Market Update: April 24, 2017

MarketUpdate_header

  • U.S. up, Europe surging in wake of French vote. U.S. equities are tracking global markets higher this morning following yesterday’s first round of the French presidential elections in which Emmanuel Macron and Marine Le Pen finished in the top spots, triggering a run-off vote set for May 7. Friday’s session concluded with the major indexes posting modest losses ahead of the vote, as the S&P 500 (-0.3%) was led lower by the telecom (-1.6%) and financials (-0.9%) sectors, with only utilities (+0.5%) and industrials (+0.1%) finishing positive. Overseas, Asian indexes reacted positively to the French election as the Nikkei (+1.4%) and Hang Seng (+0.4%) gapped higher; the notable exception was the Shanghai Composite (-1.4%), which fell amidst a government crackdown on leverage. European indexes are spiking as the STOXX 600 (+1.8%) benefits from investors betting on the pro-E.U. candidate Macron; Frances’s CAC is up more than 4% to its highest level in nine years. Finally, the yield on the 10-year Treasury has jumped to 2.30%, WTI crude oil (-0.5%) is just below $50/barrel, and COMEX gold ($1271/oz.) has dropped 1.4%.

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  • Solid start to Q1 earnings season. With 95 S&P 500 companies having reported, Thomson-tracked S&P 500 earnings for first quarter 2017 point to an 11.2% year-over-year increase, compared with consensus estimates of +10.2% as of quarter end on April 1, 2017. The early upside has been driven largely by financials, which are tracking to a 19.0% year-over-year increase, more than 4% above quarter-end estimates. Industrials have also surprised to the upside thus far. Conversely, since earnings season began, first quarter earnings estimates have been cut for the consumer discretionary, energy, and telecom sectors, though it is probably too early to call any of these sectors “earnings season losers.” This week (4/24/17-4/28/17) is the busiest week of earnings season with 194 S&P 500 companies slated to report. All of the widely-held sectors are well represented on the earnings calendar, led by industrials.

4-24-17-earnings-dashboard

  • Leading indicators rise for seventh consecutive month. The Conference Board’s Leading Economic Index (LEI) pushed 0.4% higher in March, ahead of expectations but decelerating from a downwardly revised 0.5% increase in February. Eight of 10 indicators increased in March, led by contributions from the yield curve and strong new manufacturing orders survey data. The LEI has climbed 3.5% year over year, a rate that has historically been associated with low odds of a recession occurring within the next year.
  • The latest Beige Book suggests a steady economy with modest wage pressure. The Federal Reserve (Fed) released its April Beige Book last week ahead of the May 2-3, 2017 Federal Open Market Committee (FOMC) meeting. Our Beige Book Barometer (strong words minus weak words) rose to +77 in April, its highest level since +84 in January 2016, indicating continued steady economic growth in early 2017 with some signs of potential acceleration. Words related to wage pressure have held steady over the last six months at levels above the 2015-2016 average, indicating the appearance of modest but still manageable wage pressure.
  • Important period for European markets. This week, we examine the importance of European market earnings, particularly in important sectors like energy and banking. Expectations remain high for earnings growth throughout 2017, which has kept us cautious on investing in European markets. Political risks also remain, but seem to be abating as we get past the first round of French Presidential elections.

MonitoringWeek_header

Monday

  • Germany: Ifo (Apr)

Tuesday

  • New Home Sales (Mar)

Wednesday

  • BOJ Outlook Report & Monetary Policy Statement
  • BOJ Interest Rate Decision

Thursday

  • Durable Goods Orders (Mar)
  • Eurozone: Consumer Confidence (Apr)
  • ECB Interest Rate Decision
  • Japan: CPI (Mar)

Friday

  • GDP (Q1)
  • UK: GDP (Q1)
  • Eurozone: CPI (Apr)

Saturday

  • EU Leaders Summit
  • China: Mfg. & Non-Mfg. PMI (Apr)

 

 

 

 

 

 

Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. This research material has been prepared by LPL Financial LLC.

Market Update: April 17, 2017

MarketUpdate_header

  • Stocks tick higher to begin week. U.S. equities are slightly higher this morning as earnings season ramps up this week with 63 S&P 500 components set to report. Markets moved lower the final three sessions of the last week’s shortened trading week, concluding with a 0.7% loss for the S&P 500 on Thursday which was led lower by energy (-1.9%) and financials (-1.7%). Asian indexes closed mixed overnight, with the Nikkei gaining 0.1%, while China’s Shanghai Composite slipped 0.7% as a request from the country’s top securities regulator to tighten controls overshadowed an upside surprise to Gross Domestic Product (GDP); European markets are closed for Easter Monday. Meanwhile COMEX gold ($1291/oz.) is near flat, WTI crude oil ($53.03/barrel) is dropping 0.3%, and the yield on the 10-year Note little changed at 2.23%.

MacroView_header

  • First big earnings week on tap. This week 16% of the S&P 500’s market cap will report first quarter 2017 results, highlighted by the financials and industrials sectors. Banks got the season off to a good start late last week, pushing the financials earnings growth rate to near 18% from an estimated 15.6% over the past week. Overall, Thomson-tracked consensus for S&P 500 earnings is calling for a 10.4% year-over-year increase in the quarter; a strong 76% earnings beat rate thus far has lifted overall earnings growth by 0.2% (though just 6% of the S&P 500’s market cap reported last week). Look for our earnings dashboard here on April 24.
  • Consumer prices fell in March. The consumer price index (CPI) fell 0.3% month over month in March, below consensus expectations for a flat reading. Core prices, excluding food and energy, slipped 0.1% month over month, the first sequential decline since January of 2010 and well below consensus estimates of +0.2%. The drop pushed the year-over-year changes in headline and core prices to 2.4% (down from 2.7% in February) and 2.0% (down from 2.2% in February), respectively. The drop in prices was broad based, driven by a combination of wireless phone services, apparel, autos, and housing. We continue to expect two more rate hikes from the Federal Reserve (Fed) in 2017, but the soft data in March may cause markets to at least partially discount the probability of a June hike, which is currently about a coin flip based on fed funds futures markets.
  • Retail sales fell for the second straight month. Following a downward revision to February, retail sales fell for the second straight month in March, slipping 0.2% (vs. consensus of -0.1%), though sales increased by a respectable 5.2% on a year-over-year basis. Core retail sales (excluding autos, gasoline, building materials and food services), rose 0.5% month over month, above expectations, after a downwardly revised 0.2% decline in February. Consumer spending clearly slowed in the first quarter after a strong finish to 2016, but weather, delayed tax refunds, and seasonal quirks in first quarter data in recent years suggest a rebound in the second quarter is likely. Still, first quarter gross domestic product, based on available data to date, is tracking to only about 1%.
  • Upside surprise to Chinese GDP. The Chinese government released its official Q1 GDP report overnight, up 6.9%, better than expectations which generally were in the 6.5%-6.7% range. Economic indicators were up across the board, including growth in Fixed Asset Investment (infrastructure and real estate spending), which is often heavily influenced by government policy, and retail sales. Consumer spending is key to the Chinese government, as it is trying to manage its economy away from infrastructure and heavy industry and toward consumer spending and the service sector.
  • Though many are skeptical regarding Chinese GDP growth figures, what may matter most is how China responds to them. Because the government is signaling that the economic situation is strong, it gives it room to be more aggressive on important issues, primarily the debt problem. Chinese shares were down slightly despite the positive data. Why? Perhaps because of the government’s signal that policy will shift away from supporting the economy (which officially no longer needs the support) and toward dealing with these longer term imbalances.
  • Checking in on technicals, sentiment, and uncertainty. This week we will take a look at market technicals, sentiment, and the ever increasing uncertainty. The good news is market breadth remains strong and globally we are seeing many major markets in uptrends as well. Still, sentiment is a mixed picture and the level of uncertainty remains high. All of this, coupled with the historically low level of market volatility during the first-quarter, makes the potential for higher volatility very likely.

MonitoringWeek_header

Monday

  • BOJ: Kuroda Speaks to Trust Companies Association

Wednesday

  • Beige Book
  • Eurozone: Trade Balance (Feb)
  • Eurozone: CPI (Mar)

Thursday

  • Initial Jobless Claims (Apr 15)
  • Conference Board US Leading Index (Mar)
  • Eurozone: Consumer Confidence (Apr)

Friday

  • Existing Home Sales (Mar)
  • Eurozone: Markit Mfg. & Services PMI (Apr)
  • CAD: CPI (Mar)
  • ECB: Current Account (Feb)

 

 

 

 

 

 

Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. This research material has been prepared by LPL Financial LLC.

Market Update: Monday, October 3, 2016

LPL Financial Research

MarketUpdate_header

  • Global markets assess oil rally and Brexit update. U.S. stocks are lower this morning after closing the third quarter on a positive note. The financial and energy sectors led Friday’s rally, boosted by reports that Deutsche Bank may have reached a settlement to reduce the $14 billion fine levied by the U.S. Department of Justice and that OPEC may be on track to reduce output; WTI crude oil sits at $48.20/barrel. The British pound is falling against other currencies after U.K. Prime Minister Theresa May promised a swift exit from the European Union; U.K. stocks are markedly higher though the rest of Europe is near flat in afternoon trade. Overnight, the Nikkei Index gained 0.9% while Hong Kong’s Hang Seng rose 1.2% on mixed Purchasing Managers’ Index (PMI) data; the Shanghai Composite is closed all week for a holiday. Meanwhile, COMEX gold ($1316/oz.) is modestly lower and weakness in Treasuries

View original post 1,219 more words

Chinese Investors Swearing Off Stocks After Price Turmoil

A man looks at an electronic board displaying stock prices at a brokerage house in Beijing, Tuesday, Jan. 5, 2016. Last year’s Chinese stock boom and disastrous bust has left a legacy of public distrust of financial markets along with a bill the ruling party has yet to disclose for its rescue. The Shanghai index ended 2015 up 9.5 percent for the year, compared with a 0.7 percent loss for Wall Street’s Standard & Poor’s 500 index. But many novices who bought just before the peak are left with shares worth less than they cost.
AP Photo/Andy Wong

BEIJING — Yang Lihua was one of millions of small investors Beijing encouraged to join a stock-buying frenzy last year. But the Shanghai newspaper editor sold after prices collapsed in June and she vowed never to return.

In November, Yang was coaxed back in after a multibillion-dollar government intervention stabilized prices. Then on Monday, the benchmark Shanghai Composite Index began the new year by plunging nearly 7 percent.

“I do not want to invest anymore,” said Yang, who has lost 350,000 yuan ($55,000) in total. “This is just too miserable. It hurts, emotionally, a lot.”

Battered by market gyrations, Chinese small investors are swearing off stocks. That is setting back the ruling Communist Party’s hopes of encouraging widespread stock ownership to help transform its financial markets into tools to propel economic reform.

Despite a rebound in prices from their August lows, no significant new money from small investors has flowed into stocks, according to Guo Yanhong, a market strategist for Founder Securities.

“They have either no more money to invest or they just don’t want to invest anymore,” said Guo.

Last year’s Chinese stock boom and disastrous bust has left a legacy of public distrust of financial markets along with a bill the ruling party has yet to disclose for its rescue.

The Shanghai index ended 2015 up 9.5 percent for the year, compared with a 0.7 percent loss for Wall Street’s Standard & Poor’s 500 index. But many novices who bought just before the peak are left with shares worth less than they cost.

Yin Kai, a bank employee in Beijing, said he has lost about 20 percent of the 100,000 yuan ($15,000) he has invested.

“I feel sort of depressed to talk about this, because I’m afraid I am losing almost all my recent salary to the stock market,” said Kai, 26.

Financial analysts expect more selling after Friday, when a six-month-old ban on sales by shareholders who own more than 5 percent of a company is due to expire.

Beijing keeps its financial system sealed off from global capital flows but changes in Chinese stock prices affect sentiment abroad. Monday’s decline helped to trigger a Wall Street sell-off, sending the Dow Jones industrial average down 1.5 percent.

Millions of new investors were opening trading accounts a year ago as Beijing encouraged the public to buy stocks.

Chinese leaders wanted to use the markets to raise money to pay down debt at state companies. As part of a sweeping effort to make the state-dominated economy more productive, they hope transforming coddled state industries into profit-oriented companies with outside shareholders might make them more competitive and efficient.

Driven by cheerleading by the state press, which told investors the market was in a “golden age,” the Shanghai index more than doubled between November and its June 12 peak. The bubble burst after a change in bank regulations prompted concern Beijing was curbing credit to finance trading. By late June, the benchmark had lost 30 percent.

Yang, the newspaper editor, watched her money evaporate. On June 25, her stocks fell by the daily limit of 10 percent. The next day they fell again by the same margin.

“I sold out all my stocks on the 30th, and decided I would never invest in the stock market again,” she said.

Panicked Chinese leaders responded with interest rate cuts and promises state companies would buy stocks. They imposed the six-month ban on sales by major shareholders and canceled initial public offerings.

Prices stabilized, then fell again in August, putting the index down 43 percent from its peak. Goldman Sachs said in an August report a group of state entities charged with propping up prices had spent an estimated 860 billion-900 billion yuan ($135 billion-$140 billion) to buy shares in June and July.

That left state companies with vast piles of shares, setting back official plans to reduce the government’s role in the market.

Markets stabilized and even showed gains in the autumn as Beijing started winding down its emergency measures.

“In November, the market seemed stable, and looked more optimistic, so I started investing again,” said Yang, who is in her 30s.

Still, analysts warned prices would lurch up and down until the market found a realistic level.

By late December, the Shanghai index had risen 25 percent from its August trough before hitting a peak Dec. 22 and tumbling again. Monday’s decline put the index down 10 percent.

Trading was initially suspended for 15 minutes Monday by a newly imposed “circuit breaker” after another index, the CSI 300, fell 5 percent. Once trading resumed, a flurry of selling sent the index down another 2 percent in seven minutes, triggering a trading halt for the day.

In an apparent effort to reassure investors, the central bank said late Monday the size of its regular weekly injection of money into credit markets would be 100 billion yuan ($21 billion) — or 13 times the size of last week’s supply.

Despite that, the Shanghai index fell another 3 percent on Tuesday before recovering to end the day down 0.3 percent.

The market is unlikely to stabilize until at least the second quarter of this year, said Guo, of Founder Securities. He said persuading small investors to return will take longer.

“It will take some time to heal their wounds,” said Guo. “Based on past experience, it usually takes a couple of years.”

Written by Joe McDonald of Associated Press

(Source: MSN)

$8 Coffee! 10 Costliest Cities for Expats

The life of an expat can often seem glamorous with the appeal of living abroad in a different culture, but it has its downsides, too. Mainly, how much it can cost to live.

Consulting firm Mercer released the initial findings from its 21st annual cost-of-living survey, which compares data from 207 cities over five continents and is based on answers and exchange rates from March. The survey measures costs of more than 200 items in such categories as housing, food, clothing, household goods and entertainment.

Topping this year’s list of the priciest places to live are the following 10 Asian, European, and African cities, determined using New York City as the base city for comparison.

“Japanese cities have continued to drop in the ranking this year as a result of the Japanese yen weakening against the US dollar,” said Nathalie Constantin-Metral, a principal at Mercer who worked on compiling the survey ranking. “However, Chinese cities jumped in the ranking due to the strengthening of the Chinese yuan along with the high costs of expatriate consumer goods.”

Note: For each of the following cities, the apartment and house rental costs given are per month, and they are specified to be residences “of international standards, in an appropriate neighborhood.” Other prices given refer to purchases at medium-priced establishments.

10. N’DJAMENA, CHAD

  • Rent of a two bedroom apartment: n/a
  • Rent of a three bedroom unfurnished house: $2,252.12
  • One cup of coffee, including service: $2.60
  • Fast food hamburger meal*: $21.65

Ranked as the second costliest city in 2014, this year the capital city of Chad is number 10. For this city, there was no data available for the price of an international release cinema ticket, a fast food meal or a pair of jeans.

*In absence of comparable fast food meals in N’Djamena, the cost of a club sandwich and soda meal was included.

9. BERN, SWITZERLAND

  • Rent of a two bedroom apartment: $2,463.73
  • Rent of a three bedroom unfurnished house: n/a
  • One cup of coffee, including service: $4.82
  • Fast food hamburger meal: $13.93

Switzerland’s fourth most populous city is also the federal city, being home to the Swiss parliament and government. One seat at an international release movie in Bern costs $19.28.

8. SEOUL, SOUTH KOREA

  • Rent of a two bedroom apartment: $3,494.86
  • Rent of a three bedroom unfurnished house: $6,808.16
  • One cup of coffee, including service: $6.17
  • Fast food hamburger meal: $5.90

The capital and largest city in South Korea, Seoul, is the first of five Asian cities in this list. It ranked 14th place last year.

7. BEIJING

  • Rent of a two bedroom apartment: $3,576.54
  • Rent of a three bedroom unfurnished house: $5,283.52
  • One cup of coffee, including service: $7.32
  • Fast food hamburger meal: $4.71

The capital of the People’s Republic of China, Beijing is one of the most populous cities in the world and the center of most of the country’s largest state-owned companies. Beijing was number 11 in 2014.

6. SHANGHAI

  • Rent of a two bedroom apartment: $4,064.24
  • Rent of a three bedroom unfurnished house: $6,502.79
  • One cup of coffee, including service: $6.50
  • Fast food hamburger meal: $4.71

Shanghai has China’s highest urban population. One liter of soda costs just 81 cents, but that doesn’t offset those rents.

5. GENEVA

  • Rent of a two bedroom apartment: $3,749.15
  • Rent of a three bedroom unfurnished house: $6,212.88
  • One cup of coffee, including service: $4.82
  • Fast food hamburger meal: $13.93

Switzerland’s second most populous city bumped up from sixth priciest city in 2014’s ranking. Many international organizations have offices there, including the United Nations and the International Committee of the Red Cross.

4. SINGAPORE

  • Rent of a two bedroom apartment: $3,246.75
  • Rent of a three bedroom unfurnished house: $6,936.25
  • One cup of coffee, including service: $4.35
  • Fast food hamburger meal: $6.20

Retaining its 2014 spot as the fourth priciest, Southeast Asia’s Singapore is the site of the fourth largest financial center and one of the globe’s top shipping ports.

3. ZURICH, SWITZERLAND

  • Rent of a two bedroom apartment: $3,963.39
  • Rent of a three bedroom unfurnished house: $5,891.52
  • One cup of coffee, including service: $6.96
  • Fast food hamburger meal: $13.93

Marking Switzerland’s third appearance in the costliest list for 2015, Zurich is a major financial center and the largest Swiss city. It ranked fifth last year.

2. HONG KONG

  • Rent of a two bedroom apartment: $6,576.26
  • Rent of a three bedroom unfurnished house: $11.863.06
  • One cup of coffee, including service: $7.80
  • Fast food hamburger meal: $4.75

This densely populated special administrative region on China’s southern coast is a trade hub and one of the world’s top financial centers. It will run expats $3.95 for a liter of pasteurized whole milk (above 2.5 percent milk fat) in the special administrative region of the People’s Republic of China.

1. LUANDA, ANGOLA

  • Rent of a two bedroom apartment: $6,800
  • Rent of a three bedroom unfurnished house: $15.800
  • One cup of coffee, including service: $4.76
  • Fast food hamburger meal*: $17.14

Topping out the list for the third year straight is Luanda, a relatively inexpensive place by some measures–the cost to see an international release film is $11.90, and one liter of soda is $1.99. However, what’s driving up the cost of living is the prices of imported goods—a pair of blue jeans runs $247.53—and the cost of living in safe conditions.

*In absence of comparable fast food meals in Luanda, the cost of a club sandwich and soda meal was included.

Written by Colleen Kane of CNBC

(Source: CNBC)

World Markets Suddenly Facing a Summer of Trouble and Strife

© Provided by CNBC
© Provided by CNBC

It’s approaching that time of year when market activity typically slows, as traders and central bankers alike depart for long holidays.

But this summer is shaping up to be anything but quiet for markets, with Greece at a cross roads, stocks in China nose diving and rising uncertainty about the timing of a U.S. interest rate rise.

“Summers are always difficult in the markets, but every summer turns out to be interesting and there’s so much going on this summer,” Bill Blain, a strategist at Mint Partners in London, told CNBC on Friday.

While the crisis in Greece, which holds a referendum this Sunday on whether or not to accept creditor-proposed bailout terms, is likely to be the trigger for near-term volatility, markets have much bigger fish to fry in the weeks to ahead.

Take for instance the slide in Chinese stock markets, which is fuelling concerns about the outlook for the world’s second biggest economy.

The benchmark Shanghai Composite index, which had risen as much as 113 percent between November and a peak in June, has collapsed, sliding almost 30 percent.

“It’s not Greece but China we should be concerned about,” said Blain. “The correction that we’re seeing in stocks is fascinating and the fact that the authorities are clearly nervous should make markets nervous,” he said, referring to measures taken this week by Beijing to shore up the battered equity market.

Fed up with Fed?

Analysts said uncertainty about the timing of a rise in U.S. interest rates was another key reason to keep traders on edge over the summer months, with Thursday’s softer-than-expected June jobs data prompting a re-think on the rate outlook.

“I think the biggest risk is not so much Greece; not so much China (stocks), which is in a dramatic move but is pretty localised, I think it is the Fed and the U.S. economy,” Giles Keating, the global head of research for private banking and wealth management at Credit Suisse, told CNBC’s “Squawk Box Europe” on Friday.

The timing of the Fed’s first rate hike since 2006 and the pace of subsequent monetary tightening is viewed as one of the biggest risks to global markets – from emerging markets, which are seen among the most vulnerable to a rise in risk aversion, to bond markets, which have already seen heavy selling.

Slim Feriani, CEO of MENA Capital, said that while Greece was a concern, Fed policy was a bigger worry for markets.

“The bigger cloud hanging over markets in general in the next 6-12 months is the Fed and what they do and when,” he said from a fund forum in Monaco earlier this week.

Blain at Mint Partners said there was no reason for the Fed to hike rates soon, as there was no pressure on the economy yet. He suggested that “perhaps a lot of the stock market upside has been overdone.”

The tech-heavy Nasdaq  (.IXIC) hit a record high in June, while the broader S&P 500  (.SPX) closed at about 2,077 points on Thursday – about 2.5 percent off a record high hit in May.

Uncertainty surrounding Greece meanwhile is unlikely to go away, with Sunday’s shock referendum suggesting the country will remain a source of market volatility in the weeks ahead, analysts said.

Greece this week became the first advanced economy to default on a loan from the International Monetary Fund and its worsening financial crisis has fuelled fears that it will become the first country to leave the euro zone.

If Greek voters back the creditors’ bailout plan—which the anti-austerity government has recommended they reject—Greek Prime Minister Alexis Tsipras has made it clear he will quit.

“There is a view that we’re going to get this referendum result on Monday morning and that will explain everything,” Blain said.

“All the referendum will do is start the next phase of negotiations and the crisis continues. If we get a ‘yes’ vote, we could be dealing with a new government as it looks inevitable the government could fall — so there lots of things for markets to worry about.”

Written by Dhara Ranasinghe of CNBC

(Source: CNBC)

China’s Stock Meltdown: How Far Will the Ripples Go?

© Bobby Yip / Reuters
© Bobby Yip / Reuters

If a class of major stock market investors can be barred from selling their holdings at the whim of government regulators, can the exchange in that country really be called a market at all? It’s a question investors in China’s volatile economy must be asking themselves today, and many will have at least six months to ponder the question, because a government directive on Tuesday barred any individual or fund that holds more than 5 percent of the shares of a Chinese public company from selling their holdings for that period of time.

The move by the China Securities Regulatory Commission was the latest in a series of efforts to end the dramatic plunge in the country’s stock markets in the past month. After nearly a year of spectacular gains, fueled in large part by a surge of small-dollar individual investors entering the market – often with borrowed money – the Shanghai composite index has lost 32 percent of its value in three weeks and was down another 5.9 percent Wednesday. The smaller, tech-heavy Shenzhen market if off an eye-popping 41 percent over the same span.

The bubble may not be done deflating, either. The surge in Chinese equities, which have more than doubled in the past year alone, appears utterly disconnected from the reality of the Chinese economy, which is experiencing a pronounced deceleration in growth. Wednesday’s plunge, in fact, might easily have been even worse if Chinese regulators had not allowed more than 1,000 firms to halt trading in their shares altogether.

“At the moment there is a mood of panic in the market and a large increase in irrational dumping of shares, causing a strain of liquidity in the stock market,” CSRC said in statement announcing the ban on stock sales by major investors. The move came as the latest in a series of increasingly desperate moves by the government to prop up share prices.

Regulators have already blocked the issuance of new Initial Public Offerings and have pumped billions into the market by forcing government-owned brokerages to buy shares as they fell. The Chinese Central Bank has slashed interest rates and reduced the reserve requirements on commercial banks.

Shockingly, the central bank even reduced the requirements on margin loans, which allow investors to speculate with borrowed money.

That’s crazy,” said James A. Dorn, vice president for monetary studies at the Cato Institute in Washington and a specialist in Chinese financial markets. “Chinese retail investors don’t know what they’re doing. They’re gambling, basically.”

Dorn, who writes a regular column for Caixin, a leading Chinese financial publication, said that even in the unlikely event that the government’s massive intervention ends some of the short-term pain investors are feeling, it’s doing serious long-term damage to international investors’ view of the Chinese economy as an investment opportunity.

“This is going to certainly discourage foreign investors from allowing Chinese stocks in their portfolios unless you are extremely speculative,” Dorn said. “It undermines trust in the financial system. They have been trying to open up their capital markets … but this is a good indicator that at the foundations, they haven’t made much progress.”

While most investors in the West have at most only limited exposure to Chinese stocks, the global economy as a whole won’t be unaffected if the Chinese stock market rout turns into a broader economic crisis.

“China’s not a little economy like Greece,” he said. “If China gets into a real slow growth situation, which would mean for them something 6 percent or less, that’s going to have a big ripple effect on the global economy.”

Written by Rob Garver of Fiscal Times

(Source: MSN)

Chinese Stock Rout Ripples Across Asia as Economy Fears Mount

© Reuters
© Reuters

China’s stock rout has reached a tipping point.

Losses in Shanghai and Shenzhen spilled across Asia Wednesday, sending the region’s benchmark gauge toward its steepest drop in two years. The eight biggest Asian markets fell at least 1 percent, with Hong Kong shares posting their biggest decline since the financial crisis. Gauges of equity volatility in the city and Tokyo surged.

Even as the first three weeks of China’s stock slump wiped out $3.2 trillion in value, developments in the Greece crisis and the Federal Reserve’s latest prognostications took center stage for many asset managers. That’s changing as the deepening rout forces investors to weigh what the losses mean for the global growth outlook.

“Chinese equities are transitioning from a period where we’ve had weak economic growth and a very strong equity market, to an equity market which is looking for confirmation of economic strength,” said Stephen Corry, Hong Kong-based chief investment strategist at the private-bank unit of LGT Group, which oversees about $136 billion. “It has failed to materialize so far. The selloff is therefore an indication that investors have lost confidence in policy makers’ ability to reflate the economy.”

Shares across Asia tumbled and the yen gained after markets in China and Hong Kong plunged more than 5 percent. The MSCI Asia Pacific Index fell 3.2 percent as of 4:15 p.m. in Hong Kong, set for a correction and heading for a five-month low. Australia’s S&P/ASX 200 Index lost 2 percent. U.S. stock-index futures slid 1.2 percent.

More Efforts

Wednesday morning saw another flurry of government support measures for the market, with the central bank promising “ample liquidity.” State-backed China Securities Finance Corp. is seeking at least 500 billion yuan ($81 billion) in liquidity to bolster equities, people familiar with the matter said.

At least 1,300 companies aren’t waiting for a white knight, instead halting trading in their shares. Between those and stocks that fell by their daily limit, sellers are locked out of more than 70 percent of the market.

So far, the rescue efforts aren’t working. The Shanghai Composite fell as much as 8.2 percent before closing 5.9 percent lower. Japan’s Topix index posted its steepest decline since February 2014, sliding 3.3 percent.

‘Bigger Than Greece’

“Until now this thing in China had not caused any impact in the U.S. or in other markets,” said Alex Wong, Hong Kong- based asset-management director at Ample Capital Ltd., which oversees about $129 million. “People worry about how the Chinese economy would affect Japan. Gradually this will drag other markets lower because the magnitude of a China crisis would be far bigger than anything happening in Greece.”

The equity losses in Shanghai and Shenzhen equate to 15 times Greece’s gross domestic product last year.

Koji Toda, chief fund manager at Resona Bank Ltd. in Tokyo, says he’s watching China’s economy, not its stocks. Manufacturing gauges for June missed estimates, reports showed last week. Auto sales slid 3.2 percent last month from a year earlier, according to figures published Wednesday.

“Up until now the authorities were managing to control the slowing of the Chinese economy, but now there’s a bit of anxiety as to whether they can really control it,” Toda said. “Today we’re seeing profit taking as anxiety spreads that it could negatively impact Japanese corporate earnings.”

Fanuc, Fortescue

Companies across Asia that do business in China fell. Fanuc Corp., a maker of robots for Chinese factories, dropped 4.5 percent. Fortescue Metals Group Ltd., an Australian iron-ore developer that gets 96 percent of sales from China, tumbled 6.2 percent. Tata Motors Ltd., an Indian carmaker that counts China as its biggest market, slumped as much as 7.3 percent. Korea’s LG Chem Ltd., which relies on China for 36 percent of revenue from its petrochemicals, sank 8.7 percent.

Mainland policy makers are worried the rout will shake overall financial stability, dent household wealth and consumption, UBS Group AG economists wrote in a note. Investors who made unprecedented bets with borrowed money are now unwinding them at a record pace. Individuals make up about 80 percent of trading in China’s equity market.

“If retail investors — who are central to personal spending — are getting wiped out by the stock market rout and won’t be able to buy anything,” China’s efforts to transition to a consumer-led economy are at risk, said Tatsushi Maeno, head of Japanese equities at Pinebridge Investments Japan. “If Chinese consumers stop spending, then all the products the world sells to them will no longer be bought, and that could impact the fundamentals of the global economy.”

Written by Kana Nishizawa, Adam Haigh, and Yuji Nakamura of Bloomberg

(Source: MSN)