finansil 55
Menelikung Krisis Finansil 56
Kasus LTCM 57
Krisis Subprime Mortgage 60
Kasus Lehman Brothers 63
Krisis Eurozone 64
Spiral Kekacauan Krisis Eurozone 65
Debt Exposures of PIGS 66
AS 68
Inggris 69
Jerman 69
Perancis 70
Jepang 71
Yunani 72
Irlandia 73
Italia 74
Portugis 74
Spanyol 75
Some PIGS are More PIGS 76
Krisis Finansil Cina 77
Kenapa Cina menjadi begitu penting? 78
Bermain dengan nilai tukar 81
Pasar CNH 82
Dominansi nilai tukar CNH terhadap CNY 87
Qualified Foreign Institutional Investor 90
Renminbi Qualified Foreign Institutional Investor 90
Qualified Domestic Institutional Investor 91
Qualified Domestic Individual Investor 91
Shanghai-Hong Kong Stock Connect 91
Pilot Free Trade Zones 91
Mainland-Hong Kong Mutual Recognition of Funds 92
Kenapa pasar finansil Cina bisa crash? 92
Ketika gelembung finansil Cina mulai pecah 93
Pelonggaran likuiditas sebagai solusi ancaman resesi 94
Aksi pemadam kebakaran ala pemerintah Cina 96
Permasalahan fundamental ekonomi Cina 99
Beban utang Cina 101
Kebijakan dan otoritas moneter Cina 102
Pasar obligasi Cina 103
Obligasi Panda 105
Obligasi dim sum 106
Daftar emisi obligasi dim sum 108
Aksi pemerintah Cina terhadap masalah tunggakan utang 110

Policy and Politicisation 113
Primary Dealer 113
Solusi Teoritis, Bisa dan Benarkah? 116
Kebijakan Too Big To Fail 117
Cashless Solution 118
Minyak sebagai Mata Uang dan Sumber Kemakmuran 120
Negative Interest Rates Policy 125

Kas 129

Pengadaan Aset 130
Asset Investment 130
Asset Financing 131
Capital Expenditures 132
Menghitung Biaya Modal 134
Biaya utang 134
Biaya saham preferensi 134
Biaya laba ditahan 134
Biaya ekuitas eksternal 135
WACC 135
Biaya modal marjinal 136
Break point 136

Off-Balance Sheet Financing 136
Perubahan Portofolio The Fed 136
OBS sebagai Produk Inovasi Menyembunyikan Risiko Finansil 137
MBS sebagai Produk Rekayasa Finansil Penyebab Krisis 2008 139
Bencana Prilaku Berisiko Berlebihan 141
Bertaruh pada Aset Fiktif 142
Akuntansi OBS 144
Fleksibilitas Pasal Karet 145
Penyesuaian Pasal Karet 146
Memanfaatkan Celah Hukum 147

Equity Financing 148

Debt Financing 149

Struktur Modal 152
Teori Struktur Modal 153
Teori Pensinyalan 154
Struktur Modal dalam Praktek dan Realitas 155
Menghitung Tingkat Optimal Struktur Modal 155
Besar Beban Operasi 156
Analisis EBIT/EPS terhadap Efek Beban Finansil 157
Besar Beban Finansil 157
Besar Beban Total 158
Efek Struktur Modal terhadap Harga Saham dan Biaya Modal 159
Likuiditas dan Arus Kas 159

Struktur Finansil 160
Ukuran Optimal Beban/Struktur Finansil 161

Valuasi Nilai 162
Corporate Financing vs Investment Banking 163
Pentingnya Valuasi Nilai 164
Valuasi Usaha 164
Komponen Pendapatan 166
Komponen Neraca 167
Komponen Arus Kas 167

Time Value of Money 168
Future Value 169
Future Value Interest Factor for i & n 169
Present Value 169
Present Value Interest Factor for i & n 169
Future Value untuk Anuitas Biasa 169
Future Value Interest Factor untuk Anuitas Biasa 170
Future Value untuk Anuitas Awal 170
Present Value untuk Anuitas Biasa 170
Present Value Interest Factor untuk Anuitas Biasa 170
Present Value untuk Anuitas Awal 170
Present Value untuk Perpetuities 171
Present Value untuk Aliran Arus Kas Variabel 171
Future Value untuk Aliran Arus Kas Variabel 171
Future Value untuk Periode Semesteran atau lainnya 171
Amortisasi Pinjaman 172

Referensi 173
Web 173
e-book 177
Buku 180

Daftar Lampiran

Lampiran – Variabel yang umum dipakai sebagai ukuran stabilitas finansil 181
Jenis data yang digunakan dalam laporan stabilitas finansil beberapa bank sentral (AT-ES) 181
Jenis data yang digunakan dalam laporan stabilitas finansil beberapa bank sentral (GB-TR, ECB, IMF) 182
Variabel yang umum dipakai sebagai ukuran stabilitas finansil 183

Lampiran – Ukuran dan skenario dalam laporan stabilitas finansil global, Okt. 2015 185
Ukuran likuiditas 185
Ukuran utang korporasi di pasar emerging 187
Asumsi dalam skenario gangguan pada pasar aset global 189
Mekanisme transmisi kejutan dalam skenario gangguan pada pasar aset global 190
Asumsi dalam skenario normalisasi yang berhasil 191
Mekanisme transmisi kejutan dalam skenario normalisasi yang berhasil 192

Lampiran – Ukuran Kerentanan Finansil 193
Indikator valuasi risk appetite / aset 193
Indikator ketidakseimbangan non-finansil 194
Indikator kerentanan finansil 195
Indikator Kebijakan Macroprudential 196

Lampiran – Daftar Indikator dalam ISSK Bank Indonesia 197

Lampiran – Profil Cina 199

Lampiran – Jumlah (instrumen) utang Cina menurut emiten, domestik, nasional, internasional, 2015Q2-2015Q4 201

Daftar Tabel

Table 1 – Aktivitas M&A di business intelligence dengan nilai >$100 juta, 2009-2014q1 7
Table 2 – Beberapa indikator kebijakan macroprudential 36
Table 3 – Indikator pengukuran stabilitas sistem keuangan 42
Table 4 – Indikator utama kesehatan finansil ala IMF 45
Table 5 – Indikator tambahan (encouraged) bagi kesehatan finansil ala IMF 45
Table 6 – Indikator parsial dan bobot dalam indeks stabilitas perbankan Republik Ceko 47
Table 7 – Indikator kesehatan finansil ala ECS (Macro-Prudential Indicators) 47
Table 8 – Tiga skenario stabilitas finansil 48
Table 9 – Operasi moneter menurut standing facility 49
Table 10 – Pentingnya likuiditas yang lentur (resilient) 50
Table 11 – Penambahan likuiditas menurut jenis instrumen OPT 50
Table 12 – Penyerapan likuiditas menurut jenis instrumen OPT 50
Table 13 – Nilai ekspor dan impor AS-Cina untuk 5 produk utama, 2014-2015 (US$ juta) 100
Table 14 – Nilai ekspor dan impor AS-Cina untuk produk teknologi tinggi, 2015 (US$ juta) 100
Table 15 – PDB Cina, 2010-2014 dalam milyaran ¥ dan US$ 101
Table 16 – Nilai obligasi pemerintah dan korporasi di Cina, 2002-2015 (US$ milyar) 101
Table 17 – Buletin harga obligasi di pasar uang Hong Kong, 11 Maret 2016 107
Table 18 – Daftar 22 primary dealer di Amerika Serikat, 2014 114
Table 19 – Beberapa veteran primary dealer pilihan Bank Sentral Amerika 114
Table 20 – Daftar 19 primary dealer di Indonesia, 2014-2015 115
Table 21 – Nilai derivatif 25 bank terbesar di AS, Nov. 2015 (US$ milyar) 119
Table 22 – Ringkasan Perlakuan Transaksi Sekuritisasi menurut UK GAAP 145
Table 23 – Jenis data yang digunakan dalam laporan stabilitas finansil beberapa bank sentral (AT-ES) 181
Table 24 – Jenis data yang digunakan dalam laporan stabilitas finansil beberapa bank sentral (GB-TR, ECB, IMF) 182
Table 25 – Variabel yang umum dipakai sebagai ukuran stabilitas finansil 184
Table 26 – Ukuran likuiditas 186
Table 27 – Ukuran utang korporasi di pasar emerging 188
Table 28 – Asumsi dalam skenario gangguan pada pasar aset global 189
Table 29 – Mekanisme transmisi kejutan dalam skenario gangguan pada pasar aset global 190
Table 30 – Asumsi dalam skenario normalisasi yang berhasil 191
Table 31 – Mekanisme transmisi kejutan dalam skenario normalisasi yang berhasil 192
Table 32 – Indikator valuasi risk appetite / aset 193
Table 33 – Indikator ketidakseimbangan non-finansil 194
Table 34 – Indikator kerentanan finansil 195
Table 35 – Indikator Kebijakan Macroprudential 196
Table 36 – Daftar indikator pembentuk ISSK 197
Table 37 – Profil Singkat Cina 199
Table 38 – Indikator Ekonomi Cina, 2011-2017 200
Table 39 – Utang Cina menurut emiten, domestik, nasional, internasional, 2015Q2-2015Q4 202

Daftar Bagan

Figure 1 – Diagram alur hierarki DIKW (Data-Information-Knowledge-Wisdom) 3
Figure 2 – Kontinuum pemahaman dalam konteks DIKW 3
Figure 3 – Proses data mining 4
Figure 4 – Hubungan antara Data, Informasi, dan Intelijen 6
Figure 5 – Analisa eksplorasi data 9
Figure 6 – Taksonomi ketidakpastian 27
Figure 7 – Igloo ketidakpastian 28
Figure 8 – PV perusahaan berutang 32
Figure 9 – Skema indeks kerentanan dan komponennya 37
Figure 10 – Siklus pengawasan macroprudential 38
Figure 11 – Prasyarat bagi antisipasi dan pencegahan ketidakstabilan sistem finansil 39
Figure 12 – Hubungan antara stabilitas sistem finansil dan stabilitas moneter 39
Figure 13 – Keterkaitan antar-variabel dalam BAMBI (Banking Model of Bank Indonesia) 41
Figure 14 – Beberapa indikator pembentuk Indeks Stabilitas Sistem Keuangan (ISSK) 42
Figure 15 – Peran Bank Indonesia dalam menciptakan stabilitas moneter 49
Figure 16 – Bentuk interaksi antara BI, pempus, dan pemda dalam mengendalikan inflasi 51
Figure 17 – Perkembangan aktivitas perbankan internasional 52
Figure 18 – Aset Riel dan Aset Fiktif Bank-bank di AS, 1995–2000 58
Figure 19 – Nilai Derivatif dan Modal 25 Bank AS Ternama (US$ milyar) 59
Figure 20 – CDOs direpresentasikan dalam bentuk building blocks, The Big Short, 2015 60
Figure 21 – Pasar rumah di AS, 1989-2006 61
Figure 22 – Pemetaan proses penularan krisis finansil 2008 62
Figure 23 – Pinjaman sektoral dari Bank of England, 1997-2012 63
Figure 24 – Utang-piutang PIGS 67
Figure 25 – Utang AS ke 4 negara adidaya dan PIGS 68
Figure 26 – Utang Inggris ke 4 negara adidaya dan PIGS 69
Figure 27 – Utang Jerman ke 4 negara adidaya dan PIGS 70
Figure 28 – Utang Perancis ke 4 negara adidaya dan PIGS 71
Figure 29 – Utang Jepang ke 4 negara adidaya dan PIGS 71
Figure 30 – Utang Yunani ke 4 negara adidaya dan PIGS 72
Figure 31 – Utang Irlandia ke 4 negara adidaya dan PIGS 73
Figure 32 – Utang Italia ke 4 negara adidaya dan PIGS 74
Figure 33 – Utang Portugis ke 4 negara adidaya dan PIGS 75
Figure 34 – Utang Spanyol ke 4 negara adidaya dan PIGS 76
Figure 35 – Cadangan Devisa Cina, Des. 1999 – Jan. 2016 78
Figure 36 – Tiga Kekuatan Ekonomi Dunia 79
Figure 37 – Nilai perdagangan Cina dengan negara lain (impor + ekspor) 80
Figure 38 – Nilai tukar bilateral yuan terhadap 3 mata uang dunia, USD, ¥, dan €. 81
Figure 39 – Cadangan devisa Cina dan nilai tukar CNY dan CNH 83
Figure 40 – Selisih CNY dengan CNH, Agustus 2010-Januari 2016 83
Figure 41 – Selisih tajam antara CNY dan CNH berdampak pada lonjakan bunga antar-bank di bulan Januari 2016 84
Figure 42 – Intervensi pasar CNH bisa menyesuaikan bunga CNH dengan CNY, 20151110-20160126 85
Figure 43 – Pasar deposit CNH, Maret 2009 – Des. 2015 86
Figure 44 – Distribusi CNH menurut bank sentral (offshore yuan’s swap line), Nov. 2015 88
Figure 45 – Penyelesaian perdagangan dalam CNH, 2009Q3-2015Q4 89
Figure 46 – Pasar deposit CNH menurut negara, 2014 89
Figure 47 – Beberapa alternatif indikator pertumbuhan ekonomi Cina mengacu pada penurunan yang lebih besar (greater slowdown), 2010–2015 95
Figure 48 – Indeks Saham Gabungan Shanghai (SCI), Mei 2015 sampai 5 Februari 2016 97
Figure 49 – Indeks Saham Gabungan Shanghai, 1 Januari 2015 – 8 Maret 2016 98
Figure 50 – Triple policy trilemma 99
Figure 51 – Pasar obligasi Cina, 2003-2014 104
Figure 52 – Aktivitas perdagangan pasar sekunder obligasi Cina, 2000-2014 104
Figure 53 – Pangsa pasar obligasi Cina menurut jenis obligasi, Des. 2014 104
Figure 54 – Daftar emisi obligasi Panda, 20151010-20160121 106
Figure 55 – Emisi obligasi CNY, 2008-2015 111
Figure 56 – Emisi obligasi CNH, 2008-2015 111
Figure 57 – Asset backed securities di Cina, 2005-2014 112
Figure 58 – Peristiwa bersejarah dan harga minyak mentah, 1861-2014 (US$/b) 121
Figure 59 – Harga minyak mentah Brent (US$), 20040102-20160106 123
Figure 60 – Kelebihan pasokan minyak mentah dunia, 2012q3-2015q3 123
Figure 61 – Distribusi ladang produksi minyak shale AS, April 2015 124
Figure 62 – Suku bunga deposito dan pembiayaan ulang ECB, 2008-Maret 2016 127
Figure 63 – Prediksi nilai tengah suku bunga Federal Funds, Des. 2015-2019 127
Figure 64 – Federal funds target rata (%), 1983-2015 128
Figure 65 – Federal funds rate, 1 Juli 1954-18 Feb. 2016 128
Figure 66 – Skema sumber pendanaan perusahaan 130
Figure 67 – Factors adding to reserves and off balance sheet securities lending program 137
Figure 68 – Multiplikasi Penciptaan Aset Fiktif 143
Figure 69 – Klasifikasi struktur aset, struktur finansil, dan struktur kapital 161


20150824 Why the Stock Market Is So Turbulent
2016-02-11 08:22 AM

Economic Trends
Why the Stock Market Is So Turbulent
Neil Irwin @Neil_Irwin AUG. 24, 2015

Outside the New York Stock Exchange. The Dow Jones industrial average briefly fell more than 1,000 points in morning trading on Monday. Credit Spencer Platt/Getty Images

Last week, global financial markets were churning, but it really only mattered if you were an oil trader, a Chinese bureaucrat or a hedge fund manager.

Now it’s starting to get scary for everyone.

An 8.5 percent drop in the Shanghai Composite index in Monday’s trading session spread to financial markets across the world. In the United States, the broad Standard & Poor’s 500-stock index was down 3.9 percent by Monday’s close after a volatile trading day, after steeper declines in Asian and European stock markets. Price fell for oil and other commodities, and money rushed into the safety of United States Treasury bonds.

What’s fascinating is that there is no clear, simple story about what is different about the outlook now for interest rates, for United States and European corporate profits or for economic growth compared with one week ago, when the S.&P. 500 index was 10 percent higher.

Here’s how to make sense of what is a truly global story, stretching from the streets of Shanghai, where stock investing has become a middle-class sport in recent years, to the oil fields of both the Middle East and Middle America, to the hallways of power in the Federal Reserve in Washington.

Photo
Pedestrians in Tokyo looking at closing information for Tokyo’s Nikkei Stock Average, after stocks there ended down more than 4 percent, a six-month low. Credit Kimimasa Mayama/European Pressphoto Agency

This Started in China, but Is a Lot Bigger Than China

The immediate cause of the outburst of global volatility was China, where the sharp drop in stocks on Monday continued a rout that has been underway – with periodic pauses because of government interventions – all summer.

The Chinese economy is slowing, and the 38 percent drop in the Shanghai composite index since June 12 is indeed a huge number. There is no question that this giant economy is struggling with a transition from the investment-and-export-led boom of the last generation toward something more sustainable.

But a few facts make China’s problems a less than completely satisfying explanation for the turmoil across world markets. The Chinese stock market has risen sharply over the past year as millions of middle-class Chinese citizens took to making investments. Even after its steep drop this summer, the Shanghai index is down less than 1 percent for the year and still up 43 percent from one year ago.

Chinese Stocks Boom and Bust
The volatile Chinese stock market took an especially sharp decline in recent weeks.

Shanghai Composite Index, percent change from Aug. 22, 2014
Shanghai Composite Index, percent change from Aug. 22, 2014.png

There may be a more complex story for why a sharp drop in the Chinese market should cause bigger ripples in the global economy than the sharp gain over the six months that preceded it. The fact that the Chinese government has engaged in unprecedented steps to try to contain the stock market sell-off, to little avail, may suggest limitations on the power of even the mighty Chinese state.

In other words, the sell-off in Chinese stocks may not matter much in isolation. But it tells us much about the inability of Chinese leaders to bring the country’s economy in for a soft landing. And that is something scarier.

Other Emerging Markets Are Getting Hammered

Some of the key evidence for the “this is about more than China” story comes from other emerging markets, stretching from Malaysia to Mexico, that are also taking it on the chin. Their currencies and stock and bond prices have fallen sharply over the last week. Some of that drop most likely reflects exposure to the Chinese economy. But some of it reflects something bigger.

Call this the Taper Tantrum 3.0.

The original taper tantrum happened in June 2013. It is a cute name for what occurred when global financial markets collectively went berserk over the realization that the Fed was serious about tapering its program of quantitative easing – or put more plainly, that the Fed would wind down its injections of money into the financial system over time. There was a second, similar explosion of volatility in October 2014, as the Fed’s intentions to raise interest rates in 2015 became clearer.

In effect, the Fed’s easy money policies had led global investors to search for higher-yielding securities, which they found in many faster-growing emerging markets. Money gushed into these countries in search of better returns from 2010 until 2013, driving up asset prices.

But as the end of the era of cheap dollars has approached, that hot money has withdrawn – and created volatile spikes in interest rates and damage to those emerging economies. (Look at this presentation by Hyun Sung Shin of the Bank for International Settlements for a more detailed argument around how and why this happens).

Graphic – The Stock Market Loses 5 Percent In a Week: What Happens Next
A look at the last five times the stock market lost 5 percent in a week.
the-stock-market-loses-5-40452194863-master495.png

Falling Oil Prices Are a Cause and Effect

The turmoil in financial markets has had a particularly big impact of the price of commodities, including oil, the most economically significant commodity of them all.
Continue reading the main story

Multimedia Feature: Oil Prices: What’s Behind the Drop? Simple Economics

The price of a barrel of oil fell from around $60 in late June to under $40 on Monday. Over time, that will be good news for American and European energy consumers, but there are complex feedback loops that probably make the commodity sell-off both a cause and a result of the broader emerging markets panic.

When oil prices first plummeted in the second half of last year, there were widespread forecasts that the price drop would cause oil exploration to shutter around the world, helping keep the market in balance. Instead, American producers have kept up production, keeping supplies high despite lower prices.

Oil Prices Have Plummeted
Oil Prices Have Plummeted.png
One-month forward futures contract. Brent reflects prevailing oil price in Europe; W.T.I. the United States.
Source: Bloomberg

Here’s the feedback loop: The slowdown in China and other emerging markets lowers demand. High supplies and weak demand equals lower prices – which feeds back into weaker economic conditions for energy-producing countries like those in the Middle East, Latin America and Russia.

Then the Fed Makes Its Move

In the background of all of this is a crucial decision looming for the United States Federal Reserve. Fed officials have expressed confidence that the domestic economy is on track and that the time is right to raise interest rates after nearly seven years of keeping them near zero. It could make that move at its policy meeting on Sept. 16 and 17.

Fed officials have indicated a determination to base interest rates on what is most appropriate given the state of the American economy and not to overreact to fluctuations in markets. The latest volatility will test that resolve.

Futures markets are increasingly betting that the Fed will indeed hold off to assess the damage to the economy, if any, from the latest global financial strains. On Monday, the market priced in a 24 percent chance of a rate increase in September, compared with a 48 percent chance just a week ago.

And the value of the dollar on currency markets fell 1.6 percent on Monday (as measured by the dollar index) as investors priced in greater likelihood of the Fed’s keeping rates lower for longer.

Commentators have long accused the Fed of overreacting to the latest financial market moves, a complaint that makes Fed officials bristle; they argue they are making their decisions based on measures of the real economy like inflation and employment data. If markets remain volatile heading into the next meeting but economic data remains consistent with recent solid readings, that will make for a tough decision.

Of course, it is the Fed’s job to set policy based on where the economy is going, not where it has been. If markets keep falling, that could endanger American growth prospects. On the other hand, the Fed’s job isn’t to try to protect investors from the risks of a downturn.

And if the last few days have taught anything, it is that global markets will be poised for a big reaction, no matter what the central bank does.

The Upshot provides news, analysis and graphics about politics, policy and everyday life. Follow us on Facebook and Twitter. Sign up for our newsletter.

A version of this article appears in print on August 25, 2015, on page B4 of the New York edition with the headline: 4 Factors Help Explain Stock Market Tumult. Order Reprints| Today’s Paper|Subscribe


In the United States http://www.nytimes.com/2015/08/25/business/dealbook/daily-stock-market-activity.html
The Stock Market Loses 5 Percent In a Week: What Happens Next A look at the last five times the stock market lost 5 percent in a week. http://www.nytimes.com/interactive/2015/08/24/business/the-stock-market-loses-5-percent-in-a-week-what-happens-next.html
Market Turmoil: Part of the Problem: Stocks Are Expensive http://www.nytimes.com/2015/08/26/upshot/part-of-the-problem-stocks-are-expensive.html
Frank Masiello, a trader, reflected in his screen on the floor of the New York Stock Exchange on Monday. http://www.nytimes.com/2015/08/25/upshot/how-emotion-hurts-stock-returns.html


Thursday, 11 February 2016
20151112 Six Strange Things That Have Been Happening in Financial Markets
2016-02-11 08:38 AM
http://www.bloomberg.com/news/articles/2015-11-12/five-strange-things-that-have-been-happening-in-financial-markets
Six Strange Things That Have Been Happening in Financial Markets
Negative swap spreads, fractured repo rates, big moves, and much more.
Tracy Alloway, November 12, 2015 – 6:22 PM WIB

An Inside Look at Some Strange Wall Street Charts
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“May you live in interesting times” is sometimes said to be an ancient Chinese curse.

Interesting things have certainly been happening in the underpinnings of global markets-things that either run counter to long-standing financial logic, or represent an unusual dislocation in the “normal” state of market affairs, or were once rare occurrences but have been happening with increasing frequency.

Here’s a rundown.

1. Negative swap spreads

Source: Bloomberg

What’s new, and negative, and makes no sense? Swap spreads below zero, of course.

While the term may mean little to your average retail investor, swap spreads have become the talk of financial markets in recent weeks as they plumb historic lows and seemingly defy market logic.

At issue is the fact that swap rates-or rates charged for interest rate swaps-have dipped below yields on equivalent U.S. Treasuries, indicating that investors are charging less to deal with banks and corporations than with the U.S. government. Such a thing should never happen, as U.S. Treasuries theoretically represent the “risk-free” rate while swap rates are imbued with significant counterparty risk that should demand a premium.

That may have changed, however, as new financial market rules require interest rate swaps to be run through central clearing houses, effectively stripping them of counterparty risk and leaving just a minimal funding component. At the same time, funding costs for U.S. Treasuries are said to have gone up due to a host of post-financial crisis rules that crimp bank balance sheets (more on this later) causing costs to go up.

“The people who can arbitrage it away, their costs just went up a whole lot,” Amrut Nashikkar, a Barclays analyst, said in an interview. “We wouldn’t expect a dramatic reversal in the moves,” he added.

2. Fractured repo rates

Source: Barclays

The difference between different repo rates has been widening.

The repo market is the lubricant for the global financial system, allowing banks and investors to pawn their assets-typically U.S. Treasuries and other high-quality paper-in exchange for short-term financing.

While there used to be little distinction between the rates at which counterparties raised money against their U.S. Treasury collateral, there is now an increasing divergence. “You no longer have a single repo rate,” Joseph Abate, Barclays analyst, said in an interview last week. “The market itself is fracturing.”

You can see the trend in the above charts. The first shows the rate for General Collateral Financing trades (GCF) vs. the Bank of New York Mellon triparty repo rate. The second shows the GCF repo rate minus the rate that money market funds earn on their own U.S. Treasury repos. All are slightly different repo constructs against the same collateral, yet the difference between the rates paid on each has been widening.

Abate argues that much of this has to do with new regulation that requires banks to hold more capital against all their assets, regardless of their riskiness. The so-called supplementary leverage ratio makes it more expensive for banks to facilitate repo trades, placing more emphasis on quality of the counterparty and leading to ructions in rates. That is especially true at the end of financial quarters, when banks are encouraged to limit their leverage and “window dress” their balance sheets ahead of scrutiny from regulators and investors.

This odd occurrence might not mean much for markets right now, but it could come into play when the Federal Reserve finally moves to raise interest rates. Much of the central bank’s exit policy will rely on using a new overnight repo facility to withdraw excess liquidity from the financial system. “At a minimum, analysts and the Fed may need to be more precise when they refer to repo and fed funds,” Abate said.

3. Corporate bond inventories below zero

Source: Bloomberg

Analysts at Goldman Sachs made waves this week when they highlighted the fact that inventories of some corporate bonds held by big dealer-banks had gone negative for the first time since the Federal Reserve began collecting such data. That means big banks are now net short corporate bonds with a maturity greater than 12 months equivalent to $1.4 billion, bucking the longer-term trend of net positive positions.

The record-breaking event revived a flurry of concerns about so-called liquidity, or ease of trading, in the $8.1 trillion corporate bond market. Similar to the repo market, a confluence of new rules is said to have made it more difficult for banks to hold corporate bonds on their balance sheets. At the same time, years of low interest rates have encouraged investors to herd into corporate bonds and hold onto them tightly.

That has worried some people who fear a lack of liquidity could worsen turmoil in the market, especially if interest rates rise.

“I was somewhat of a contrarian about the liquidity worries, but the evidence is starting to pile up,” Charles Himmelberg, the Goldman analyst, told Bloomberg. “The trend reflects the rising cost of holding corporate-bond positions. This looks increasingly like a growing headwind that will be with us for some time.”

4. Synthetic credit is trading tighter than cash credit

Source: Barclays

Meghan Trainor may be “all about that bass,” but market participants are squarely focused on that basis.

Investors struggling to trade bonds amid an apparent dearth of liquidity have turned to a bevy of alternative products to gain or reduce exposure to corporate debt.

Such instruments include derivatives like credit default swap (CDS) indexes, total return swaps (TRS) and credit index swaptions. The rush for derivatives that are supposed to be more liquid than the cash market they track has produced another odd dislocation in markets.

Above is the so-called basis between the CDX IG, an index that includes CDS tied to U.S. investment-grade companies, and the underlying cash bonds. The basis has been persistently wide and negative in recent years, as spreads on the CDX index trade at tighter levels than cash.

“In exchange for the substantial liquidity of derivative indices, investors are often giving up spread right now, as most indices trade at a negative basis versus the comparable cash market,” Barclays’ Bradley Rogoff wrote in research published today. “The negative basis right now is near the largest we have witnessed at a time when there was not a funding crisis.”

Investors may be ogling such synthetic tools not just because of their purported liquidity benefits but also because of funding benefits, a similar dynamic to the one currently pushing swap spreads into negative territory.

“These dynamics are part of a broader pattern whereby cash bonds that require balance sheet financing underperform their synthetic counterparts (e.g. … CDX vs. corporate bonds),” Goldman Sachs’s Francesco Garzarelli and Rohan Khanna said today in reference to sub-zero swap spreads.

5. Market moves that aren’t supposed to happen keep happening

Source: BofAML

Much of Wall Street runs on mathematical models that abhor statistical anomalies. Unfortunately for the Street, such statistical anomalies have been happening more frequently, with short-term moves in many assets exceeding historical norms.

Barnaby Martin, a credit strategist at Bank of America Merrill Lynch, made this point earlier this year. The number of assets registering large moves-four or more standard deviations away from their normal trading range-has been increasing. Such moves would normally be expected to happen once every 62 years.

While Martin blamed much of the confusion on unexpected decisions by central banks-such as the Swiss National Bank’s surprise decision to scrap its long-standing currency cap-there have been sharp market moves with seemingly little reasons behind them. Perhaps the best-known example is Oct. 15, 2014, when the yield on the 10-year U.S. Treasury briefly plunged 33 basis points-a seven standard-deviation move that should happen once every 1.6 billion years, based on a normal distribution of probabilities.

Some market participants have also blamed lower market liquidity for the wild moves. At TD Securities, analysts Priya Misra and Gennadiy Goldberg argued that similar liquidity issues to the ones related to corporate bonds could also be extending into the $12.8 trillion U.S. Treasury market.

“The argument is that an unexpected macro event or large-size risk transfer has the potential of creating much larger market moves today compared with the past,” TD Securities analysts TD Priya Misra and Gennadiy Goldberg said in late September. “The taper tantrum and the Oct. 15, 2014, event where Treasury rates moved amid very little news would be some examples of these events in recent times.”

6. Volatility is itself more volatile

Source: Bloomberg

In October 2008, Lehman Brothers had just collapsed, interbank lending had ground to a halt, the repo market seized up, and the future of the entire financial system was in question. At that time, a measure of expected volatility in the Chicago Board Options Exchange Volatility Index, or the VIX, hit 134.87.

In August, 2015 the stock market fell 5.3 percent and the same measure of implied volatility in the VIX closed at 168.75, after reaching an all-time intraday record.

Whatever one’s opinions of the stock market selloff, you’d be hard-pressed to argue that global markets were more stressed in August than they were during the depths of the financial crisis. Instead, the vacillations in the VIX underscore a post-financial-crisis trend that has seen volatility explode into its own asset class.

A host of exchange-traded funds, futures, and derivatives products are now enjoyed by both big, professional fund managers and mom and pop retail investors. Meanwhile, some large investors have been pumping up their returns by selling volatility, with Pimco under Bill Gross perhaps the best-known example.

“The volatility market that exists today is much more complex than it used to be; ETFs, indices, futures, and options traded on all of the above have complex relationships that haven’t been fully tested,” George Pearkes, analyst at Bespoke Investment Group, said in an interview.

He added: “Eventually, as we saw in the wake of last August, equilibrium is found when dislocations occur. But getting there can be complicated. Volatility, in my view, hasn’t changed. What’s changed is how it’s warehoused and shifted.”

A similar sentiment could be applied to much of the market as it grapples with huge changes wrought on the financial system and its respective players. Markets, it seems, are living in interesting times indeed.

Editor’s note: This article has been updated to include another strange thing.


below zero http://www.bloomberg.com/news/articles/2015-09-24/it-s-all-perverted-now-as-u-s-swap-spreads-tumble-below-zero
become the talk of financial markets http://www.bloomberg.com/news/articles/2015-11-05/swap-spreads-have-fallen-and-they-can-t-get-up
repo market http://www.bloomberg.com/news/articles/2015-06-29/who-will-save-the-repo-market-barclays-has-a-few-ideas
end of financial quarters http://www.bloomberg.com/news/articles/2015-10-05/an-interesting-thing-happened-in-the-repo-market
overnight repo facility http://www.newyorkfed.org/markets/rrp_faq.html
withdraw excess liquidity http://www.bloomberg.com/news/articles/2014-09-16/fed-seen-doubling-reverse-repos-to-raise-interest-rates
made waves http://www.bloomberg.com/news/articles/2015-11-10/goldman-contrarian-joins-chorus-warning-on-bond-market-liquidity
inventories http://ftalphaville.ft.com/2013/09/11/1626462/digging-into-dealer-inventories/
so-called liquidity http://www.bloomberg.com/news/articles/2015-10-05/it-s-official-there-s-no-bond-liquidity-crisis-lisa-abramowicz
herd into corporate bonds http://www.bloomberg.com/news/articles/2015-07-29/what-no-one-ever-says-about-corporate-bond-market-liquidity
hold onto them tightly http://www.bloomberg.com/news/articles/2015-09-23/this-chart-helps-explains-the-bond-market-liquidity-story
told Bloomberg http://www.bloomberg.com/news/articles/2015-11-10/goldman-contrarian-joins-chorus-warning-on-bond-market-liquidity
bevy of alternative products http://www.bloomberg.com/news/articles/2015-09-28/wall-street-is-desperate-for-a-better-credit-hedge
include derivatives http://www.ft.com/cms/s/0/66fd5916-23eb-11e4-86fc-00144feabdc0.html#axzz3qzbMwmw2
earlier this year http://www.bloomberg.com/news/articles/2015-09-30/market-moves-that-aren-t-supposed-to-happen-keep-happening-u-s-treasury-edition
happen once http://www.ft.com/cms/s/0/cac64efe-6b34-11e4-ae52-00144feabdc0.html#axzz3qzbMwmw2
normal distribution http://www.intmath.com/counting-probability/14-normal-probability-distribution.php
also be extending http://www.bloomberg.com/news/articles/2015-09-30/market-moves-that-aren-t-supposed-to-happen-keep-happening-u-s-treasury-edition
explode into its own asset class http://www.bloomberg.com/news/articles/2015-09-08/market-volatility-has-changed-immensely
now enjoyed http://www.bloomberg.com/news/articles/2015-08-31/30-minute-vix-frenzy-exposes-obsession-with-volatility-hedging
the best-known example http://www.bloomberg.com/news/articles/2014-06-19/pimco-s-gross-wagering-on-low-volatility-in-new-neutral-


Thursday, 11 February 2016
20151207 Financial Markets Crashed, Including the Dollar. What Happened?
2016-02-11 09:11 AM
http://www.globalresearch.ca/financial-markets-crashed-including-the-dollar-what-happened/5494296
Financial Markets Crashed, Including the Dollar. What Happened?
By Bill Holter
Global Research, December 07, 2015

So what exactly happened last Thursday? The markets (including the dollar) crashed …and this was not supposed to happen?

It’s actually quite easy to understand if you see what they did was “only a test” … Do you understand what I mean when I say a “test”?

I will explain shortly but first, the Fed came out with piggybacked governors talking about a rate hike. Hilarious on the face of it if you just look at the U.S. economic implosion going on.

But let’s assume this is reality, the Fed really wants to hike rates (they do not “want to”, they HAVE to). For the sake of saving face and retaining any credibility they absolutely MUST raise interest rates after seven years …how do they do this?

Please read this piece by E.D. Skyrm, just a .25% rate raise in rates will require the equivalent of up to $800 billion of collateral necessitated to being pulled. Did you get that? $800 billion??? A huge number and enough to tank the whole system …unless someone is willing to replace it.

For starters you must understand if the Fed does tighten and collateral is withdrawn from the system, because everything is now so levered …”collateral” from somewhere else must be added. That “somewhere” was supposed to be Europe. Mario Draghi tried to push the EU governing council into further QE, in essence the German hawks refused and instead want to let some air out of the current bubbles. Europe was supposed to carry the baton of QE, they instead dropped it.

Mario Draghi tried to fix it on Friday with his “whatever it takes” statement. I see a problem with this and it has to do with collateral, or the lack of. You see, Europe is experiencing the same limits the Fed ran into during its last round of QE, not enough unencumbered collateral left to purchase. Another way to say this would be …”there is just not enough debt outstanding”. I know it sounds crazy because the underlying financial and economic problems have arisen BECAUSE there is too much debt …but, there is not enough to accommodate the needs for more QE.

What happened on Thursday was a “test of wills” between the Fed and the Bundesbank, the Fed clearly lost even though Friday was a giant reversal from Thursday. I say this because Mario Draghi can say whatever he likes, his mouth will not create the collateral necessary to substitute for any tightening by the Fed. He can say what he pleases but the governing council of the EU (run by hawkish Germans) will not reach for the QE baton. Mr. Draghi can now only jawbone and try to mold appearances.

So where does this leave the Fed and their quarter point rate increase? I would say they have already seen the future and … IT WAS THURSDAY! If they decide to hike rates and the EU does not pick up the collateral slack, I believe we will not see the markets stay open for more than a week or so. I say this because in essence the Fed will be issuing a margin call into a system already lacking for liquidity. As I’ve said before, they originally treated a “solvency” problem with more liquidity and it has now morphed into a far bigger solvency problem. Only this time as liquidity is also lacking, they do not have the tools (collateral) to create the needed additional liquidity.

The Fed has truly painted themselves into a corner of their own making. I am shocked they have been so vocal and vehement they were going to raise rates. Did they not have a deal already in place with the ECB or were they double crossed? On the one hand if they do not hike rates, their credibility is toast. On the other hand if they do raise rates they will smoke the financial markets faster than you can call your broker with a sell order. I can only think the Fed somehow believed they had a deal with the ECB? Even the BIS has warned the Fed about raising rates, is the Fed just not listening to the rest of the world? Whether they see it or not, they have created a currency crisis with the dollar being the central character.

The way I see this, the U.S. now has very big problems on the credibility front. You can add to the above monetary fix we are in with a multitude of other U.S. “pictures” just not adding up. U.S. “policy” is now being found out geopolitically thanks to Mr. Putin dropping a few “truth bombs”. The domestic economy is already in recession and Christmas (the politically correct term is now “holiday”) sales will be a disaster.

“Truth” is beginning to slip out from behind several different curtains. I hate to say it but a giant false flag will have to come out very soon in order to keep cover and divert attention from the truth. I do not see any other options left, the reality MUST remain hidden or attention diverted, …or the unravelling comes.

Standing watch,

Bill Holter, Holter-Sinclair collaboration, Comments welcome bholter@hotmail.com
The original source of this article is Global Research
Copyright © Bill Holter, Global Research, 2015


Thursday, 11 February 2016
20151217 Federal Reserve begins “Dovish Tightening” with First Interest Rate Hike in Nine Years
2016-02-11 09:07 AM
http://www.globalresearch.ca/federal-reserve-begins-dovish-tightening-with-first-interest-rate-hike-in-nine-years/5496499?utm_campaign=magnet&utm_source=article_page&utm_medium=related_articles
Federal Reserve begins “Dovish Tightening” with First Interest Rate Hike in Nine Years
By Barry Grey
Global Research, December 17, 2015
World Socialist Web Site

As widely anticipated, the US Federal Reserve Board on Wednesday announced a quarter percentage point increase in the federal funds rate, the interest banks charge one another for overnight loans of reserves kept at the central bank. It was the Fed’s first increase since June 2006 and it lifted the benchmark rate from a range of zero to 0.25 percent, where it had remained since the height of the financial crisis in December 2008, to a range of 0.25 percent to 0.50 percent.

The Fed’s policy-setting Federal Open Market Committee (FOMC) and its chairwoman, Janet Yellen, took great pains to characterize the increase as small and stress that further increases would be gradual and incremental, and that the Fed would hold rates below normal for an indefinite period and continue to pursue an “accommodative” monetary policy.

That this was what the financial markets wanted to hear was obvious from the response of US stock indexes. The long-signaled shift to what is being called “dovish tightening,” with the emphasis on “dovish,” triggered a run-up of prices on all three major indexes.

The Dow Jones Industrial Average, which had risen by 76 points before the FOMC released its statement at 2 PM, spurted upward and continued to climb during Yellen’s press conference, ending the trading day with a gain of 224 points (1.28 percent). The Standard & Poor’s 500 index and the Nasdaq had similar trajectories, ending the day with gains of 29 points (1.45 percent) and 75 points (1.52 percent), respectively.

Ever since the previous Fed chairman, Ben Bernanke, had signaled his intention to move toward a normalization of monetary policy by hinting in December of 2013 that the central bank would begin to “taper” its massive bond-purchasing and money-printing program, known as “quantitative easing,” the banks and hedge funds had exerted pressure against any increase in interest rates.

That they were generally prepared, after two years, to accept small and gradual increases was bound up with mounting signs that the regime of virtually free credit, which had generated windfall profits and a further shift of wealth from the bottom to the very top, had produced a new debt and credit crisis that threatened once again to bring down the financial system.

Since December 16, 2008, when the Fed slashed the federal funds rate to near-zero, the Dow has risen by 96 percent, the S&P 500 by 124 percent, and the Nasdaq by 214 percent. Over this period, the Fed has pumped $3.5 trillion into the banking system. The wealth of the 400 richest Americans has doubled. Meanwhile, the destruction of decent-paying jobs and wage cutting across the economy have decimated working-class living standards.

But the ongoing slowdown in the real economy globally, reflected in collapsing prices for oil, gas, metals and other basic committees, declining trade, and slumping demand for manufactured goods, is now destabilizing the US bond market and threatening to collapse the financial house of cards that has been built up by the policies of the Fed, the Obama administration and central banks and governments in Europe and Asia.

Over the past week, a mounting crisis in the US high-risk, high-yield junk bond market came to a head with the closure of three energy-based junk bond funds. Their collapse was triggered by the decline in oil prices to well below $40 a barrel and a wave of client redemption orders that the highly leveraged firms could not fulfill.

Funds managed by Third Avenue, Lucidus Capital Partners and Stone Lion Capital barred redemptions, triggering a selloff on the $1.3 trillion junk bond market. This high-risk market, based on bonds issued by firms with low credit ratings and high levels of debt, has expanded prodigiously since the Fed lowered rates to near zero and took other measures to force down long-term interest rates.

These policies, far from reining in speculative and parasitic financial activities, subsidized their expansion. Hedge funds and similar financial operations, such as exchange-traded funds that track bond markets, seeking new ways to realize high returns after the collapse of the subprime mortgage bubble, turned to junk bonds. According to Dealogic, US junk bond issuance hit a record $361 billion in 2013, more than double the volume in the years before the financial crisis.

Last week, junk bond funds were hit with $3.5 billion of withdrawals, the most for 70 weeks. And the crisis is spreading beyond junk bonds. Prices of bonds issued by firms in the pharmaceuticals, media, telecommunications, semiconductor and retail industries have fallen in recent months.

The Financial Times on Wednesday cited Bonnie Baha, head of global developed credit at DoubleLine Capital, as saying:

“It brings back memories of 2008 all over again and that’s what has been fueling this. Defaults are ticking up. Energy is leading the way but it’s starting to spread to other sectors. It’s not just an energy or metals and mining issue.”

In a report Tuesday, the US Office of Financial Research found “elevated and rising credit risks” among nonfinancial companies and emerging market borrowers. The agency warned that a significant shock that impacted credit quality “could potentially threaten US financial stability.”

That the widening crisis in corporate bonds played a role in the Fed’s decision, after multiple delays, to begin hiking rates was indicated in the language of the FOMC statement. Discussing future rate increases, the statement included among the factors the Fed would consider “financial and international developments.” The reference to financial developments, in particular, was a departure from previous FOMC statements.

The FOMC statement gave a generally upbeat appraisal of the US economy, and Yellen, in her press conference, was, if anything, even more sanguine. She began by declaring that the move to begin hiking rates was a vote of confidence in the strength of the US economy and its recovery from the Great Recession.

Yellen and the FOMC all but ignored the sharp slowdown in US manufacturing and industrial production in recent months, which has been exacerbated by the rise in the exchange rate of the dollar resulting from expectations of monetary tightening by the Fed. The higher dollar has further depressed US exports. The actual launch of rate hikes will likely cause a further increase in the dollar and heighten the impact on US exports.

Earlier this month, the Institute for Supply Management reported that manufacturing in the US contracted in November, falling to its lowest level since June 2009. Industrial production contracted in three of the last six months, and data released Tuesday showed that factory activity in New York State declined for the fifth straight month in December.

Yellen was asked at her press conference about the rout in junk bonds and the closure of Third Avenue’s Focused Credit Fund last Thursday. She noted the pressure on junk bonds while brushing off the Third Avenue collapse as a one-off event.

Another reporter challenged the Fed’s claim, reiterated in Wednesday’s FOMC statement and Yellen’s opening remarks to the press, that the drastic fall in oil prices and low inflation rate were “transitory” phenomena that would dissipate in the coming months, bringing the inflation rate close to the Fed’s goal of 2 percent. The reporter noted that the Fed has been making this assessment for some two years, and it has never materialized.

Yellen seemed flustered and largely dodged the question. She could not provide a convincing answer because the collapse in oil and commodity prices and the persistence of ultralow inflation reflect the reality of economic slump and the failure of the Fed and the other major central banks to engineer a genuine recovery in the real economy, despite the funneling of trillions of dollars into the banking system.

The continuing threat of deflation, more than seven years after the Wall Street crash, is an expression of the systemic crisis and breakdown of the capitalist system itself, something Yellen can neither address nor acknowledge.
The original source of this article is World Socialist Web Site http://www.wsws.org/en/articles/2015/12/17/bank-d17.html
Copyright © Barry Grey, World Socialist Web Site, 2015


Thursday, 11 February 2016
20151218 The Masters of Money Impose their Law
2016-02-11 09:10 AM
http://www.globalresearch.ca/the-masters-of-money-impose-their-law/5496716?utm_campaign=magnet&utm_source=article_page&utm_medium=related_articles
The Masters of Money Impose their Law
By Ariel Noyola Rodríguez, Global Research, December 18, 2015

Over 2015, the losses in the stock markets added up to hundreds of billions of dollars. The business world began to tremble when at the beginnings of August the Shanghai stock market fell during several consecutive days. It was only then evident that the vulnerabilities of the global economy are not limited to the United States and the European Union.

Although seven years have gone by since the bankruptcy of Lehman Brothers, everything indicates that the global crisis has not touched bottom, since as the weeks pass there are more victims from one sector to another, from one geographical region to another. As a consequence of the growing deceleration of the Asia Pacific region, the emerging countries whose incomes depend on the export of commodities are now facing a serious predicament.

The channel of the crisis of the industrialized countries towards the emerging ones is not only through commercial connections – although it is important to note that the Baltic Dry Index (BDI), one of the principal indicators of marine transport and a fundamental datum to measure commercial activity in real terms, has registered its worst performance of the last three decades -, but above all through finances.

According to an investigation published in October by the Institute of International Finance (IIF), which analyses data from 30 countries, this year the flow of capital from residents of emerging countries reached over one billion dollars. This is the most dramatic rise since the Asian crisis of 1998. There is no doubt that the stock market euphoria of the global South will not last.

The investors were buying sovereign debt bonds from the countries of Latin America and Pacific-Asia. As well as securities backed up by commodities, are at the present time full of fear and uncertainty. They do not now believe in the security of obtaining high dividends betting on high risk financial assets.

Right now nothing seems more secure than to put their investments in US Treasury bonds. In spite of their enormous public debt, no one believes that Washington will declare itself bankrupt in the short term, which would result in the dollar weakening its status as a reserve currency, and with that, the hegemony of the United States would be seriously wounded. This would leave a contradiction that even with the serious problems of the US economy, the confidence in the dollar has hardly lessened since the crisis of 2008, even if it be true that there are other currencies, such as the yuan, that have increased their influence considerably.

In these moments money is returning home, to its real masters, the pockets of the magnates of Wall Street. This explains the fall of exchange rates and stock markets of emerging countries. Nevertheless, this money will either be amassed, or utilised to bring about mergers and acquisitions of enterprises, but it will not be placed massively in productive activities, and because of this, the labour market of the United States will still be far from overcoming its structural degradation.

In the face of an increasingly global panic, the International Monetary Fund (IMF) insists that the monetary authorities of the United States should act with caution. In the face of high levels of debt on a world scale, which are denominated fundamentally in dollars, the Executive Director of the IMF, Christine Lagarde, has suggested on various occasions that the United States should put off any increase in the federal funds rate until 2016 at least [Editor’s note: the Fed raised its benchmark federal funds rate, locked near zero since the financial crisis, by a quarter point to 0.25-0.50 percent on December 16].

Even though the most recent data on the United States’ labour market appears better than before, this does not imply in any way that the economy of that country enjoys a sustained recovery. Private debt is maintained at a very high level in the United States, both that of businesses and that of families. Thousands of US residents and citizens cannot find full time employment, but must settle for part time work, the majority badly paid and without social benefits of any quality. The less fortunate survive on unemployment insurance and food stamps.

In contrast, thanks to government policy, US banks have managed to increase their levels of capitalization. At the same time, they have increased their financial leverage (this is the relation between credit and their own capital invested in a financial operation), with which, it is clear that rather than providing credit to small and medium enterprises, they have dedicated themselves to speculative ventures in the stock market. Over all, as I noted in my last comment, this increase has been exhausted at great speed. According to data from the US banks, their profit levels are moving down.

Seen from this global perspective, the great risk is that any hasty decision can shore up recessive (depressive) tendencies in other countries. Paul Mason, commentator with the British daily The Guardian, cites the economists of the Bank of International Settlements (BIS), for whom “a world in which debt levels are too high, productivity growth too weak and financial risks too threatening”.

In the case of the European Continent, for example, given the extreme debility of growth and negative inflation, that is deflation that has struck various nations on the periphery, the central bank of the monetary union has indicated that it is disposed to bring about extraordinary measures if the economic situation continues to deteriorate.

The same thing is happening in Japan, and the Prime Minister, Shinzo Abe, has put in march an ambitious program of recuperation, which has included both monetary and fiscal stimuli, and a basket of “structural reforms” in order to increase productivity, as the second most important economy of the Asian region fell into a technical recession in the third quarter of this year.

Thus three of the strongest central banks of the world diverge in their plans of monetary policy. On the one hand the United States are preparing to raise the cost of credit, and on the other Europe and Japan are preparing to launch programs of more aggressive injection of liquidity. With this, it is obvious that the volatility of the financial markets will not lessen, but will tend to increase in the months to come.

In a word, there is no consensus among the big powers on the monetary policies that should be employed to combat the world recession. This was manifest in the summit of the Group of 20 (G-20, made up of the 20 most powerful economies of the world), in mid-November in the city of Antalya, Turkey.

Nevertheless, there is agreement among the principal world leaders to sharpen the conditions of exploitation of the working classes through new “structural reforms”. On the other hand, the reforms oriented to regulate global financial activities lack sharp teeth and their execution progresses very slowly. The funds deposited in the fiscal paradises are still untouchable. This is the reflex that shows the same image from Paris, Berlin, London, Brussels, Washington, Tokyo and the greater part of emerging economies: the masters of money impose their law.

Translation: Jordan Bishop.

Source in Spanish: Contralínea.

*Ariel Noyola Rodriguez is an economist who graduated from the National Autonomous University of Mexico (UNAM). Twitter: @noyola_ariel.
The original source of this article is Global Research
Copyright © Ariel Noyola Rodríguez, Global Research, 2015


Thursday, 11 February 2016
20151219 After Federal Reserve Interest Rate hike, Global Economic Fault Lines Deepen
2016-02-11 09:04 AM
http://www.globalresearch.ca/after-federal-reserve-interest-rate-hike-global-economic-fault-lines-deepen/5497053?utm_campaign=magnet&utm_source=article_page&utm_medium=related_articles
After Federal Reserve Interest Rate hike, Global Economic Fault Lines Deepen
By Nick Beams
Global Research, December 20, 2015
World Socialist Web Site 19 December 2015

After an initial rise following the decision by the US Federal Reserve to lift interest rates by 0.25 percentage points on Wednesday, stock markets around the world have experienced significant declines over the past two days.

The biggest falls were in the United States, where the Dow was down by 368 points at the close of trade on Friday, a drop of more than 2 percent, while the more broadly based S&P 500 fell by 1.8 percent. The CBOE VIX index, which measures market volatility and is often referred to as the “fear gauge,” went over 20, a level regarded as indicating a high degree of market stress.

Markets also fell around the world after rising in the immediate aftermath of the Fed decision. The Euro Stoxx index dropped by 1.4 percent on Friday after rising earlier in the week. In Japan, the Nikkei index closed 1.9 percent lower.

Underlying the volatility on share markets are a series of widening fault lines in the global economy produced by the deepening trend toward stagnation and slump. The increased turbulence in financial markets is an expression of the fact that massive financial speculation, fuelled by the Fed and other central banks’ pumping of trillions of dollars into the banking system since the 2008 Wall Street crash, is being overwhelmed by developments in the real economy, particularly the decline in industrial production.

So far, this interaction has found its sharpest expression in the market for high-yield, or “junk,” corporate bonds, particularly in the energy sector, because of the sharp fall in oil and other energy prices, coupled with the decline in basic industrial commodity prices to their lowest levels since the global financial crisis.

This week, the price of Brent crude oil hit a seven-year low of $36.33 per barrel, further heightening problems in the energy junk bond market, where money poured in to finance risky ventures when the price of oil was trading at around $100 per barrel less than two years ago.

But the turbulence is not confined to energy-related finance. According Lipper, a Thomson Reuters company that supplies information to financial markets, investors withdrew $5.1 billion from US mutual funds that purchase bonds rated as investment grade by credit-rating agencies-the largest such withdrawal since 1992. This was accompanied by a further withdrawal of $3 billion from junk bond funds. In the week to December 16, it is estimated that $15.4 billion was withdrawn from taxable bond funds.

In a report on the state of financial markets issued this week, the Office of Financial Research (OFR), set up by the US Treasury after the 2008 crisis, painted a picture of, in the words of Financial Times economic commentator Gill Tett, a “distinctly distorted American financial system” resulting from seven years of ultra-low interest rates.

The OFR said that “credit risk in the US non-financial business sector is elevated and rising.” It went on to warn that “higher base rates may create refinancing risks… and potentially precipitate a broader default cycle.”

In other words, a situation has been created where a default or a series of defaults in high risk areas could set off a chain reaction in the system as a whole, recalling the effects of the sub-prime mortgage collapse. When that crisis emerged in 2006 and 2007, then-Fed Chairman Ben Bernanke brushed it off as a relatively small problem that could be easily contained.

The worsening financial situation is compounded by the divergence in the policies of the world’s major central banks. While the Fed has moved towards tightening, although at a very gradual pace, the European Central Bank and the Bank of Japan are continuing with various forms of “quantitative easing” aimed at pumping more money into the financial system.

In the midst of growing financial turbulence, however, the official mantra is that the US is in the midst of an expanding economic recovery and is considered to be a “bright spot” in the world economy.

This soothing scenario is belied by both longer-term developments and the immediate situation. Since the US economy started growing in the June quarter of 2009, its gross domestic product has increased by only 2.2 percent per year, the lowest pace for any post-recession phase in post-World War II history. As a result, it took five years for the US economy just to make up for the loss of employment and economic output sustained as a result of the financial crisis.

Now figures from the industrial sector point to another downturn. US industrial production last month was down by a seasonally adjusted 0.6 percent from October, the biggest drop since March 2012 and the third straight month it has fallen. Manufacturing output, which comprises three quarters of industrial production, was flat. Mining output was down 1.1 percent for the month and is now 8.2 percent below the level of a year ago.

According to a report published in the Financial Times on Tuesday, a common theme of major companies supplying industry, such as Caterpillar and Deer & Co, is that “tough times are back,” with some even pointing to “the arrival of an industrial recession.”

The stagnation in US industry is part of an emerging global trend. Data on industrial employment in China-the world’s major manufacturing centre-shows that aggregate employment in manufacturing fell by 1.9 percent in the year ending in October. In the third quarter, employment growth in the sector was at its lowest rate on a quarterly basis since 2000. The biggest declines are in heavy industry, with iron ore mining and processing employment down by 12 percent, coal mining down 7 percent, and steel employment down 6 percent.

The slowdown in China is impacting on so-called emerging markets more generally. Of 22 big emerging markets tracked by JPMorgan Chase, 21 have had their growth forecasts for 2016 downgraded. Brazil, which is highly dependent on the Chinese economy, is the sharpest expression of this trend. Its economy is contracting by 4.5 percent according to the latest data. Brazil’s worsening situation was highlighted this week when Fitch became the second of the major credit rating agencies to downgrade the country’s debt to junk status.

The World Bank has warned of “the beginning of an era of weak growth for emerging markets.” This will have a significant impact, as these economies account for almost 40 percent of global output. They could also be hit by significant financial turbulence, with the International Monetary Fund warning that they have incurred $3 trillion more in debt than is warranted by commodity prices and global demand.

Two inescapable conclusions flow from the latest economic data and the growing turbulence in financial markets.

First, the supply of trillions of dollars of ultra-cheap money by the Fed and other central banks has done nothing either to resolve the crisis which erupted in 2008 or bring about a genuine economic recovery.

It has, however, subsidized a vast transfer of wealth from the bottom to the top, fuelling a tripling of stock prices, record corporate profits and CEO bonuses, and ever greater levels of social inequality. The vast sums handed to the banks and hedge funds have not, for the most part, been invested in production, but used instead to fund parasitic activities such as job-slashing corporate mergers, stock buybacks and dividend increases. To pay for the resulting bankrupting of state treasuries, governments around the world have imposed brutal austerity measures against the working class.

Second, these policies have only created the conditions for another financial crisis, whose consequences are potentially even more devastating than those triggered by the sub-prime mortgage collapse. The deepening decline in the real economy and the mounting signs of financial distress demonstrate that the source of the global economic crisis is the capitalist system itself, which cannot be reformed, but must be overthrown and replaced by the international working class in the fight for socialism.
The original source of this article is World Socialist Web Site http://www.wsws.org/en/articles/2015/12/19/pers-d19.html
Copyright © Nick Beams, World Socialist Web Site, 2015

Financial Markets and the Global Economy: What Really Happened In 2015, And What Is Coming In 2016… http://www.globalresearch.ca/financial-markets-and-the-global-economy-what-really-happened-in-2015-and-what-is-coming-in-2016/5499970
A Seven Percent Crash Triggers Emergency Shutdown of China Stock Markets, 2nd Time in 4 Days http://www.globalresearch.ca/a-seven-percent-crash-triggers-emergency-shutdown-of-china-stock-markets-2nd-time-in-4-days/5499976
Global Financial Turmoil Continues on Fears of Slower Growth http://www.globalresearch.ca/global-financial-turmoil-continues-on-fears-of-slower-growth/5499886
Wall Street Kicks Off 2016 with a Faceplant http://www.globalresearch.ca/wall-street-kicks-off-2016-with-a-faceplant/5499527
2016: A Year of Financial Barbarism? http://www.globalresearch.ca/2016-a-year-of-financial-barbarism/5499405
IMF Warns of Slow Growth and Economic “Shocks” in 2016 http://www.globalresearch.ca/imf-warns-of-slow-growth-and-economic-shocks-in-2016/5498690


Thursday, 11 February 2016
20160105 2016: A Year of Financial Barbarism?
2016-02-11 09:06 AM
http://www.globalresearch.ca/2016-a-year-of-financial-barbarism/5499405?utm_campaign=magnet&utm_source=article_page&utm_medium=related_articles
2016: A Year of Financial Barbarism?
By Ben Schreiner, Global Research, January 05, 2016

With New Year celebrations barely in the rear view mirror, foreboding storm clouds are once again forming along the horizon. The blackening skies are casting a dour mood over 2016, which in its mere infancy seems all but assured to see deepening global tumult, conflict, and crisis.

At the root of this palpable disquiet lies the still fragile state of the global economy, coming up on eight years after the financial collapse of 2008.

Writing in the German newspaper Handelsblatt last week, International Monetary Fund Managing Director Christine Lagarde pointed to “rising interest rates in the United States and an economic slowdown in China,” coupled with slowing growth in global trade and “a decline in raw material prices,” to warn that, “global growth will be disappointing and uneven in 2016.”

Back in October, the IMF projected a lackluster 2016 global growth rate of 3.6%, a 0.2% reduction from its previous forecast. As IMF chief economist Maurice Obstfeld commented at the time, “Six years after the world economy emerged from its broadest and deepest postwar recession, a return to robust and synchronized global expansion remains elusive.”

On Monday, stoked by fears of slowing growth in China, evidenced by a report from the market data firm Markit showing a contraction in Chinese manufacturing, global stock indexes tumbled as they rang in 2016. But as HSBC strategist Devendra Joshi noted of the plunge to the New York Times, “This will be the theme for the year. There will be more volatility.”

It’s worth remembering that not long ago China was heralded by mainstream economic commentators to be the engine that was to drive global economic growth. But such elite optimism has since all but dissolved into air.

Indicative of the growing recognition of the realities of elusive growth in the wake of the 2007-08 financial collapse has been the steady emergence of “secular stagnation” in the lexicon of orthodox economists, most pointedly Larry Summers. In fact, since Summers first mused back in 2013 on secular stagnation having “relevance to the American experience” post financial collapse, the concept has gained a degree of notable currency in conventional economic circles.

Of course, the concept of secular stagnation is nothing particularly new, as any follower of the monopoly capitalism analysis championed most prominently by the journal Monthly Review would know.

Indeed, in their 2012 book, The Endless Crisis, current Monthly Review editor John Bellamy Foster and former editor Robert McChesney not only argue that global monopoly capitalism is defined by sustained low growth, but a far more dangerous “stagnation-financialization trap,” which leaves ever greater financialization as the only available means of sustaining the system.

“Yet,” Foster and McChesney write, “rather than overcoming the stagnation problem, this renewed financialization will only serve at best to put off the problem, while piling on further contradictions, setting the stage for even bigger shocks in the future.”

With Federal Reserve’s December interest rate rise, curtailing to some extent the unprecedented free money gifted to financial speculators, further systemic contradictions indeed appear to be lurking in wait to trigger bigger future shocks.

Tremors have been felt most recently in the high-yield, high-risk “junk bond” market. With corporations and banks pursuing further parasitism in the wake of the 2008 collapse, a flood of money via junk bonds rushed into the oil and commodities industries, spurred on in the U.S. by the fracking boom. But as oil and commodities prices collapsed, so too, largely, has the junk bond market. As the Wall Street Journal reported in mid-December, a report by the “U.S. Office of Financial Research found ‘elevated and rising credit risks’ among nonfinancial businesses and emerging-market borrowers, and it said a significant shock that further impairs credit quality ‘could potentially threaten U.S. financial stability.'”

The outstanding debt in the U.S. junk bond market is estimated to exceed $1 trillion.

With such contradictions piling up as the stubborn specter of Marxist analysis haunts even the most celebrated of conventional economists, neoliberal ideologues have been forced once again into the rather unenviable position of having to deny reality itself.

Enter former Texas Senator Phil Gramm, who bravely penned an April op-ed for the Wall Street Journal in which he dismissed secular stagnation as “just another in a long line of excuses” for slow growth. Gramm instead opted to finger fading “American exceptionalism” as the cause of recessed growth, which Gramm claimed has “[taken] economic growth with it.” A variation of such delusions can now heard in nearly every 2016 presidential candidate’s campaign stump speech.

But no matter the ruling elite’s refusal to actually see the economic crisis in full, let alone undertake to resolve it, elite angst over its ramifications, particularly widening economic inequality, mount nonetheless. Tellingly, the year’s first issue of the influential Foreign Affairs journal, published by the quasi-official Council on Foreign Relations, is devoted to tackling the whats and whys of economic inequality. As editor Gideon Rose writes, the trends of deepening inequality “are starting to define our era.”

To be clear, our era, to channel Lenin, is one of renewed political reaction all down the line. In concrete terms, it’s an era in which 50 million Americans are food insecure and a staggering 50% live at or near poverty; it’s a time in which rents and health care cost soar well beyond languishing wages; and it’s a moment in which all the worn political elite can manage to muster in response is the tired chant of austerity.

But austerity, lest it ever be forgotten, is a dietary remedy exclusively prescribed to the rabble. No matter the calls for “fiscal responsibility,” there is always money to be found for the elite’s preferred crisis resolution of war abroad, repression at home.

Even so, it’s rather remarkable with American “boots on the ground” in both Iraq and Syria that the leading contenders from both political parties-from the neo-fascist reality TV star to that once “dead broke” vagrant-have actually pledged to escalate U.S. military intervention in the region by seeking to impose a “no-fly zone” in Syria.

Such proposals, spoken in the ease with which politicians mindlessly call upon God to bless America, are nothing short of deranged calls for war. We need look no further than Robert Gates (hardly what one could consider a peacemaker) to understand what the loose calls for a “no-fly zone” truly connote. As Gates warned prior to NATO’s disastrous 2011 adventure in Libya: “A no-fly zone begins with an attack on Libya to destroy the air defenses.” The air defenses in Syria today include the sophisticated Russian manned S-400 system.

Indicative of the insanity of the political present, some 2016 presidential candidates have gone so far as to not only call for a “no-fly zone,” but to actually verbalize the logical conclusion of such reckless rhetoric by proudly touting the fact that they would shoot down Russian planes over Syria. Such threats are revealing not only of the politicians willing to make them, but also of the segment of the American electorate soothed by such apocalyptic visions.

Meanwhile, left unfulfilled even by the thoughts of burning Russian warplanes falling from the sky, Washington is once again revving up a renewed sanctions push against Iran. This, despite Tehran’s continued compliance with the nuclear accord struck last year. Think of this latest poke in Tehran’s eye, then, as an early 2016 gift from Washington to its favorite regional clients: the head-choppers in the House of Saud and the apartheidists in Tel Aviv.

Of course, Washington’s gifts are widely spread, with the American arms bazaar exporting nearly $40 billion worth of hardware in 2014-capturing over 50% of the global market. All of which obviously serves only to further fan the flames of the simmering tinderboxes now found dotting the globe from the South China Sea to Ukraine to the Middle East.

American military adventurism, though, cannot be untangled from the economic and social crises ravaging the “homeland.” Opening the spigot of military spending is part of what Ismael Hossein-zadeh writes in The Political Economy of U.S. Militarism to be the “cynical policy of simultaneously raising military spending and cutting taxes on the wealthy in order to force cuts in nonmilitary government spending.” In other words, it’s class war waged from on high against the hapless souls below.

And so as we embark on a year with an already ominously stormy start, the American political class appears once again set on confronting all looming crises with the only thing it is now capable of producing: barbarism.

Ben Schreiner is the author of A People’s Dictionary to the ‘Exceptional Nation’.
The original source of this article is Global Research
Copyright © Ben Schreiner, Global Research, 2016


Thursday, 11 February 2016
20160108 Last Year Was a Big One for the Corporate Bond Market
2016-02-11 08:50 AM
http://www.bloomberg.com/news/articles/2016-01-08/last-year-was-a-big-one-for-the-corporate-bond-market
Last Year Was a Big One for the Corporate Bond Market
Lots of new records made.
Tracy Alloway TRACYALLOWAY
January 9, 2016 – 12:46 AM WIB

NEW YORK, NY – JANUARY 07: Traders work on the floor of the New York Stock Exchange (NYSE) on January 7, 2016 in New York City. Chinese stocks plunged on Thursday by more than 7 percent causing the Dow to drop over 200 points in morning trading. (Photo by Spencer Platt/Getty Images) The End of the Monetary Illusion Magnifies Shocks for Markets

The Kariba Dam between Zimbabwe and Zambia. World’s Biggest Dam Has ‘Extremely Dangerous’ Low Water Levels

Saudi investors monitor stocks at the newly opened exchange market department at the National Commercial Bank (NCB) in Riyadh on November 12, 2014. NCB shares surged 10 percent in their first day of trading after the kingdom’s largest public offering. It raised $6 billion and was oversubscribed 23 times. AFP PHOTO/FAYEZ NURELDINE (Photo credit should read FAYEZ NURELDINE/AFP/Getty Images) A New Saudi Arabia Is in a Hurry in Dangerous Era of Cheap Oil

Gross: Investors Have to Be Concerned About China Growth

A big one, but not necessarily a good one.

Goldman Sachs analysts led by Lotfi Karoui highlighted 15 records broken by the corporate bond market in 2015, though not all of them were necessarily positive.

For a start, high-yield bonds sold by companies with more fragile balance sheets recorded their worst annual returns in a year not marked by a U.S. recession in a decade, with a fall of 4.7 percent.


Source: Goldman Sachs

The good news for investors seeking higher returns is they can now have their pick in the high-yield space. About 9 percent of the high-yield market now boasts yields above 20 percent-the highest amount since the financial crisis.


Source: Goldman Sachs

To that point, the dispersion, or difference, in spreads on high-yield bonds has also reached a postcrisis record as investors began to differentiate between the junkiest of junk bonds (CCC-rated) and the, erm, less junky.


Source: Goldman Sachs

The amount of investment-grade bonds that were sold soared to an “unprecedented” $1.3 trillion, Goldman said. The number of individual deals, however, was the lowest in more than a decade, illustrating the preponderance of mega M&A-driven deals in the market.


Source: Goldman Sachs

Another bond market oddity arrived in the form of a greater difference between the performance of the cash credit market and credit derivatives, with the Markit CDX High-Yield Index finishing up on the year while the underlying cash market finished down. “The regulatory and liquidity environment today have made a long position in cash (that requires balance sheet) vs. synthetics (that does not) more onerous to execute,” according to the Goldman analysts, picking up a previously discussed theme.


Source: Goldman Sachs

Finally, and potentially fueling regulatory concerns following the closure of the Third Avenue credit-focused fund, a record share of the corporate bond market is owned by mutual funds and exchange-traded funds. Together the two fund vehicles now own 25 percent of the market, with ETFs by far the minority at an estimated 3 percent. “While the high-yield and investment-grade market has withstood significant mutual fund outflows (in 2014 for HY and in 2015 for IG) without directly causing sustained spread dislocation, redemption risk in the new bond architecture remains to be tested,” the analysts said.


Source: Goldman Sachs

Other records broken in 2015 include the highest volatility in money flowing in and out of high-yield bond ETFs, the largest outflows from investment-grade mutual funds on record, plus a dwindling supply of CCC-rated debt. “The dearth of CCC supply appears to be pricing in a recessionary-type environment, despite our view that the probability of a U.S. recession is quite low,” the Goldman analysts said.

Let’s see what 2016 brings.


have their pick http://www.bloomberg.com/news/articles/2015-08-06/credit-risk-is-staging-a-comeback
fueling regulatory concerns http://www.bloomberg.com/news/articles/2016-01-07/third-avenue-bust-won-t-keep-funds-from-fighting-sec-safeguards


Thursday, 11 February 2016
20160108 Stealth bear market mauls Wall Street
2016-02-11 07:48 AM
http://www.usatoday.com/story/money/markets/2016/01/08/stealth-bear-market-mauls-wall-street/78513444/
Stealth bear market mauls Wall Street
Adam Shell, USA TODAY 6:54 p.m. EST January 8, 2016

Stocks closed Friday down nearly 170 points and inching closer to correction territory. It’s the worst first week ever to start a new year. David Craig for USA TODAY.

There is mounting evidence that the U.S. stock market is being decimated and undermined by a so-called “stealth” bear market.

If it feels like a bear market on Wall Street — even though the 9.8% drop for the S&P 500 from its May peak doesn’t even meet the 10% dip needed to be classified as an official correction — it’s probably because hundreds of U.S. stocks are already suffering their own personal bear markets, defined as a price drop of at least 20% from a prior high.

Bear sightings, in turns out, are getting more and more plentiful with each passing day in 2016, a year in which the Standard & Poor’s 500 index is down 5.97% and off to its worst five-day start to a year ever.

USA TODAY Stocks close out week with worst start to year ever http://www.usatoday.com/story/money/markets/2016/01/08/wall-street-set-rebound-after-china-shares-stabilize/78495978/

Statistics that drill under the surface of the stock market and into the underbelly of Wall Street paint a dismal picture of a stock market in retreat.

Indeed, the Standard & Poor’s 1500 index – a broad basket of large, mid and small company stocks – shows that the average stock’s distance from its 52-week high is 26.9%, according to stats compiled by Bespoke Investment Group through Friday’s close.

“That’s bear market territory!” says Paul Hickey, co-founder of Bespoke Investment Group, the firm that provided USA TODAY with the gloomy price data.

Stocks, of course, have suffered a massive drawdown early in 2016 amid growing fears that China’s economy is in worse shape than believed, and the rising fear sparked by mainland China’s stock market meltdown.

U.S. stocks, which peaked more than seven months ago back in May, also headed into the year facing domestic headwinds, such as uncertainty related to the Federal Reserve’s interest rate hike plans, a pricey market compared to longer-term norms, and concerns over the pace of corporate earnings growth after profits flatlined in 2015.

“China is certainly a factor, but it’s definitely not the only factor,” Hickey told USA TODAY. “We came into the year with above-average valuations and a Fed planning to tighten rates. That combination is usually not a great mix for stocks.”

USA TODAY Only 1 stock in the Dow 30 rose this week http://www.usatoday.com/story/money/markets/2016/01/08/wall-street-dow-30-stocks/78527374/

Here’s a statistical damage assessment, provided by Bespoke Investment Group, of the pain being felt by the average U.S. stock in the S&P 1500 index:

  • Large-company stocks in the S&P 500 index are down 22.6%, on average, from peaks hit in the past 12 months.
  • Mid-sized stocks in the S&P 400 index are sporting an average decline of 26.5% since hitting 52-week highs.
  • Small stocks in the S&P 600 index are the farthest distance away from their recent peaks. The average small-cap name is 30.7% below its high in the past year.

The bloodshed is also evident at the sector level. Individual stocks in eight of the 10 major sectors are down more than 20% from their highs within the past year. Only two sectors have dodged the bear so far: The average stock in the consumer staples sector is down 18.5% and utilities are 14.3% below their 52-week highs, according to Bespoke. Stocks in the energy sector — the worst-performing sector – are down 52.1%.

“The ‘stealth bear’ market is telling us that we need to remain very cautious and defensive,” says Michael Farr, president of money-management firm Farr Miller & Washington.

The reason? “The overall averages have been supported by a relatively few red-hot, large-cap names that could be vulnerable if the weakness continues. To date, retail investors and professional money managers have been loath to sell these winners. The FANGs — an acronym for Facebook, Amazon, Netflix and Google — for the most part, maintain their Teflon-like properties simply because people want to stick with what has worked. But if — and when — these few names start to display weakness, the major market averages could have a good deal more downside.”


Thursday, 11 February 2016
20160108 Stock Market Crash 2016: This Is The Worst Start To A Year For Stocks Ever
2016-02-11 07:52 AM
http://www.talkmarkets.com/content/us-markets/stock-market-crash-2016-this-is-the-worst-start-to-a-year-for-stocks-ever?post=82194
Stock Market Crash 2016: This Is The Worst Start To A Year For Stocks Ever
By Michael Snyder of The Economic Collapse http://theeconomiccollapseblog.com/archives/stock-market-crash-2016-this-is-the-worst-start-to-a-year-for-stocks-ever
Friday, January 8, 2016 4:46 AM EST

Stock Market Collapse 2016

We have never had a year start the way that 2016 has started.In the U.S., the Dow Jones Industrial Average and the S&P 500 have both posted their worst four-day starts to a year ever. Canadian stocks are now down since September, and it has been an absolute bloodbath in Europe over the past four days. Of course the primary catalyst for all of this is what has been going on in China. There has been an emergency suspension of trading in China, and nobody is quite certain what is going to happen next. Eventually this wave of panic selling will settle down, but that won’t mean that this crisis will be over. In fact, what is coming is going to be much worse than what we have already seen.

On Thursday I was doing a show with some friends, and we were amazed that stocks just seemed to keep falling and falling and falling. The Dow closed down 392 points, and the NASDAQ got absolutely slammed. At this point, the Dow and the NASDAQ are both officially in “correction territory”, and some of the talking heads on television are warning that this could be the beginning of a “bear market”. But of course some of the other “experts” are insisting that this is just a temporary bump in the road.

But what everyone can agree on is that we have never seen a start to a year like this one.The following comes from CNN…

The global market freakout of 2016 just got worse.

The latest scare came on Thursday as China’s stock market crashed 7% overnight and crude oil plummeted to the lowest level in more than 12 years.

The Dow dropped 392 points on Thursday. The S&P 500 fell 2.4%, while the Nasdaq tumbled 3%.

The wave of selling has knocked the Dow down 911 points, or more than 5% so far this year. That’s the worst four-day percentage loss to start a year on record, according to FactSet stats that go back to 1897.

When CNN starts sounding like The Economic Collapse Blog, you know that things are really bad.I particularly like their use of the phrase “global market freakout”. I might have to borrow that one.

Even some of the biggest and most trusted stocks are plummeting. For instance, Apple dropped to $96.45 on Thursday. It is now down a total of 28 percent since hitting a record high of more than 134 dollars a share back in April.

So that means that if someone put all of their retirement money into Apple stock last April (which may have seemed like a really good idea at that time), by now more than one-fourth of that money is gone.

For months, I have been warning that the exact same patterns that we witnessed just prior to the great stock market crash of 2008 were happening again. To me, the parallels between 2008 and 2015/2016 were just uncanny. And now other very prominent names are making similar comparisons. According to the Washington Post, George Soros says that the way this new crisis is unfolding “reminds me of the crisis we had in 2008?…

Influential investor George Soros said that China had a “major adjustment problem” on its hands. “I would say it amounts to a crisis,” he told an economic forum in Sri Lanka, according to Bloomberg News. “When I look at the financial markets, there is a serious challenge which reminds me of the crisis we had in 2008.”

Don’t get me wrong – I am certainly not a supporter of George Soros. My point is that we are starting to hear a lot of really ominous talk from a lot of different directions. All over the world, people are starting to understand that the next great financial crisis is already here.

As I write this tonight, I just feel quite a bit of sadness. A lot of hard working people are going to lose a lot of money this year, and that includes people that I know personally. I wish that my voice had been clearer and louder. I wish that I could have done more to get people to understand what was coming. I wish that my warnings could have made more of a difference.

I just think about how I would feel if everything that I had worked for all my life was suddenly wiped out.And that is what is going to end up happening to some of these people. When you lose everything, it can be absolutely debilitating.

You only make money in the markets if you get out in time. And unfortunately, most of the general population will be like deer in the headlights and won’t know which way to move.

There will be up days for the markets in our near future.But don’t be fooled by them.It is important to remember that some of the greatest up days in U.S. stock market history were right in the middle of the stock market crash of 2008.So don’t let a rally fool you into thinking that the crisis is over.

The financial crisis that began in the second half of 2015 is now accelerating, and everything that we have witnessed over the past few days is just a natural extension of what has already been happening.

Personally, I am just really looking forward to this weekend when I will hopefully get caught up on some rest. Plus, my Washington Redskins will be hosting a playoff game on Sunday, and if they find a way to win that game that will put me in a particularly positive mood.

It is good to enjoy these simple pleasures while we still can.Unprecedented chaos is coming this year, and we are all going to need strength and courage for what is ahead.


Thursday, 11 February 2016
20160108 The End of the Monetary Illusion Magnifies Shocks for Markets
2016-02-11 08:53 AM
http://www.bloomberg.com/news/articles/2016-01-08/the-end-of-the-monetary-illusion-magnifies-shocks-for-markets
The End of the Monetary Illusion Magnifies Shocks for Markets
Simon Kennedy simonjkennedy
January 8, 2016 – 7:02 PM WIB Updated on January 8, 2016 – 8:51 PM WIB

Market Turmoil a Reflection of Confused Policies: Darda
Central banks no longer have as much room to deliver stimulus
HSBC says currencies most sensitive to policy in 15 years

Central bankers are no longer the circuit breakers for financial markets.

Monetary-policy makers, market saviors the past decade through the promise of interest-rate reductions or asset purchases, now lack the space to cut further — if at all — or buy more. Even those willing to intensify their efforts increasingly doubt the potency of such policies.

That’s leaving investors having to cope alone with shocks such as this week’s rout in China or when economic data disappoint, magnifying the impact of such events.

“The monetary illusion is drawing to a close,” said Didier Saint Georges, a member of the investment committee at Carmignac Gestion SA, an asset-management company. “With central banks becoming increasingly restricted in their stimulus policies, 2016 is likely to be the year when the markets awaken to economic reality.”

Even against the backdrop of this week’s market losses, Federal Reserve officials signaled their intention to keep raising interest rates this year. Those at the European Central Bank and Bank of Japan ended last year playing down suggestions they will ultimately need to intensify economic-aid programs.

They have only themselves to blame for becoming agents of volatility, according to Christopher Walen, senior managing director at Kroll Bond Rating Agency Inc.

He told Bloomberg Television this week that officials’ willingness to keep interest rates near zero and repeatedly buy bonds and other assets meant they became “way too involved in the global economy” and should have left more of the lifting work to governments.

The handover to looser fiscal policy now needs to happen if economic growth and inflation are to get the spur they need, said Martin Malone, global macro policy strategist at London-based brokerage Mint Partners.

“Major economies have exhausted monetary and foreign-exchange policies,” he said. “Government action must take over from central-bank policies, triggering more confident private-sector investment and spending.”

The influence of central bankers was underscored by a report this week from currency strategists at HSBC Holdings Plc, which calculated foreign-exchange markets are more sensitive to interest-rate decision-making than at any time in the last 15 years.

“FX markets are likely to remain hypersensitive to rate expectations until we are past the current era of extremely accommodative monetary policy,” the strategists led by David Bloom wrote.

Even if more stimulus does end up being delivered by the ECB or BOJ, China’s increased willingness to devalue the yuan will blunt the effect of it by limiting declines in their currencies and pushing up bond yields as money exits China, according to George Saravelos, a strategist at Deutsche Bank AG in London.

“All of these natural market forces that have been suppressed and overwhelmed by money printing by developed-market central banks will likely assert themselves this year,” said Stephen Jen, founder of London-based hedge fund SLJ Macro Partners LLP. “My guess is that this will not be a tranquil year.”


Saturday, 09 January 2016
20160108 Financial Markets and the Global Economy: What Really Happened In 2015, And What Is Coming In 2016…
2016-01-09 09:52 AM
http://www.globalresearch.ca/financial-markets-and-the-global-economy-what-really-happened-in-2015-and-what-is-coming-in-2016/5499970
Financial Markets and the Global Economy: What Really Happened In 2015, And What Is Coming In 2016…
By Michael Snyder
Global Research, January 08, 2016
The Economic Collapse 3 January 2016

A lot of people were expecting some really big things to happen in 2015, and most of them did not happen.

But what did happen? It is my contention that a global financial crisis began during the second half of 2015, and it threatens to greatly accelerate as we enter 2016.

During the last six months of the year that just ended, financial markets all over the planet crashed, trillions of dollars of global wealth was wiped out, and some of the largest economies in the world plunged into recession. Here in the United States, 2015 was the worst year for stocks since 2008, nearly 70 percent of all investors lost money last year, and it is being projected that the final numbers will show that close to 1,000 hedge funds permanently shut down within the last 12 months. This is what the early stages of a financial crisis look like, and the worst is yet to come.

If we were entering another 2008-style crisis, we would expect to see junk bonds crashing. When financial trouble starts, it usually doesn’t start with the biggest and strongest companies. Instead, it usually starts percolating on the periphery. And right now bonds of firms that are considered to be on the risky side of things are rapidly losing value.

In the chart below, you can see that a high yield bond ETF that I track very closely known as JNK started crashing in the middle of 2008. This crash began to unfold before the horrific crash of stocks in the fall. Investors that saw junk bonds crashing in advance and pulled their money out of stocks in time saved an enormous amount of money.

Now, for the very first time since the last financial crisis, we are seeing junk bonds crash again. In December, there was finally a sustained crash through the psychologically-important 35.00 level, and at this point JNK is sitting a bit below 34.00. This stunning decline is a giant red flag that tells us that stocks will soon follow in the exact same direction…


JNK

In 2015, Third Avenue Management shocked Wall Street when they froze withdrawals from a 788 million dollar mutual fund that was highly focused on junk bonds. Investors that couldn’t get their money out began to panic, and other mutual funds now find themselves under siege. If junk bonds continue to crash, this will just be the beginning of the carnage.

One of the big reasons why junk bonds are crashing is because of the crash in the price of oil. Over the past 18 months, the price of oil has plummeted from $108 a barrel to $37 a barrel.

There has only been one other time in all of history when we have ever seen an oil price crash of this magnitude. That was in 2008 – just before the greatest financial crisis since the Great Depression…


Oil – Federal Reserve

Why can’t people see the parallels?

Crashes are happening all around us, and yet so many of the “experts” seem completely blind to what is going on.

Unlike 2008, the price of oil is not expected to rapidly rebound any time soon. The following comes from CNN…

Crude prices dropped a whopping 35% last year and are hovering around $37 a barrel. That’s a level not seen since the global financial crisis.

It won’t get better any time soon. Most oil experts believe prices will bounce back in late 2016, but they expect more pain first.

Goldman Sachs forecasts that oil will average about $38 a barrel in February, even lower than for most of 2015.

Meanwhile, the prices of industrial commodities have been crashing as well. For example, the chart below shows that the price of copper started crashing hard just before the great financial crisis of 2008, and the exact same thing is happening once again right before our very eyes…


Price Of Copper

Things are unfolding just as we would expect they would during the initial stages of a new global financial crisis.

And we have already seen a full blown stock market crash in many of the largest economies around the planet. For instance, just look at what has been happening in Brazil. The Brazilians have the 7th largest economy in the world, and Goldman Sachs says that they have plunged into an “outright depression”. In the chart below, you can see the sharp downturn that took place in August, and Brazilian stocks actually kept falling all the way through the end of 2015…


Brazil Stock Market

We see a similar thing when we look at our neighbor to the north. Canada has the 11th largest economy on the entire planet, and I recently wrote a lengthy articleabout the economic difficulties that the Canadians are now facing. 2015 was a very bad year for Canadian stocks as well, and they just kept falling steadily all the way through December…


Canada Stock Market

Of course nobody can forget what happened to China. The Chinese have the second largest economy on the globe, and news about their economic slowdown in making headlines almost every single day now.

Last summer, Chinese stocks crashed about 40 percent, and they did manage to bounce back just a bit since then. But they are still down about 30 percent from the peak of the market…


China Stock Market

And there is plenty more that we could talk about. European stocks just had their second worst December ever, and Japanese stocks are down about 500 points in early trading as I write this article.

Here in the United States, the Dow Jones Industrial Average, Dow Transports, the S&P 500 and the Russell 2000 all had their worst years since 2008. As I mentionedthe other day, 674 hedge funds shut down during the first nine months of 2015, and it is being projected that the final total for the year will be up around 1000.

But we aren’t hearing much about this financial carnage on the news yet, are we?

Many people that I talk to still think that “nothing is happening”, but don’t you dare say that to Warren Buffett.

He lost 7.8 billion dollars in 2015.

How would you feel if you lost 7.8 billion dollars in a single year?

The truth, of course, is that signs of financial chaos are erupting all around us. Corporate profits are plunging, the bond distress ratio just hit the highest level that we have seen since the last financial crisis, and corporate debt defaults have risen to the highest level that we have seen in about seven years.

If you run a business, you may have noticed that fewer people are coming in and it seems like those that do come in have less money to spend. Economic activity is slowing down, and inventories are piling up. In fact, wholesale inventories have now risen to the highest level that we have seen since the last recession…


Inventory To Sales Ratio – Federal Reserve

Do you notice a theme?

So many things that have not happened in six or seven years are now happening again.

History may not repeat, but it sure does rhyme, and it astounds me that more people cannot see that 2015/2016 is looking eerily similar to a replay of 2008/2009.

Another number that I watch closely is the velocity of money. When an economy is running well, money tends to circulate efficiently through the system. But when an economy gets into trouble, people get scared and start holding on to their money. As you can see from the chart below, the velocity of money declined during every single recession since 1960. This is precisely what one would expect. And of course during the recession that started in 2008, the velocity of money plunged precipitously. But then a funny thing happened when that recession supposedly “ended”. The velocity of money just kept going down, and now it has fallen to an all-time record low…


Velocity Of Money M2

A big reason for this is the ongoing decline of the middle class. In 2015, we learned that middle class Americans now make up a minority of the population for the first time ever.

But if you go back to 1971, 61 percent of all Americans lived in middle class households.

Meanwhile, the share of the income pie that the middle class takes home has also continued to shrink.

In 1970, the middle class brought home approximately 62 percent of all income. Today, that number has fallen to just 43 percent.

As the middle class is systematically destroyed, the number of Americans living in poverty just continues to grow. And those that often suffer the most are the children. It may be hard for you to believe, but the number of homeless children in the U.S. has increased by 60 percent over the past six years.

60 percent!

How in the world can anyone dare to claim that “things are getting better”?

Anyone that says that should be ashamed of themselves.

We are in the midst of a long-term economic collapse that is now accelerating once again.

Anyone that tries to tell you that “things are getting better” and that 2016 is going to be a better year than 2015 is simply not being honest with you.

A new global financial crisis erupted during the last six months of 2015, and this new financial crisis is going to intensify throughout the early months of 2016. Financial institutions will begin falling like dominoes, and this will result in a great credit crunch around the world. Businesses will fail, unemployment will skyrocket and millions will suddenly be faced with economic despair.

By the time it is all said and done, this new financial crisis will be even worse than what we experienced back in 2008, and the suffering that we will see around the world will be off the charts.

So does that mean that I am down about this year?

Not at all. In fact, my wife and I are greatly looking forward to 2016. In the midst of all the chaos and darkness, there will be great opportunities to do good and to make a difference.

What a great shaking comes, people go looking for answers. And I think that this will be a year when millions of people start to understand that our politicians and the mainstream media are not telling them the truth.

Yes, great challenges are coming. But now is not a time to dig a hole and try to hide from the world. Instead, this will be a time for those that have prepared in advance to love others, help others and show them the truth.

What about you?

Are you ready to be a light during the dark times that are coming?

Please feel free to join the conversation by posting a comment below…
The original source of this article is The Economic Collapse
Copyright © Michael Snyder, The Economic Collapse, 2016

For media inquiries: publications@globalresearch.ca
http://theeconomiccollapseblog.com/archives/2015-was-the-worst-year-for-the-stock-market-since-2008
http://money.cnn.com/2015/12/31/investing/stocks-market-2015/index.html?iid=hp-stack-dom
http://money.cnn.com/2016/01/01/investing/oil-prices-2016/index.html?iid=hp-stack-dom
http://theeconomiccollapseblog.com/archives/global-crisis-goldman-sachs-says-that-brazil-has-plunged-into-an-outright-depression
http://themostimportantnews.com/archives/suicide-crime-unemployment-and-poverty-all-soar-as-the-economic-crisis-in-alberta-accelerates
http://www.zerohedge.com/news/2015-12-31/european-stocks-plunge-worst-december-2002
http://theeconomiccollapseblog.com/archives/2015-was-the-worst-year-for-the-stock-market-since-2008
http://www.zerohedge.com/news/2015-12-31/another-hedge-fund-shuts-down-sab-capital-returns-all-outside-money
http://theeconomiccollapseblog.com/archives/2015-was-the-worst-year-for-the-stock-market-since-2008
http://www.businessinsider.com/q4-2015-earnings-preview-2015-12
http://www.usatoday.com/story/money/markets/2015/12/28/debt-distress-level-recession/77882786/
http://money.cnn.com/2015/12/02/investing/defaults-bankruptcies-2009-great-recession/index.html?iid=hp-stack-dom
http://www.latimes.com/nation/la-fi-middle-class-erosion-20151209-story.html

The middle class is losing ground

http://www.homelesschildrenamerica.org/mediadocs/280.pdf
http://theeconomiccollapseblog.com/archives/what-really-happened-in-2015-and-what-is-coming-in-2016


Saturday, 09 January 2016
20160108 Markets stabilise after China strengthens currency and circuit breaker is axed
2016-01-09 10:04 AM
http://www.telegraph.co.uk/finance/markets/12086208/China-stock-market-shares-plunge-ftse-100-europe-live.html
Markets stabilise after China strengthens currency and circuit breaker is axed
By Mehreen Khan, Chris Graham and Tara Cunningham
9:28AM GMT 08 Jan 2016

Beijing calls time on its stock market brake after suffering its shortest ever day of trading
The Shanghai Composite Index was suspended after falling 7.32pc Photo: Rex Features

• Automatic suspension of trading is scrapped by Beijing
• Central Bank fixes yuan higher for first time in 9 days
• Is China really devaluing its currency?
• China currency war fears wipe $2.6 trillion off global markets in four days

Markets stable for now after China strengthens yuan for first time in nine days….but only after wiping more than £30bn of the FTSE 100 and trillions off global markets

It has been a tumultuous week of trading for global stock markets, which at one point saw $2.5 trillion wiped off their value in just four trading days.

2016 is now officially the worst start to a calendar year since the aftermath of the dotcom crash in 2000.

Yesterday, stocks around the world sunk, gripped by renewed fears that China’s economy was engineering a devaluation of its currency and weak economic data from the world’s second largest economy.

The FTSE closed down 1.96pc, having fallen 3pc at one point. European markets all closed in the red, led by Germany’s DAX, which declined 2.29pc. France’s CAC40 lost 1.72pc and Italy’s FTSE MIB fell 1.14pc.

Thursday was also the worst one-day drop on Wall Street since late September, and the main US benchmark, the Standard & Poor’s 500 index, had its worst four-day opening of a year in history. The Dow Jones plummeted 392 points, or 2.3pc.

This morning, however, things seem a little calmer (relatively). Investors were cheered by news that China has strengthened its currency and scrapped a “circuit breaker” mechanism which halts trading when stocks plummet and has been blamed for aggravating market crashes all week. The circuit breaker system had only been in place for four days.

The People’s Bank of China also raised its guidance rate for the yuan for the first time in nine trading days, having allowed the currency’s biggest fall in five months on Thursday.

To calm currency markets, the PBOC set its daily midpoint rate for the yuan at 6.5636 per dollar prior to market open, firmer than Thursday’s fix at 6.5646 and closing quote of 6.5929. Under China’s currency regime the yuan is allowed to deviate 2pc either side of the midpoint.

As a result, China’s main indices have closed up, with the Shanghai Composite Index ending the day 2pc higher. The CSI 300 Index of large-cap companies in Shanghai and Shenzhen also advanced 2pc.

However, it’s worth noting that the Asian markets have been yo-yoing all morning and a sense of panic remains, particularly among retail investors.

Chinese stocks rose more than 2pc in early trade, only to reverse those gains minutes later.

By early afternoon in Beijing, the benchmark Shanghai Composite Index had added 2.39pc, or 74.56 points, to 3199.56. It had opened up, then dropped to a session low of 2.18pc, before climbing, falling, and rising again.

Despite the market fluctations this morning, today’s stability – relatively speaking, at least – is being attributed to an intervention by the People’s Bank of China. However, analysts are sceptical as to how long authorities can continue to intervene to pacify the markets and support the currency.

As Ambrose Evans-Pritchard says in his analysis here, China is trying to reconcile impossible objectives: “In economic parlance, it is the Impossible Trinity. No country can have an open capital account, a managed exchange rate and sovereign monetary policy. One must give.”

Enjoy the calm while it lasts.

06:36
Japan closes down … again
Despite the earlier rebound, Japan’s Nikkei 225 Stock Average posted its worst first week of a year since 1997.
According to Bloomberg, the Topix index dropped for a fifth day, losing 0.7 percent to 1,447.32 at the close in Tokyo. It swung from a 1 percent advance as tire makers led gains and utilities fell. The Nikkei 225 Stock Average lost 0.4 percent to 17,697.96, taking its weekly retreat to 7 percent. The yen weakened 0.6 percent to 17.70 per yuan in offshore trading, the first decline since Dec. 30.
“The situation is fragile, and the market sentiment seems to be moving on a short-term basis,” Ryoma Sugihara, head of Equity Flow Sales at Societe Generale Securities, based in Tokyo, told Bloomberg. “The overall weaker yuan trend hasn’t changed, but because authorities had taken a stronger fighting stance, excessive risk sentiment has eased.”

05:47
Bank moves to allay yuan fears
Despite the market fluctations in the morning, today’s stability – relatively speaking, at least – is being attributed to an intervention by the People’s Bank of China.
According to Reuters, the PBOC raised its guidance rate for the yuan for the first time in nine trading days, having allowed the currency’s biggest fall in five months on Thursday.
To calm currency markets, the PBOC set its daily midpoint rate for the yuan at 6.5636 per dollar prior to market open, firmer than Thursday’s fix at 6.5646 and closing quote of 6.5929. Under China’s currency regime the yuan is allowed to deviate 2 percent either side of the midpoint.


The PBOC raised its guidance rate for the yuan for the first time in nine trading days.The PBOC raised its guidance rate for the yuan for the first time in nine trading days. Photo: AFP

The yuan firmed in early trade, with dealers suspecting that the central bank intervened through state-run banks to support its currency, which could help allay fears that any depreciation would be allowed to continue at pace.
The onshore yuan recovered to 6.5874 at around 0500 GMT, while the offshore yuan was about 1.4 percent weaker at 6.6835, narrowing a spread that reached around 2 percent a day earlier. Since the PBOC devalued the yuan by about 2 percent last August, the spread has been growing, encouraging an outflow of capital that Beijing has been trying to stem.
Yoshinori Shigemi, a market strategist at JPMorgan Asset Management, told Reuters that the bank’s move has helped.
Quote While the market was left with uncertainty on how far the yuan will fall, the Chinese central bank’s action (the stronger fix on Friday) was taken as a signal that it does not intend to keep allowing the yuan to fall.

04:56
‘Panic will remain’
Shanghai shares may have ended positively at the break after a morning of wild swings but analysts are not convinced. By early afternoon, the benchmark Shanghai Composite Index had added 2.39 percent, or 74.56 points, to 3199.56. It had opened up, then dropped to a session low of 2.18 percent down, before climbing, falling, and rising again.
The Shenzhen Composite Index, which tracks stocks on China’s second exchange, gained 1.65 percent, or 32.26 points, to 1,990.34.
Referring to entities that buy shares as part of the government’s attempts to shore up prices, Li Jingyuan, general manager at Shanghai Bingsheng Asset Management, told Bloomberg News:
Quote The scrapping of the circuit breaker system will help to stabilise the market, but a sense of panic will remain, particularly among retail investors. The ‘national team’ will probably continue to buy stocks significantly to stabilise the market.

04:07
Japan rebounds after rout
The market is looking a little brighter in Japan. Tokyo stocks have rebounded on Friday from a three-month low linked to growing concerns about China’s economy.
The Japanese market opened in the red but later picked up as the yen weakened – a plus for exporters.The benchmark Nikkei 225 index rose 0.39 percent, or 69.56 points, to 17,836.90 by the break. The Topix index of all first-section shares gained 0.34 percent, or 4.97 points, at 1,462.91.
Oil prices have also rebounded from 12-year lows in Asia, AFP reports. At around 0300 GMT, US benchmark West Texas Intermediate for delivery in February was up 45 cents, or 1.35 percent, at $33.72 and Brent crude for February was up 41 cents, or 1.21 percent, at $34.16.
WTI had hit a low of $32.10 at one point on Thursday, the weakest since December 2003, while Brent touched $32.16, its lowest level since April 2004.


A pedestrian walks past an electronic stock board displaying the Nikkei 225 Stock Average, top right, and the Shanghai Stock Exchange Composite Index, second from bottom left, outside a securities firm in Tokyo on Thursday.A pedestrian walks past an electronic stock board displaying the Nikkei 225 Stock Average, top right, and the Shanghai Stock Exchange Composite Index, second from bottom left, outside a securities firm in Tokyo on Thursday. Photo: Bloomberg

03:33
Beijing’s response ‘concerning investors’
Analysts are pointing to concerns over China’s ability to manage the long-running malaise in the world’s number two economy as the reason for the ongoing volatility in the markets.
With investors panicked by Beijing’s attempts to stabilise its markets, Matthew Sherwood, head of investment strategy at Perpetual in Sydney, told Bloomberg News:
Quote There’s not a lot of stability in terms of policy management in China. They are very much making it up as they go and there’s no doubt that has been quite a common trend from policy makers in the post global-financial-crisis world. It causes large market volatility as people in markets don’t like uncertainty.

02:10
Swings mark early trading
A man looks at an electronic board at a brokerage house in Shanghai on August 31, 2009A man looks at an electronic board at a brokerage house in Shanghai on August 31, 2009 Photo: Reuters
Well, that didn’t last long. Underlining the volatility of the market, the early gains quickly vanished. After the benchmark Shanghai Composite Index and the Shenzhen Composite Index, which tracks stocks on China’s second exchange, both opened more than two percent higher, minutes later they reversed the gains, with the Shanghai index down 0.68 percent and the Shenzhen indicator dropping 1.80 percent.

01:52
China sees early gains
China’s major stock indexes have risen more than 2 percent in early trade on Friday after Beijing deactivated the circuit breaker mechanism blamed for aggravating market crashes this week.
The CSI300 index rose 2.4 percent to 3,371.87 points by 9.27am local time (0127 GMT), while the Shanghai Composite Index gained 2.2 percent to 3,194.63 points, according to Reuters.
In Hong Kong, the Hang Seng index was up 0.8 percent at 20,491.88 points.

22:30
Worst one-day drop on Wall Street since September
Thursday was the worst one-day drop on Wall Street since late September, and the main US benchmark, the Standard & Poor’s 500 index, has now had its worst four-day opening of a year in history.
The downturn in the US has been concentrated in technology stocks, which could suffer if demand for iPhones and other electronics weakens. Apple sank 4 percent and has now fallen 27 percent since July.
Thursday’s drop pushed the tech-heavy Nasdaq composite index into what market watchers call a “correction,” or a drop of 10 percent from a recent peak. The Nasdaq has fallen for six days straight.
The Dow Jones industrial average sank 392.41 points, or 2.3 percent to 16,514.10. At one point it was down 442 points, or 2.6 percent.
The S&P 500 index gave up 47.17 points, or 2.4 percent, to 1,943.09. The Nasdaq composite index dropped 146.34 points, or 3 percent, to 4,689.43.
While the Nasdaq is so far the only major U.S. index to enter a correction, the other two are getting close. The Dow average is down 9.8 percent from its peak in May, and the S&P 500 index has lost 8.8 percent since then.

20.00
$2.6 trillion wiped off global markets in four days
Global stocks markets have seen $2.5 trillion wiped off their value in just four trading days, the worst start to a calendar year since the aftermath of the dotcom crash in 2000.
Stocks suffered another tumultuous day of trading gripped by renewed fears that the world’s second largest economy was engineering a devaluation of its currency.
Nearly £30bn was wiped off the FTSE 100 after it fell by as much 3pc in its second worst start to a year since 1988. Britain’s benchmark index ended the day 1.96pc down at 5954 having briefly surpassed the lows of August’s Black Monday.
Read our story in full here

17.00
£30bn wiped off the FTSE
European markets have all closed for the day. Britain’s FTSE 100 recovered slightly in late afternoon trading to finish the day down by just under 2pc. It had fallen as much as 3pc this morning, falling to lows last seen on Black Monday in mid-August. Today’s sell off has seen around £30bn wiped off its market capitalisation.
Most of the world’s indices have rebounded after the announcement that China would no longer be imposing its emergency trading laws. Europe’s biggest faller was Germany’s Dax index which declined by 2.3pc.

15.55
Oil rallies on Aramco news
The suggestion from Saudi’s crown prince Salman has seen oil take a mid-day spike. Brench crude is now down around 0.5pc today approaching $34-a-barrel having slumped to $32.

Joseph Weisenthal @TheStalwart
Oil erases its losses
10:54 PM – 7 Jan 2016

15.30
Saudi Arabia could list shares in Aramco
Some surprising news reported by The Economist that Saudi Arabia is considering listing shares in Saudi Aramco, its state-owned oil company and the world’s biggest oil producer.
Muhammad bin Salman, the kingdom’s deputy crown prince said a final decision will be taken in the next few months.
“Personally I’m enthusiastic about this step. I believe it is in the interest of the Saudi market, and it is in the interest of Aramco,” he told The Economist.
A partial float could prove to be a significant source of funds for Saudi Arabia as the kingdom’s oil-reliant economy adjusts to a world of low oil prices. The monarchy has been forced to announce a new austerity-heavy budget, in a bid to cut largesse and stabilise its public finances.

15.15
Why the circuit braker did more harm than good
China is not the only country to have a mechanism to suspend trading in emergency circumstances. The US, South Korea and Japan all have similar market stabilisers which seem to serve them well.
But as analysts at Amundi note today, China’s new rule has proven to be too restrictive and panicked rather than soothed investor nerves.
In particular, the brake’s 5pc and 7pc tiered threshold is “too close to each other and added to investors’ fears” say Amundi.
“As a comparison, the US has set three thresholds of 7pc, 13pc and 20pc, and Korea has set three thresholds of 8pc, 15pc and 20pc.”

15.05
How long can China hold on?
Contrary to those devaluation fears, latest reserves data for December suggests the Chinese authorities have been intervening on a massive scale to prop up the renminbi. Reserves fell by around $108bn in December, leaving the country’s war chest at $3.3 trillion.
Analysts are divided on how long Beijing can burn through its reserves to keep the exchange rate stable.
Mark Williams, at Capital Economics says the central bank “will have to continue to intervene on a large scale in the short term to shift market perceptions that the renminbi is a one-way bet but given the still-high level of reserves it can do so for a long time yet.”
He estimates the PBoC can keep selling foreign exchange at the same rate for at least another two and a half years.

14.57
The sole risers on the FTSE today
It’s a small and elect group. The UK benchmark is down around 2pc today

Tara Cunningham @TaraSCunningham
No longer a Billy no mates! A couple of stocks join Randgold Resources in positive territory #ChinaMeltdown #FTSE
9:56 PM – 7 Jan 2016

14.52
US markets open in the red
Here’s how things are looking over in the US in the morning’s first hour of trading.
Dow Jones 1.35pc
Nasdaq 2.11pc
S&P 500 1.22pc

14.50
Another Chinese U-turn
That move to get rid of the new stock market circuit breaker only seven days into the new year will do nothing to allay fears over the competence of China’s authorities.
Beijing’s securities regulator announced this week that it would row back on lifting a share selling ban on its largest investors and companies. That was due to be lifted this Friday, but will stay in place for the forseeable given the week’s volatility.

14.45
Robin Wigglesworth @RobinWigg
China has triggered the circuit-breaker on its circuit-breaker it seems…
9:37 PM – 7 Jan 2016

14.40
BREAKING: the circuit breaker has snapped
And those rumours we bought you earlier are true it seems. Chinese authorities have reportedly decided to scrap the new circuit breaker mechanism that has led to trading being suspended on Monday and Thursday this week.
It was only introduced on January 1 but has had a rough start. The mechanism has acted as a new trigger for panic, rather than calm, forcing the Chinese to say they are getting rid. It kicks in to suspend trading by 15 minutes should stocks fall by as much as 5pc within 30 minutes. We’ll bring you more when we have it.

Reuters Business @ReutersBiz
BREAKING: China announces suspension of market circuit breaker – CNBC
9:38 PM – 7 Jan 2016

14.30
Debt and default, not markets, are China’s big problem
Danae Kyriakopoulou at Centre for Economics and Business Research, says China-watchers should look beyond the economic headlines and focus on the dangerous levels of corporate debt swashing around the country.
Should it choose to devalue, rather than stabilise, the currency, this would likely imperil companies who have loaded up on dollar-denominated debt. The chart below (courtesy of the Wall Street Journal) show the rocketing level of corporate bond issuance, which has been most pronounced since 2013.

Here’s Danae:
“Many Chinese corporates have taken on a lot of debt, some of it dollar-denominated. This exposure creates an important risk as the PBOC continues to allow the yuan to weaken.
It is not far-fetched at this stage to draw comparisons with the Asian currency crises of 1998 that occurred as economies with high levels of dollar-denominated debts were forced to devalue.
This, together with the commitment by the Chinese leadership to give market forces a greater say may mean that we will see many more corporate defaults in China this year.”

14.15
Scrapping the circuit breaker?
Rumours abound that the Chinese may be forced into another u-turn and get rid of th circuit breaker mechanism which has seen trading suspended twice in the last three days.
Critics argue that the mechanism – which was only introduced on January 1 – is too restrictive. It imposes a 15-minute delay on trading if the market index, CSI 300, falls 5pc within 30 minutes.

IGSquawk @IGSquawk
Rumours circulating that Chinese stock regulator may scrap circuit breaker less than a week after its introduction… #CSI300 RO
9:11 PM – 7 Jan 2016

If the circuit breaker had been in place since the summer, trading would have had to be suspended nearly 20 times. Some argue that instead of calming volatility, the circuit breaker has become a new catalyst for panic.
This morning trading was suspended after just 870 seconds – or 15 minutes, making it reportedly one of the shortest trading days in history.

14.11
Oil is still tanking
World oil prices are continuing their precipitous decline today. Brent crude is heading to below $33-a-barrel, while the US benchmark – WTI – has fallen 12pc already in 2016, officially its worst ever start to a calendar year.

14.00
Blacker Thursday for the FTSE
Britain’s benchmark is now below the lows it hit on Black Monday last summer at around 5910 points

13.45
Is China losing control?
Today’s renewed round of market turmoil is a mess created entirely by Chinese , according to critics.
Beijing’s authorities have been giving plenty of mixed messages in recent days about whether or not they are willing to let the renminbi depreciate against the US dollar or not.
The central bank today has reiterated its message that it is happy to let the RMB’s dollar exchange be dictated by the markets (translation: we won’t intervene to support it).
Instead, they say the are focussed on keeping the value stable against a 13-currency basket.

But this morning they moved to set the daily “fix” rate 0.5 lower. This marks the single biggest depreciation since the fateful days of Black Monday in August.
To make things even more confused, the latest data on China’s reserves shows that it has been drawing down its reserves at a record rate to prop up the RMB.

Here’s a quick guide to what we think, might be going on.


An advertisement poster promoting China’s renminbi (RMB) or yuan , U.S. dollar and Euro exchange services is seen outside at foreign exchange store in Hong Kong, ChinaChina’s foreign exchange reserves have fallen from a gigantic $4 trillion in the first half of 2014 to around $3.2 trillion today Photo: Reuters

13:28
FTSE falls below Black Monday (August 24) close
The FTSE 100 has dipped below the level it closed on August 24, otherwise known as Black Monday, when Chinese woes prompted a mass sell-off.
Just before 1:30pm, the blue chip index hit 5,894 – 4 points below where it finished on August 24 last year.

13:21
The Shanghai Shenzhen CSI300’s daily losses
On 22 occasions last year, the Shanghai Shenzhen CSI300 index recorded a daily loss of more than 3pc.
So far this year, it’s fallen by more than 3pc during two of just four trading sessions.
Not the best start to the year by any account:

Michael McDonough @M_McDonough
Number of Days China’s CSI 300 Dropped by More than 3%:
9:37 AM – 7 Jan 2016

13:11
US stocks set for sharp fall
After a torrid session yesterday, which saw US stocks slump to a three month low, Wall Street is expected to open firmly in the red.
Yesterday, the Dow Jones industrial average shed 1.5pc to close at 16,906.51.

Brenda Kelly @Brenda_Kelly
$DJIA futures now pointing to a much lower open at 16552. Down 354 points from yesterday’s close.
6:35 PM – 7 Jan 2016

13:06
Repeat of the 2008 crisis?
Billionaire George Soros has told an economic forum in Sri Lanka today that global markets are facing a crisis similar to 2008.
“China has a major adjustment problem.
“I would say it amounts to a crisis. When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008.”
But before you run for the hills (and flock to safe-haven stocks), it is important to remember this is the same man that warned in 2011 the European debt crunch would be “more serious” than the 2008 crisis.

12:48
£83bn wiped off FTSE in 4 days of 2016 vs £80bn in 2015
After the rollercoaster ride that was 2015, the new year has started with a bang.
In just four days of trading in 2016 £83bn has been wiped off the value of Britain’s biggest companies – that compares to 2015, when £80bn was wiped off the blue chip index.
2016 looks set to be another tumultuous as China-led malaise continues to plague investors.


Week one of 2016 on the FTSE 100

12:36
Chinese trading grinds to a halt: Monday vs. Thursday

Michael McDonough @M_McDonough
Comparing the Now Two Days in 2016 Chinese Equity Trading Was Halted:
9:28 AM – 7 Jan 2016

12:29
Miners in meltdown again
All the usual suspects are occupying the biggest fallers space on the FTSE 100.
Mining stocks and those with exposure to Asian have fallen furthest. With the price of Brent crude hovering below $33-a-barrel, oil stocks are also among the biggest laggards, with Royal Dutch Shell B shares and BP off by more than 4pc.
Mike van Dulken, of Accendo Markets, said the further declines in the price of oil, on supply glut fears have “added to the fray, with the 18-month rout taking prices to 12 year lows”.
“This is sure to weigh on both the majors and minors in the sector and prolong the easing of deflationary pressures.”

12:17
China’s stock market “not reflective of broader economy”?
Fang Jian, of Linklaters’ China practice, has said the Chinese stock market “isn’t necessarily reflective of the health of the broader economy” as its largest businesses still remain in state hands and the marjority of stock market traders are individual investors.
“This is a fundamental difference between the China and Western economies. China’s lower growth rate is indicative of the structural readjustment occurring in the economy as it becomes more domestic driven and less reliant on exports.
“The overwhelming policy objective at this point is maintaining stability and supporting sustainable growth.”

12:06
Markets at midday: £42bn wiped off Britain’s biggest companies
European markets have eased back a little since this morning.
The FTSE 100 is currently 162.4 points lower, or 2.69pc, to 5,909.72. This means almost £42bn has been wiped off Britain’s biggest companies following the move by China to accelerate the depreciation of the yuan.
The German DAX is off by 3.4pc, while the CAC in Paris and the IBEX are 2.7pc and 2.4pc lower, respectively.
The opening bell on Wall Street at 2.30pm is expected to trigger sharp falls across US stock markets – after they hit a three-month low yesterday.

11:52
Is the global economy in crisis? The twitterati think so!
Twitter points its users to China related hashtag suggestions amid the market chaos this morning.

LSE SU PRIS @LSE_SU_PRIS
You know the world economy’s in crisis when the first 3 Twitter hashtag suggestions for #China are #ChinaMeltdown #ChinaStocks #ChinaMarket
6:28 PM – 7 Jan 2016

How concerned are you?
Are you worried about China?
Yes, China’s economy is too large to ignore
No, these warnings are overblown

11:26
Anglo American in the doldrums yet again
Anglo American is doing a good job at holding on to the unwanted accolade of worst performing stock on the FTSE 100.
In just four days of trading this year it has already fallen by almost 20pc.
Last year, the under pressure miner plunged 75.1pc as the sector came under pressure to slash capital expenditure and operational costs in the face of collapsing commodity prices.

Alastair McCaig @AMcCaig_IG
$AAL looking to defend its 2015 title of “worst performing #FTSE stock”
$AAL $ADN $ANTO $OLD $BLT
oh & $RRS up
6:06 PM – 7 Jan 2016

11:11
Chinese economy: The story of 2016 so far
So let’s have a quick recap..
For the second time this week, Chinese stock markets shut early after its “circuit breaking” mechanism, that was introduced on January 1, was breached within the first 30 minutes of trading. This triggered a sharp fall in the Shanghai Composite index – 7pc.
The slump in the stock market came as Chinese authorities guided the yuan lower – allowing it to decline by 0.5pc, its most since August, which resulted in a mass sell-off, otherwise known as Black Monday.

Simon Barry, of Ulster Bank, said the FX regime is the subject of “some pretty large-scale reforms” including greater allowance for market forces in exchange rate determination.
“Investors clearly don’t feel fully comfortable with the new regime and the transparency and strategic intent which underpins its operation, with last night’s asset market moves partly reflecting a nervousness about a the threat of the possibility of a larger devaluation in time.”

Chinese currency: at a glance
The renminbi, which literally means “people’s currency”, is the official name for the Chinese currency. It is informally referred to as the yuan when discussing amounts, or kuai in colloquial speech.
As of January 7, one yuan is worth just over £0.10.
The exchange rate has been fairly flat since the 2008 banking crisis, thanks mostly to China’s efforts to “peg” the value of the yuan to the US dollar, rather than let it rise and fall with supply and demand.
But China surprised the markets in August when it devalued the yuan by 2pc against the dollar. Since then, the authorities have continued to devalue the currency. On January 7, 2016, The People’s Bank of China surprised markets by setting the official midpoint rate on the yuan at 6.5646 to the dollar, the lowest since March 2011.
The renminbi was until recently tightly restricted beyond China’s borders. Hong Kong residents became the first to hold deposits in yuan outside China in 2004.
In 2014, London became the first venue for trading renminbi in Europe.

10:54
Home time already?
Only four working days into the new year and this happens:

Enda Curran @endacurran
Job done. The day China’s stock traders went home after 29 minutes: http://bloom.bg/1ZP6C23 @frostyhk
2:37 PM – 7 Jan 2016

So just to recap why Chinese stocks closed after 29 minutes of trading:

FAQ: Chinese stock crash
How did we get here?
The Shanghai Composite has enjoyed a tremendous bull run.
At its peak in June 2015, the index was 152pc higher than a year earlier.
Equities have been driven higher by a state-backed campaign to encourage investing.
What has happened?
Fears of slowing growth and that stocks climbed too high have led to a severe correction.
Chinese authorities have repeatedly devalued the yuan, fuelling speculation that the economy is in a worse state than they are letting on and spooking the markets
Beijing has introduced a mechanism which suspends trading on the markets if the shares fall more than 7pc, in a further sign that there is more volatility to come
The fall in Chinese stocks has clattered other markets around the world

10:46
“Acrid stench of fear” in the City
David Buik, of Panmure Gordon, says an “acrid stench of fear filters down Threadneedle street and Canary Wharf” this morning as equity markets falter.
“The start to the year has been metaphorical carnage as far as equities are concerned.
“China has set the agenda with two gargantuan falls this year, aided and abetted by oil falling to its lowest level in 12 years (-4% today) suggesting that investors are not happy campers!”

David Buik @truemagic68
From bad to worse at the opening! – FTSE -120 DAX -324 and CAC -110 points courtesy of IG
2:20 PM – 7 Jan 2016 · City of London, London, United Kingdom

10:41
Randgold Resources: FTSE’s sole survivor
It’s lonely at the top….. of the FTSE.
Gold miner Randgold Resources is the only FTSE 100 stock to emerge unscathed from the latest sell-off.
Shares jumped 1.1pc to £43.74 after the price of gold hit a nine-week high.
Randgold is now on track for its fourth day of consecutive gains – 6pc higher this week – as risk averse investors flock to safe-haven stocks.

10:31
“Circuit breaker” makes it mark on 2016
China’s new ‘circuit-breaker’ mechanism was introduced on January 1 to curb volatility in Chinese stock markets.

Maxime Sbaihi @MxSba
Two new words making a hell of a 2016 start: “circuit breaker”. #ChinaStocks
4:17 PM – 7 Jan 2016

10:20
Global shares hit three-month low
MSCI’s 46-country all world index slipped by 1pc this morning, dragging global shares to a three-month low.
The global index has now fallen for six consecutive trading sessions as investors are plagued by worries about China’s ailing economy and geopolitical tensions.

The benchmark emerging stock index also hit a six-and-a-half year low as investors offloaded risky assets.
It’s worth noting China isn’t the only emerging market currency that has weakened since the start of 2016.

Burnett Tabrum @BTabrum
Happy New Year for Emerging Currencies. Not.
4:59 PM – 7 Jan 2016

10:07
Is it game over for China?
Many analysts are not confident about the state of the Chinese economy after it guided the yuan lower and Shanghai shares plunged 7pc.
After just half an hour of trading, Chinese stock trading was suspended for a second time this week.
As global shares tumbled for a sixth day in a row and oil prices continued to slide, Joshua Mahony, of IG, warned: “no one knows where this rout will stop and as of yet, the Chinese regulators have yet to show they can instil confidence in any way other than to install draconian measures that limit the function.”
“For many in the City, there was a feeling that the show was over before it begun.”

Pedro da Costa @pdacosta
#ChinaStocks announcement. pic.twitter.com/SUzfO3F9Ms
9:55 AM – 7 Jan 2016

09:51
Another disastrous close: Hong Kong stocks plummet
Hong Kong stocks closed this morning at 20,333 – a hefty one day fall of 3.1pc – after China accelerated the depreciation of the yuan – sending shock waves through global financial markets.
Dominic Rossi, of Fidelity International, said: “Global equity markets are now battling the third wave of deflation since 2008.
“The epicentre is not within the developed world nor the financial system but, this time, within the developing world and the global manufacturing sector, where capital allocation has been poor and where overcapacity is rife.”

Simon C Graham @SimonCGraham
The Hong Kong HSI has now given up its gains since June of 2013. #ChinaStocks #HongKong
3:28 PM – 7 Jan 2016

09:40
Yes, everyone loves “a good trendline”
Sterling has eased back ever so slightly after slipping to a five-and-a-half year low earlier this morning.
GBP is currently at $1.4580.

Joshua Mahony @JMahony_IG
Everyone loves a good 30 year trendline! Coinciding with the 2015 low. #GBPUSD
4:38 PM – 7 Jan 2016

09:26
And so the carnage continues – £46bn down and counting
Things are escalating quickly across financial markets this morning.
Since 8am, the FTSE 100 has fallen 182.9 points, or 3pc, to 5,891.14. Britain’s biggest companies have now lost more than £46bn in morning trade. In 2015, some £80bn was wiped off the index.
European bourses are also nursing hefty losses. The German DAX is now 3.6pc in the red, while the CAC in Paris and the Spanish IBEX are down 3.2pc and 2.9pc respectively.
Recession will be bad, but not as bad as Europe says think tank: A worker on IG Index’s trading floor holds his head in his hands as markets tumbleChaos on trading floors across the world this morning as major financial markets fall sharply. Photo: REUTERS

09:09
Sterling sinks to five-and-a-half year low
The pound fell to its weakest level since June 2010 just after 9am this morning.
Sterling dropped 0.4pc to $1.4561 and 0.8pc to 74.26 pence per euro.


GBP six-year graph

09:00
UK miners slump to lowest level in 12 years, as copper nears seven-year lows
The FTSE 350 mining index tumbled to its lowest level since June 2004.
Anglo American is the biggest faller this morning down 9.7pc to 244.3p. Glencore is not far behind – falling 6.5pc to 80p. Antofagasta and BHP Billition have slipped by around 6pc in early trade.
The move downwards comes as copper plunged to near seven-year lows this morning amid chaos in Chinese stock markets. The market mayhem has fuelled concerns demand from the world’s biggest metals consumer is waning. Three-month copper on the London Metal Exchange fell by 2.5pcto $4,503 a tonne.

08:31
FTSE dips below 6,000 mark – £36bn wiped off index in 30 minutes
The FTSE 100 has fallen below 6,000 for the first time since mid-December. In the first half hour of trading, the blue chip index slumped 141.7 points, or 2.34pc, to 5,930.33.
In a mere 30 minutes more than £36bn has been wiped off the value of Britain’s leading companies.
With market mayhem in China, sliding oil prices and geopolitical tensions at the fore, Andy McLevey, of Interactive Investor, said: “Investors are scurrying to the sidelines and even these current levels may not be enough to tempt many back short term as the uncertainty continues.”

08:14
European markets open down
Is it Monday all over again?
European markets are in the red again after China’s suspension overnight.
The FTSE 100 sank 1.8pc on opening.
The German DAX was down 3pc, the French CAC by similar, and the Spanish IBEX by 2.7pc.

08:09
Oil drops to $32 a barrel
The turmoil in China is starting to be felt across the board.
The price of Brent crude oil – the European benchmark for oil – dropped to $32.50 this morning, a 12-year low.
West Texas Intermediate, the US benchmark, fell as much as $1.87 to $32.10 a barrel, the lowest intraday level since December 2003.
Oil watchers were wondering whether it had any further to fall in 2016 after a dire 2015. Today’s drop will be terrible news for oil & gas firms.


How low can oil go?

07:40
‘The system doesn’t work’
Some early thoughts from Mark Dampier, head of investment research at financial services firm Hargreaves Lansdown:
“Clearly the circuit breaker is having the opposite affect to what is intended and is making things worse. It also stops the market having any chance of bouncing. Had it been introduced during 2015, it would have been triggered 20 times. The system doesn’t work and until it is withdrawn or modified we can expect to see further use and perhaps shorter trading periods than we saw last night.
“The interference by the authorities is simply delaying the inevitable. The market needs to find its own level so we will see more volatility in global markets until it does.
“Long-term investors should sit tight. The Chinese market falls are also hurting global markets which look painful in the short term but are beginning to present buying opportunities.”


A stock ticker (in green – a negative colour in China) shows this morning’s market movements

07:30
How does China’s ‘circuit breaker’ work?
For the second time this week, after Monday’s dramatic start to the new year, China’s “circuit breaker” mechanism kicked in to suspend stock trading.
The circuit breaker institutes a 15-minute pause in trading if a market index, the CSI 300, falls 5pc within 30 minutes.
But today’s decline was so fast that before that could take effect, it hit the 7pc limit that ends trading for the day.
In fact, trading this morning was suspended after just 870 seconds – or 15 minutes, making it reportedly one of the shortest trading days in history.

Holger Zschaepitz @Schuldensuehner
Chart of the day: #China’s CSI 300 closed 6.9% lower after on of the shortest trading sessions in history.
2:30 PM – 7 Jan 2016

The circuit breaker – which was only introduced this week – was designed to bring stability to the sometimes volatile Chinese stock market. Safe to say it’s not off to a great start.

07.20
Why has the Chinese stock market been suspended again?
The latest fall in China’s stock markets is connected to the rapid devaluation of China’s currency, the yuan, or renminbi.
The People’s Bank of China (PBOC) again surprised markets earlier today by setting the official midpoint rate on the yuan at 6.5646 per dollar, the lowest since March 2011.
That was 0.5pc weaker than the day before and the biggest daily drop since last August, when an abrupt near 2pc devaluation of the currency also roiled markets.
While it’s not always easy to pinpoint the motives of the Chinese authorities, most market watchers believe the move to further devalue the yuan is a bid to give China’s exports a boost.
A cheaper yuan would, in turn, make Chinese exports cheaper, and give the economy a lift. China’s economic growth has been slowing for some time; many experts believe growth this year will be below the government’s official stated target of 7pc a year.
As Reuters notes, a sustained depreciation in the yuan puts pressure on other Asian countries to devalue their currencies to stay competitive with China.

07:10
Chinese stock markets suspended
Chinese stock trading was suspended on Thursday after “circuit breakers” kicked in following a steep plunge, in the latest spasm of investor panic on the country’s volatile markets.
Trading on the Shanghai and Shenzhen stock exchanges was frozen for the day after shares tumbled more than 7pc.
The CSI300, an index comprising the biggest stocks in China, fell 6.93pc. The Shanghai Composite Index was down 7pc, and Shenzhen 8.24pc.
The emergency measures, which took effect on January 1, also kicked in on Monday to halt stock trading.
Beijing has been trying to restore investor confidence after markets plunged in June following huge gains in the preceding year. The market meltdown has prompted a panicked, multibillion-dollar government intervention.
All eyes are now on European markets to see if this latest trading halt knocks shares here.

http://www.telegraph.co.uk/finance/economics/12086754/Is-China-really-devaluing-its-currency.html
http://www.telegraph.co.uk/finance/markets/12087973/China-currency-war-fears-wipe-2.6-trillion-off-global-markets-in-four-days.html
http//www.telegraph.co.uk/finance/markets/12086208/China-stock-market-shares-plunge-ftse-100-europe-live.html
http://www.telegraph.co.uk/finance/china-business/12088033/Capital-flight-pushes-China-to-the-brink-of-devaluation.html
http://www.telegraph.co.uk/finance/markets/12086208/China-stock-market-shares-plunge-ftse-100-europe-live.html#update-20160108-0407
http://go.telegraph.co.uk/?id=296X683&site=telegraph.co.uk/finance&xs=1&isjs=1&url=http%3A%2F%2Fwww.economist.com%2Fnews%2Fmiddle-east-and-africa%2F21685529-biggest-oil-all-saudi-arabia-considering-ipo-aramco-probably%3Ffsrc%3Dscn%2Ftw_ec%2Fsaudi_arabia_is_considering_an_ipo_of_aramco_probably_the_world_s_most_valuable_company&xguid=167c56890709373ba7a4f299faf30438&xuuid=388099f5d25c583e2e7f49d39c7946b1&xsessid=1bb47f04873f5b57152d26c39947288f&xcreo=0&xed=0&sref=http%3A%2F%2Fwww.telegraph.co.uk%2Ffinance%2Fmarkets%2F12086208%2FChina-stock-market-shares-plunge-ftse-100-europe-live.html&pref=https%3A%2F%2Fwww.google.com&xtz=-420
http://www.telegraph.co.uk/finance/economics/12086754/Is-China-really-devaluing-its-currency.html
http://www.telegraph.co.uk/finance/china-business/11821043/How-did-Black-Monday-start.html
http://www.telegraph.co.uk/finance/markets/12085133/US-stocks-hit-three-month-low-as-China-woes-plague-investors.html


Saturday, 09 January 2016
20160108 What Is Behind The Volatility In China’s Financial Markets?
2016-01-09 10:01 AM
http://www.npr.org/2016/01/08/462351799/what-is-behind-the-volatility-in-chinas-financial-markets
Asia
What Is Behind The Volatility In China’s Financial Markets?
Fank Langfitt http://www.npr.org/people/4569077/frank-langfitt
Updated January 8, 20162:03 PM ET Published January 8, 20165:15 AM ET

It’s been an unnerving week for China’s economy, the world’s second largest. Prices fell so sharply on the Shanghai stock exchange that trading had to be halted for the day – twice.

RENEE MONTAGNE, HOST:

It has been an unnerving week in China, where the world’s second-largest economy watched its markets plunge by double digits. Prices fell so sharply on the Shanghai Stock Exchange that trade was halted twice.

Meanwhile, the value of China’s currency, the yuan, fell to its lowest level in nearly five years. All of that pushed markets down around the globe and here in the U.S.

We’re fortunate to have NPR Shanghai correspondent Frank Langfitt here in the studio, having just arrived from China. Good morning.

FRANK LANGFITT, BYLINE: Good morning, Renee.

MONTAGNE: First off – has the market slide stopped for now?

LANGFITT: It has for now. It’s much better. Actually, Shanghai was up 2 percent. The European markets and U.S. futures are slightly up as well, so things are calmer. What happened was the government stepped in. They tightened the band that the currency was trading on – that it fluctuates on. And they also stopped using these things called circuit breakers that were designed to shut off trading when there was a real steep drop. And what’s actually happening is people were actually dumping their stocks before the circuit breaker kicked in because they were worried. And so it actually ended up having the opposite effect.

MONTAGNE: Sort of counterproductive?

LANGFITT: Very much so.

MONTAGNE: At least China’s government thinks so. This is, though, the second market plunge in six months. It was down last summer. It’s been up since then. Now it’s back down again. So what really, in the big picture, is going?

LANGFITT: What happened is the government jumped in last summer when we had these problems, and they bought up a lot of stocks and stabilized it. But that doesn’t change the fact that the industrial economy in China continues to slow.

I spent part of the fall actually visiting closed cement factories, struggling coal mines. And what we saw on Monday is data showing that manufacturing was continuing to shrink. That drove a plunge on Monday. We had another one on Thursday when the People’s Bank of China allowed the currency to drop a lot more.

Now, in the short term, that can mean more money flown out of the economy away from the yuan. And, of course, that’s less money to prop up stocks.

MONTAGNE: Well, China had suddenly devalued its currency last summer, which really rattled the markets at that time. What’s going on with the currency this time?

LANGFITT: Well, they’ve allow the currency now to fall to about 6.5 yuan to the dollar. And that’s making the yuan cheaper, so it’s easier for China to sell things overseas. And that can maybe help the manufacturing economy a little bit. Of course, it makes it more expensive for China to buy foreign products, and so that’s less demand for global growth.

So when you look at some big – some economies like, say, Australia, Mongolia – they rely a lot on China buying minerals and energy, and so it can be a big shock to other economies when China isn’t buying.

MONTAGNE: What is the positive in all of this? – because there can be a positive when a country’s currency goes down.

LANGFITT: Well, one positive for folks like us and people outside of this economy who are not using the yuan. But you can buy Chinese products cheaper. So that’s actually good for Americans.

And I’ll give you just a personal example. I live in Shanghai, as you were mentioning. It’s really expensive there. Recently, I was changing money before I left. And I saw the exchange rate, and I was just thrilled because now I’m actually saving several hundred dollars in rent every month because the currency’s fallen that much.

MONTAGNE: Well, that’s nice – for you. But what does this tell us about the overall health of China’s economy? And that, of course, has implications for the rest of the world.

LANGFITT: I think it’s important to remember here that there’s always a big reaction to China because it is such a big economy. It’s such a big country. But we’re not looking at a collapse. The economy’s still growing, but I think we’re in for a hard slog.

The industrial economy is slowing faster than, say, consumer spending can pick up that slack. Growth will probably continue, almost certainly continue to slow this year. The government has to make a big transition in this economy. They have to make it more efficient. They have to create more value. But they’re also fighting vested interest. They’re state monopolies and energies and telecoms that just don’t want to see competition. So the world’s going to continue to watch this very closely, and markets are going to continue to react to, really, almost whatever they see happening in China.

MONTAGNE: NPR’s Shanghai correspondent Frank Langfitt, in our studio though this morning. Thank you.

LANGFITT: Happy to do it, Renee.

Frank Vartuli • 8 hours ago
No surprise that those casinos called Wall Street and The City in London doing what the do best, manipulating securities markets for big time profits. The Fed accommodated this New World Order activity by making many hundred of billions in cheap money available to the head croupiers. No qualms that the cheap money punished small time savers who might need a little extra money. It would have been justified if we had seen all those dollars stimulate our economy, but there’s much more profit in manipulating markets by these grossly oversized “banking” cartels. The Chinese economy will still be growing at a rate we can only dream of here, so there is no real reason for these selloffs.


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