Here’s a reminder of how the Chinese circuit breaker kicked into action today, triggering the shortest trading session ever (just 29 minutes!)
China suspends stock market breaker rule – reports
Breaking news from China… the stock market regulator has apparently announced that it WILL suspend its stock market breaker rule.
A sensible decision, as the rule has been tested and found wanting this week.
Ouch. The Dow Jones industrial average has shed almost 300 points, or 1.7%.
Every share is in the red:
Wall Street tumbles at the open
Hold onto your tin hats, folks.
The New York opening bell is ringing, and shares are tumbling sharply.
The Dow Jones industrial average has lost 1.25%, and the tech-heavy Nasdaq dropped over 2%.
It will take a few minutes for Wall Street to calm down. But the news that the Chinese stock market was suspended after just 30 minutes earlier today is clearly alarming investors.
Commodity prices are hitting new five-year lows, thanks to economic growth fears and the stronger dollar.
Palladium is down 5% at $482 per ounce, its lowest level since August 2010. Zinc has hit a six-year low, and copper is also down.
Could Beijing authorities ditch their circuit-breaker rule, following this week’s turmoil?
Something certainly needs to be done.
We saw today that the prospect of an immediate daily suspension if the market drops too much actually triggered a swift selloff (as investors dashed to get out while they can).
The 5% trigger was hit after just 14 minute, followed by the 7% time-out once trading resumed. That’s not a recipe for calm, rational trading.
Britain’s FTSE 100 is currently down 2.5%, or 152 points — on track to hit a three-week low.
If it falls much further, it would threaten the lows of last August, the last time China triggered a stock market rout:
The US stock market is on track to hit a new three-month low, when trading begins in 40 minutes time:
The China crisis is partly caused by Beijing’s policy of pegging its currency against the US dollar, argues economist Sean Richards.
A deeper analysis of the Chinese situation shows us that its own financial instabilities have been exacerbated by the strong US Dollar.
This has been made worse by its decision to set its exchange-rate against it. Thus rather than drifting lower like virtually everyone else instead the pressure builds up, which it has tried to resist, but even with its sizeable currency reserves it has to give way every now and then. This then adds to the pressure as everybody concentrates on the decline in the reserves rather than the large amount left.
Also I suspect that those in the “know” have been trying to get out of the Yuan before it falls further which only makes things worse.
Got it in one…
China’s international competitors will fear that Beijing is triggering a currency war, by allowing the yuan to hit a five-year low against the US dollar today.
Andy Yu, senior economist at MNI Indicators, says other emerging market currencies will probably also weaken in response (reminder, they’ve already weakened this year).
“A weaker yuan is a concern for emerging markets that compete directly with China in exports. The immediate upshot is that currencies in countries including South Korea, Thailand, the Philippines and Taiwan will continue to adjust downwards in response to yuan moves.
That would push up debt repayments for countries who have borrowed in US dollars. But encouragingly, Yu reckons emerging markets have the firepower to ride out the crisis:
On current evidence the risk of a full blown emerging markets crisis looks less likely with emerging economies having built up larger foreign exchange reserves and put in place far better external debt management. Still the situation bears close scrutiny and alongside continued Fed tightening this year will put pressure on emerging markets’ currencies over 2016.”
It’s a bad day for stock market bulls…..
The Economist reckons China could trigger a repeat of the 1998 Asian crisis, rather than the 2008 vintage which George Soros fears.
Here’s its logic:
If China devalues, then other Asian nations will come under pressure to follow suit, for fear of losing competitive position. That will trigger worries about those Asian companies that have borrowed in dollars. there could be banking issues in Asia.
This is a potentially worrying scenario. Whether 2008 is the right parallel is another matter. If the bearish case does come true, then it sounds more like 1998 when a round of Asian devaluations was triggered by the realisation that growth had been fuelled by speculation. Western economies did manage to overcome that crisis. The real worry is that emerging countries are a lot more important for the global economy than they were back then.
Soros: It’s 2008 all over again
Investor-turned-philanthropist George Soros has contributed to the gloom today, by claiming that we could face a repeat of the turmoil we experienced in 2008.
Soros, who famously beat the Bank of England on Black Wednesday, told an audience in Sri Lanka that the current situation reminded him of the financial crisis seven years ago.
“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.”
Alarming stuff. However, before you sell everything, it’s worth remembering that Soros has previous form here. In 2011, he declared that the eurozone debt crisis was “more serious” than the 08 crash.
European policymakers managed to avoid a Lehman Brothers-style moment, although obviously Greece’s problems aren’t fixed. So Soros’s words are worth taking seriously…
Some Chinese companies could be forced into default if Beijing continues to devalue the yuan.
So argues Danae Kyriakopoulou, senior economist at the Centre for Economics and Business Research. She warns:
Many Chinese corporates have taken on a lot of debt, some of it dollar-denominated. This exposure creates an important risk as the People’s Bank of China 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.
As covered earlier, Beijing has already spent half a trillion dollars propping up the yuan this year. It still has more than $3trn left to help engineer an ‘orderly’ devaluation….
£40bn wiped off FTSE 100 this morning
What. A. Morning.
Nearly four hours after trading began, the FTSE 100 is still deep in the red as the latest crash in China spooks markets around the globe.
The blue-chip index is currently down 2.65% or 160 points at 5912, its lowest level since mid December.
That, by my calculations, wipes more than £40bn off the value of the 100 companies on the Footsie. A blow that will be shared by City traders, pension funds and small investors alike.
Mining companies continue to suffer, on fears that the crisis in China will cause serious harm to the global economy. Anglo American, which produces iron ore, copper, nickel and coal, has slumped to another record low.
Fund manager Aberdeen Asset Management is also being hit hard; it manages tens of billions of assets in emerging markets and in Asia.
The news that the yuan hit a five-year low today – effectively a devaluation by Beijing – is also worrying investors.
Jasper Lawler, analyst at CMC Markets, says:
UK and European stocks are extending declines in one of the worst opening weeks for the year for stock markets in recent memory. China is at the top of a dizzying list of concerns for markets.
And with oil hitting a fresh 11-year low, and the pound at its weakest since 2010, there’s plenty for investors to fret about.
Connor Campbell of Spreadex sums up the mood:
There have been painfully few chinks of light this morning, the markets covered in an almost impenetrable cloud of bearish fog.
There are anxious faces on the Frankfurt stock market, as traders watched shares slide.
The DAX index fell by over 3% this morning, dropping through the 10,000 point mark for the first time since October.
The pound appears to be suffering from the uncertainty over Britain’s membership of the EU.
Andy Scott, economist at currency firm HiFX, reckons Brexit risks are compounding the impact of the China crisis on the UK currency.
Sterling’s decline against a rising US Dollar has been accelerated by the risk-off mode this week that has investors seeking refuge in safe haven currencies including the US Dollar, Japanese Yen and the Swiss Franc. That can almost entirely be attributed to the Chinese central bank allowing its currency to weaken to its lowest level against the dollar in almost five years, fuelling speculation that the economy is slowing faster than official figures suggest.
“Concerns over a Brexit and reduced bets that the Bank of England will hike rates any time soon have also weighed on Sterling.
“The Bank of England and the Chancellor have been quite vocal about risks facing the UK economy this year and the early signs are that China’s economy is weakening further, putting a bigger question mark over global growth
And that’s why the pound is at a five and a half-year low of $1.456 today, as this chart shows:
Veteran analyst David Buik, who has seen a few crashes in his time, says there is an “acrid stench of fear” in the City and Canary Wharf.
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!
Panda bear market, anyone?
We have a glimmer of good news – Europe’s unemployment crisis has eased a little.
The eurozone’s jobless rate dipped to 10.5% in November 2011, according to eurostat, which is the lowest since October 2011.
That still leaves 16.924 million people out of work in the euro area, and 22.159 million in the wider European Union.
So, still too high – and at risk of rising again if the global economy hits serious problems again….
China isn’t the only developing economy to make a bad start to 2016.
A swath of emerging market currencies have weakened since the start of the year, as investors fear that their economies will falter.
Greece’s stock market is sharing the pain:
City traders may have now dried off after the early morning deluge, but their mood isn’t any sunnier.
Brenda Kelly of London Capital Markets says:
Not unlike the weather in London today, it never rains but it pours. While it’s said that the darkest hour is often before the dawn, nobody appears brave enough to involve themselves in risk assets this morning.
She explains how the Chinese market suspension, the slump in crude oil, and the big drop in China’s foreign exchange reserves are all causing alarm:
The drop in oil prices and China’s Shanghai Composite once again triggering circuit breakers sees major European indexes under pressure while government bonds strengthen across the board.
Trading in China stopped after 29 minutes amid the Shanghai’s Composite tumbled by 7.04%. Forex reserves in China are also lower than what were expected. At the end of December they stood at $3.33 trillion and given that the IMF has recently said that $2.6T is required to maintain the yuan fix, this worse than expected depletion is only bolstering negativity towards the world’s second biggest economy.
A reminder of what triggered today’s rout:
Record fall in China’s foreign exchange reserves
As if there wasn’t already enough to worry about, China has revealed a record drop in its foreign exchange reserves.
New data from the People’s Bank of China show that its FX reserves shrank by $107bn in December – the biggest monthly drop on record.
It suggests that China was forced to use more firepower supporting the yuan last month, as capital flows out of the Chinese economy:
Pound hits five-year low against the dollar
Sterling has just hit its lowest level against the US dollar since the middle of 2010.
The pound has lost half a cent against the greenback today, hitting $1.4561. That’s a five and a half-year low, taking us back to the uncertain times after the 2010 general election.
Worried traders are piling money into the relative safety of the dollar.
As this chart shows, the pound looks stronger against a basket of currencies:
China’s new ‘circuit breaker’ is meant to avoid market volatility. It clearly doesn’t work.
As it stands, if the market falls 5% then trading is suspended for everyone to calm down. It then reopens, allowing investors to recover their nerve.
But as we saw today, a second wave of selling can quickly push the market down by 7% – which is the signal to end trading for the day.
Mark Dampier, head of investment Research at Hargreaves Lansdown, says authorities need to accept that shares are simply overvalued:
Some amazing events on the Chinese stock markets overnight with trading halted for the second time in a week, the second time this year after just 870 seconds of trading…..
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.
Today’s selloff is causing a lot of angst in the City, and sending investors running for cover.
Terry Torrison, managing director at Monaco-based McLaren Securities, says:
“The extent of the slowdown in China is certainly a worry. Investor sentiment is very fragile at the moment.”
Andreas Clenow, hedge fund manager and chief investment officer at ACIES Asset Management, is equally alarmed:
“It’s looking pretty ugly. We’ve been scaling down equity positions. It’s time to take a step back to re-evaluate the situation.”
The Financial Times has a rather smuttier take on Marc Bolland’s time at Marks & Spencer:
Good point, boss.
Marks and Spencer is defying the global rout!
Its shares are up 1.5%, making it the only riser on the FTSE 100. The City appears to be applauding the news that Marc Bolland is retiring.
Joshua Raymond Chief Marketing Officer at XTB.com explains why:
Bolland has been under intense pressure from major shareholders for his failure to grow the business. And when you look at their recent results, its easy to understand why Bolland had to go and the tough job his replacement, Mr Rowe now finds himself in. Somewhat paradoxically, I expect shareholders to react well to the news that Bolland will now depart after months of speculation.
A drop of 5.8% in general merchandise is simply awful and at the bottom of market expectations. Whilst the firm did enjoy what it claimed was its best ever Christmas week for food sales, like for like food sales over the Q3 period grew 0.4%, which is disappointing though shows M&S fared better than some of its competitors. Overall like for like UK sales fell 2.5%.
Here’s our news story on Bolland’s exit:
The Stoxx 600, which tracks the largest 600 companies across Europe, has fallen by 2.2% this morning.
By my reckoning, that’s a three-month low:
European markets are also being hit hard, as fears over China’s economy ripple through global bourses.
Germany’s DAX is leading the selloff, tumbling by 2.75% or 281 points to 9,932. Every share in Frankfurt is down, as investors fear that the powerhouse Eurozone economy will suffer if China’s economy hits serious trouble.
The French CAC is close behind, down 2.2%.
FTSE 100 plunges 2% in early trading
The FTSE 100 has tumbled by over 100 points at the start of trading, shedding almost 2% of its value.
The blue-chip index is being dragged down by mining stocks, but every single share is in the red. It’s down 114 points, or 1.9%, right now.
The slump in China’s stock market is one obvious factor – but it’s not the only one.
FXTM Research Analyst Lukman Otunuga says investors face a serious of concerns:
Equity markets are continuing their steep losses as we enter the final part of the trading week with investor sentiment being pressured by various different factors.
This includes the resumption of fears over global growth following weak data from China in the beginning of the year, while increased geo-political tensions between Saudi Arabia and Iran and an unexpected nuclear test from North Korea have also encouraged investors to dodge away from riskier assets like stocks. Another threat to investor sentiment is the persistent and continued weakness in the commodity markets, which only today saw the price of oil falling to a fresh 11 year lows of $32.70 for the first time since 2004.
Ding ding….. the European stock markets are open. Brace yourselves for a wave of selling…..
If you can’t sell shares, you may as well crack on with the knitting…..
Oil hits 11-year low
Crude oil prices are taking another kicking, tumbling over 5% in early trading.
Brent crude has plunged below $33/barrel for the first time since 2004. It’s currently changing hands at just $32.25 per barrel, a new 11-year low.
And US crude oil has also slumped by 5%, to $32.10 per barrel.
The Chinese stock market really did suffer a precipitous decline today, triggering the circuit breaker that brought trading to a very early close:
City traders are bracing for a grim start to trading – once they’ve dried themselves (it’s wet today)
Heavy losses in Asia
Asian stock markets are a deep and grimy sea of red today, as fears over China rattle investors across the region.
- Japan’s Nikkei fell over 2%, shedding 423 points to close at 17,767 points. It’s now down 6.65% since the start of the year.
- The Hong Kong Hang Seng index is currently down 2.8%,
- Australia’s S&P/ASX is down 2.2% ,
- India’s Sensex has lost 1.9%.
Chinese regulators held an emergency meeting today to discuss the crisis — but they haven’t taken any decision on new action, Bloomberg reports.
Chinese trading halted within 30 minutes…
From Beijing, my colleague Tom Phillips sums up the dramatic action in China today:
China halted the day’s trading within 30 minutes of opening on Thursday morning as shares plunged by more than 7% – triggering an automatic “circuit breaker” – and authorities accelerated the devaluation of the Chinese yuan.
China’s recently installed “circuit breaker” mechanism paused trading for 15 minutes after the CSI300 index fell 5% in the first 13 minutes of trading. On resumption of trading it fell further, triggering the day’s halt.
The CSI300 index finished down 7.2%, the SSE composite index fell 7.3% and Shenzhen dropped by 8.3%.
Experts believe that the Chinese authorities may have to take fresh steps to prevent the rout deepening, Tom explains:
Christopher Balding, a professor of finance and economics at Peking University’s HSBC business school, said he expected more government action to halt the stock market drops, “whether it is changing the circuit breakers, whether it is again intervening in the market, whether it is extending the ban on large selling by institutions.”
“I’d be surprised if they let this continue going down. By almost any measure, the Chinese stock market is pretty over valued and so you would be looking at a pretty significant fall to get back to a reasonable valuation. I would be surprised if they allowed it to move back to more appropriate levels.”
“2016 in China is getting off on the wrong foot.”
Here’s Tom’s full story:
Introduction: China market shut again as yuan weakens further
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
There’s no escape from the China crisis. Trading in Shanghai has been suspended for the second time this week, after its stock market plunged at the start of trading.
Automatic circuit-breakers kicked in, leaving nervous investors cooling their heels, after shares in Chinese companies slumped by 7% at the start of trading.
The selloff came as the yuan weakened further against the US dollar, fuelling concerns over China’s economic situation.
From Melbourne, analyst Angus Nicholson of trading firm IG explains:
The great concern for global markets is that the dramatic pace of the currency devaluation seems to indicate a far greater weakness in the Chinese economy than is easily perceivable in its publicly released statistics.
A lot of people in the market are speculating that this is primarily about boosting exports and stimulating the slowing economy. While this no doubt will help, the primary concern for the government is deflation.
Asian markets tumbled following the developments in China, and European stocks are expected to fall heavily at the open too.
Britain’s FTSE 100 is expected to suffer a triple-digit loss:
All in all, it’s a great day for UK chancellor George Osborne is due to give a speech warning that Britain is vulnerable to problems in the global economy.
And we’ll also be digesting financial results from UK retailers Marks & Spencer and Poundland.
The big news at 7am is that M&S’s CEO Marc Bolland is stepping down, after six tricky years at the helm (statement here).
Today’s results don’t look great, frankly, with sales of general merchandise down 5% over the crucial Christmas period….
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