Thank God China and Japan were Closed
No wonder stock markets in the US are fidgety this morning.
Stocks in Europe have tanked, with the major indices down between about 2% and over 5% today, after negative interest rates were invoked again.
The central bank of Sweden cut its interest rate further, pushing it to minus 0.5%. Predictably, the Stockholm OMX stock index shed 3.5% in afternoon trading, down 27% from April last year.
And Swiss National Bank Chairman Thomas Jordan mused in an interview about cutting rates even deeper into the negative. The interest rate on sight deposits with the SNB is currently at a minus 0.75%. “We have already gone quite far with negative interest rates, and now we are observing the situation closely,” he said, and added, “We are ruling nothing out.” On cue, the Swiss SMI stock index dropped 3% in afternoon trading. It’s now too in a bear market, down 21% from August last year.
Everyone is waiting for the ECB to push its deposit rate deeper into the negative. It would do wonders for short sellers.
Thankfully, China’s markets remain closed due to the Lunar New Year holiday until Monday. So some totally unnecessary fireworks were averted. But there’s a convenient substitute, as investors try to play catch-up with the global rout this week: Hong Kong.
Many mainland Chinese companies are traded in Hong Kong, and the stock exchange re-opened today after being closed for three trading days. On this first day of the Year of the Monkey, it instantly plunged over 4% and never recovered, closing 3.8% lower for the day, down 35% since June last year, the lowest close in four years.
The Hang Seng China Enterprises Index, which tracks mainland Chinese firms trading in Hong Kong, plunged 4.9% to its worst level since the Financial Crisis.
It hasn’t done much good that the nervous People’s Bank of China doused the Chinese financial system with four times as much cash than it had done last year in preparation for the Lunar New Year holidays, and to deal with capital outflows that have become a torrent, after reaching, according to Bloomberg Intelligence, $1 trillion last year.
Japan’s markets were mercifully closed due to one of the innumerable holidays, this time the National Foundation Day. “Mercifully,” because the Nikkei already had shed 7.6% over the prior two days and has sunk into a bear market.
The yen soared against the dollar, which is re-losing its luster. At the moment, 111.8 yen buy a buck. It took 122 in late January. That’s a 9% move in two weeks. Japanese stocks get crashy when the yen rises like this, contrary to the gyrations of the Bank of Japan. And investors are counting their blessings that the markets are closed.
India’s Sensex dropped 3.4%, which leaves it down 23.6% from its February 2015 high, thus getting inducted into the growing club of bear markets. Singapore fell 1.7% for the day and 28.5% since April.
South Korea’s KOSPI, down 2.9% for the day, has been one of the least-bad major stock markets, down “only” 14.3% from its recent high. It’s one of the few remaining major indices outside the US and Australia that is not yet in a bear market, though in the US, the Nasdaq, down over 1% this morning, is within a hair of joining the club.
And crude oil did it again! WTI dropped to $26.22 a barrel earlier this morning, below the closing low of $26.68 on January 20. From that day, it had shot up 26% in seven trading days to $33.66, and then re-plunged over the next seven trading days. The last time before 2016 oil traded in this range was in September 2003. And so an epic sucker rally and all the hopes that come with it have once again been crushed.
But gold soared 5.2% or $61 an ounce at the moment, to $1,256, a one-year high, and up 20% since early December. Now folks are hoping that the bottom in gold is in, as they’ve been hoping after every bounce for three years.
And US Treasuries with longer maturities are hot and rising, with the 10-year Treasury yield dropping to 1.58% at the moment. These folks are trying to get out of the way of whatever they see coming.
“Massive Deterioration,” the CEO of container shipping company Maersk called the phenomenon. Read… “Worse than 2008”: World’s Largest Container Carrier on the Slowdown in Global Trade