Global Stocks, Oil Take Drubbing. Gold, Treasuries, Yen Soar

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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

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  20 comments for “Global Stocks, Oil Take Drubbing. Gold, Treasuries, Yen Soar

  1. Ptb
    February 11, 2016 at 12:23 pm

    Markets down, Gold and treasuries up = fear

    • Ptb
      February 11, 2016 at 12:27 pm

      MXN just hit 19.2 to the USD

    • baboo
      February 12, 2016 at 12:38 am

      Check out strips.

  2. VegasBob
    February 11, 2016 at 12:35 pm

    There should be a lot of fear.

    After nearly a year and a half of severe economic distress from late 2007 to mid 2009, the central bankers finally stabilized the world economy with zero interest rates and trillion$ of money-printing and loan guarantees.

    But now the central bankers are out of parlor tricks to paper over the economic collapse that started at the end of 2007.

    The Potemkin economic recovery of the last 7 years has probably run its course.

    Investors should be very afraid. Many of them are going to find out that they don’t have nearly as much wealth as they think they have.

    • chris hauser
      February 11, 2016 at 3:03 pm

      as may be the levels of wages, aye.

      the african savannah watering hole as the dry season progresses is the model i am envisioning.

      i remember thinking last year, sell in may and go away. but i didn’t and stayed. turns out you can sell AND stay.

      but i’m optimistic, i have to be.

  3. Vespa P200E
    February 11, 2016 at 1:12 pm

    I sense the market is being complacent with S&P down only about 15% from the recent peak of little above 2100 to barely hanging onto 1800 – will the line hold or fold on a race down to 1600?

    What concerns me the most now is the HFT Frakenstein the market created – the blackbox algo fine-tuned for the rising market but how will it do when the market tanks? HFTs unleashing torrent of selling may cause the real panic for pro and amateur investors.

    And it’s mind boggling the losses chalked by the best of the best hedge funds from John Paulson to Ackman to Icahn in last couple of months – one would think these guys knew better…

    • VegasBob
      February 11, 2016 at 3:02 pm

      These guys aren’t really any smarter than the next guy.

      They’re just better salesmen, getting people to buy into their prognostications.

      • chris hauser
        February 11, 2016 at 3:05 pm

        just because they’re smart doesn’t mean they know when to stop.

        low rates too long fed complacency. one damn geopolitical thing after another going on didn’t help.

  4. J. T. Heater
    February 11, 2016 at 2:20 pm

    I’m no longer concerned about the return ON my capital. I’m concerned about the return OF my capital.

  5. Bobstet
    February 11, 2016 at 2:43 pm

    We are finding out how many of these “investments” were just based on rising prices and greater fools, with no real fundamental long term value. Something that collapses in price when it runs out of greater fools never was an investment in the first place.

  6. Lee
    February 11, 2016 at 3:14 pm

    How much of that huge rally in the Yen is because of short sellers covering their bets (Butts?) ?

    The key to the so called Abenomics was get the Yen down – now that has failed too………

    The fall in imported costs of energy for Japan are now even greater with the Yen going up in value.

    To correct this problem the value of the Yen should fall even more………………..

    What a mess.

    • Vespa P200E
      February 11, 2016 at 8:46 pm

      Yep easy yen carry trade which worked for so long is coming home to roost…

    • Jonathan
      February 11, 2016 at 10:57 pm

      I’m not even sure whether official narrative of Japan’s “deflationary” threat actually applies to the everyday Japanese on the street who is likely to experience real erosion in actual buying power over the years. The way I see it Abenomics is really a scheme to serve the interests of their megacorps than their greater good.

      • Lee
        February 12, 2016 at 12:55 am

        The problem with most pundits and commentators about Japan is that they have never set foot there.

        The pundits always harped on about ‘deflation’ in Japan by looking at the price stats coming out from the government.

        Wages in Japan really haven’t gone up for years and in many cases have gone down.

        If you want to see the real market in action look at what foreign English teachers get in Japan now compared to 10 or 20 years ago. Really pathetic wages and conditions.

        Even full time university lecturers in other fields have seen their incomes fall. Wages for adjunct professors are the same or lower than 30 years ago.

        When I first went to Japan and taught part time at a number of universities and schools the cost of the national pension was around 3000 yen per month.

        IIRC it is now around 15,000 yen or so and the scope of people that have to pay it has also increased. (However, it doesn’t mean that they actually pay it!!!) National health insurance premiums have soared, co-payments for various health insurance plans have fallen and medical costs have increased.

        Part time wages in fast food places and convenience stores are the same or lower as well……….

        With these costs going up and wages the same, people have to cut back consumption.

        • nhz
          February 12, 2016 at 8:11 am

          Same story as most of Europe: officially inflation is low, but all kinds of mandatory costs and taxes are rising at way above the inflation rate (often 5-10% per year) and even for normal products I don’t believe the official CPI for a moment.
          In my country wages of government workers and social security payments have been rising more than official inflation for the last few years, but those are the groups that politics likes to pamper – for the average non-government worker and especially the self-employed things are less bright and I guess in general not much different from Japan – a slow erosion of buying power.
          And don’t look at the huge bubbles in mortgage debt, underfunded pension promises etc. etc. – things can only get worse.

  7. Toddy
    February 11, 2016 at 4:23 pm


    Sounds like something about a malfunctioning toilet.

    Oh wait! The economy is a turd in the toilet!


  8. Michael Fiorillo
    February 11, 2016 at 7:38 pm

    Long entropy.

  9. Jonathan
    February 11, 2016 at 8:59 pm

    The crude oil rally was simply retarded. Who the hell would believe anybody would agree to a cut when it’s full blown Prisoner’s Dilemma “I would kill my mum for hard currency” mode for the producers.

    • nhz
      February 12, 2016 at 8:14 am

      just wait until all oil storage facilities are full, then the real fun begins. We are getting close ;-)

      Although politicians might introduce a huge new subsidy for pumping all that oil back in the ground ‘to battle global warming’ ;-(

    • nick kelly
      February 14, 2016 at 12:49 pm

      Exactly- but my metaphor is a bunch of heroin addicts deciding to stop buying to lower prices. A mirror image but you get my point.
      Venezuela and Russia must pump to eat, especially Venezuela where a revolution or even civil war could start any time.

Comments are closed.