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Analysis and Charts of Global Markets

written by Gary Dorsch, Editor and Publisher
China’s Stock market Mania; How high can Red-chips fly?
Apr 2, 2015
While Beijing was busy cracking down on money laundering in the casino colony of Macau, it was also sanctioning its securities regulators, stock brokerage firms, overseers of the stock exchanges, and hundreds of high-tech engineers, to begin working night and day to launch the world’s third biggest casino, - dubbed “Shanghai - Hong Kong -Stock Connect.” It would allow global investors to trade Chinese Shanghai “A-shares” for the first time, through brokers located in Hong Kong, and mainland Chinese investors could trade Hong Kong’s ”H-shares” index via the Shanghai Stock Exchange, subject to quotas both ways. The combined size of the Chinese and Hong Kong markets is roughly $10.5-trillion today, behind only the combined $27-trillion size of New York Stock Exchange and Nasdaq.
The Raging “Currency Wars” across Europe
Jan 29, 2015
The theater of the absurd became even more bizarre on Jan 22nd, when the European Central bank desperate to extract the Euro-zone’s economy from the quagmire of deflation and stagnation, decided it would try its hand at the magic elixir of “quantitative easing,” (Q€). Starting on March 1st, the ECB will inject €60-billion of liquidity into the Euro-zone’s money markets, each month until the end of Sept 2016. The ECB is the last of the Big-4 central banks to unleash the nuclear option of central banking – QE, - starting about six years after the Bank of England, the Bank of Japan, and the Fed began flooding the world markets with $7-trillion of British pounds, Japanese yen and US$’s.
How to Recognize a “Bear Raid” on Wall Street
Oct 30, 2014
The objective of a “Bear Raid” is to make windfall profits within a brief time period through short sales. Bear Raiders must closely monitor the number of short positions in the target stock, or exchange trade fund, (ETF), since a huge short interest increases the risk of a short squeeze that can inflict substantial losses on the Bears. These short sellers cannot afford to wait patiently for many weeks or months until their short strategy works out. They must act to cover their short positions, before other investors see the beaten down market as a bargain. --------------------- If operating in the US’s centrally planned market, where the Fed is actively intervening to prevent sharp downturns, the Bear Raider knows the gains from the short sale trade will eventually be reversed, and usually within short order. Once Bullish investors begin to realize that they were hoodwinked, and scared out at the lows, - they begin to pile back into stocks again at higher prices. What usually follows is an eventual recovery of all the previous losses that were engineered by the Bear Raiders.
The mini Crash of October 2014
Oct 22, 2014
The long awaited downturn in the S&P-500 index finally began on Sept 19th and ended on October 15th. The S&P-500 index topped out at an all-time high of 2,015 and briefly fell to as low as 1,820, for a decline of -9.7%, or just shy of the -10% requirement to be regarded as a bona-fide correction. Such shakeouts are part of the normal cyclical movements in the stock market that wipe out the speculative froth from the market, and thus prevents the emergence of unsustainable bubbles that can burst into Bear markets later on. What’s unusual this time however, is the extraordinary length of time that the S&P-500 Oligarch index has avoided a correction of -10% or more. The Dow Jones Industrial index has gone 725 trading days without a correction, the fourth-longest streak since 1929. However, a correction in the S&P-500 index typically occurs about once every 18-months. But it’s been 38-months since the last bona-fide correction of more than -10%.
The Emergence of the US Petro-dollar
Sep 15, 2014
A less cited reason behind the recent strength of the US$ index and what could auger the beginning of a multi-year advance for the greenback, - the US’s output of crude oil and natural gas continues to surge to new record highs. The US’s production of crude oil has reversed years of decline thanks to the development of shale resources, which have boosted output by more than +65% in the past six years. The US’s shale boom has allowed producers to unlock thousands of barrels of reserves, putting the US on course to become the largest producer of oil globally, which would dramatically reduce its dependence on imports.
 
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Slumping Chinese Real Estate market weighs heavily on Steel futures in Shanghai
Updated11:02 PM, Mar-15, Sun
The Chinese economy has had a rough ride over the last 15 months as a downturn in the property market was made worse by persistent overcapacity in the industrial sector. A widening corruption crackdown also has weighed on everything from investment to retail sales. Hurt by erratic export growth, softening domestic demand, reduced government investment and a sputtering housing market, China´s economic growth slipped to a 24-year low of 7.4 percent last year.--------------------------------- China´s economic growth could slow to less than +7% this year, the head of the Chinese central bank´s research bureau warned on February 17. In an opinion piece in the China Daily newspaper, Lu Lei said fixed asset investment growth in the world´s second-largest economy is likely to cool further this year, dragged by a sagging property market and a fall-off in state investment. "The biggest medium-term uncertainty for the economy is deflation risk." Judging that "it is difficult to anticipate any rise in the producer price index" partly because manufacturers are still struggling to deplete a glut in raw materials. but a further -4.8% plunge in factory gate costs, a leading indicator for retail prices, compounded nagging worries that China could soon face debilitating deflation. --------------- "The downward pressure on China´s economy is intensifying," Chinese Premier Li Kequiang warned in his opening address to the annual National People’s Congress, before 3,000 delegates gathered at the Great Hall of the People in the heart of Beijing. "Deep-seated problems in the country´s economic development are becoming more obvious. The difficulties we are facing this year could be bigger than last year. The new year is a crucial year for deepening all-round reforms."----------------------China’s economy is already running behind Beijing’s stated growth target of +7%. Industrial output, fixed investment, retail sales growth, and electricity production, all missed analysts’ estimates in January and February, suggesting the world’s second-largest economy is slowing to a +6.3% growth rate, the weakest pace since the Recession of 2009.----------The People’s Bank of China has cut interest rates twice since November, and in early February reduced the amount of cash that banks must hold as reserves (RRR), to 19.50% of customer deposits, -freeing up fresh liquidity to flow into the economy to offset rising outflows of capital.---------------------------------- However, the mix of the real activity indicators suggests the effects of monetary policy easing effort so far has remained limited. Factory production was only +6.8% higher in the Jan - Feb period from a year earlier, and retail sales advanced +10.7%, while fixed-asset investment increased +14%, more than a third less than in China’s double-digit growth years. The generation of Electricity rose +1.9% in January and February from a year earlier, well below +3.2% seen in all of 2014. The two-month readings are the slowest start to a year since 2009. Reflecting a housing slump that’s weighing on investment and retail spending, the value of property sales fell -16% in the two months from the same period a year earlier. The real estate sector, accounting for about 20% of GDP and 30% of total investment, will remain the biggest drag on the economy. --------------Double-digit industrial production levels is a thing of the past. It is highly unlikely that retail sales will hold out for long above the +10% mark much longer. ----------------------The price of iron ore, Australia’s top export commodity, is hovering near a record low below $60 /ton amid soft buying interest among Chinese steel mills, putting the spot price on course for a third /ton on Thursday, just a tad above $57.70 touched the day before, the lowest level since The Steel Index began compiling prices in late 2008. The steel making commodity was down posted a weekly loss of -7.6% last week, it’s steepest in almost two years. China’s Baoshan Iron and Steel <600019.SS>, the world´s #4 steel producer, said on Tuesday it will cut prices for its main steel products for April bookings, amid a supply glut and slower demand growth.---------- In Shanghai the price of rebar steel futures plunged to new all-time lows, China´s crude steel output dropped -1.5% to 130.5 million tonnes for the first two months of this year, data from the National Bureau of Statistics showed on Wednesday, as a supply glut and slower demand growth forced mills to curb output.------------------------------The data are the latest snapshot of strains in the Asian colossus, a major driver of the global economy, which is in a delicate transition phase away from decades of double-digit annual growth to a new, slower model that authorities say is more sustainable. “Overall, core activity data confirm weakening growth momentum,” Nomura economists wrote in an analysis of the data, attributing it to the ailing property sector and overcapacity in manufacturing. “To offset the headwinds to economic growth, we now expect monetary policy to be loosened even further.”
Archived Comments:
Slumping Chinese Real Estate market weighs heavily on Steel futures in Shanghai
Slumping Chinese Imports weigh on Commodity prices
Updated11:16 PM, Mar-15, Sun
China is the world´s second biggest economy, using the most copper, aluminum, iron ore, steel and coal and the second-largest consumer of oil. Chinese demand has fueled commodity market rallies for a decade and created a bonanza for many of the countries and companies that supply it. But after almost a decade of growing at more than +10% / year, China´s economy has been slowing down. On Feb 16, - a state newspaper quoted Xu Lin - the director of China´s National Development and Reform Commission (NDRC) Department of Planning, as saying that the economy would expand at a "New NormaL at +7% annual rate in 2015, and average +6.5% over the next 5-years. --------------------------------------------- Slowing Chinese growth has created a global surplus of raw materials expanding more slowly than the economy as China reduces its dependency on infrastructure spending. According to calculations based on China´s GDP and consumption growth over the last six years, -- for every -1% slowdown in China´s economic growth rate, its demand for industrial commodities falls by about $10 billion. China consumes around 7.6 million tons of refined copper annually, and every -1% less growth equates to around 64,000 tonnes less demand. A -1% slower growth rate equates to 80,000 barrels per day (bpd) less oil demand, as well as about 22 million tonnes less coal. ------------------- That is 15 very large crude carriers of oil, and over 200 typical shipments of coal. Beijing has previously taken advantage of a decline in commodity prices to build stockpiles, so a softening in the markets triggered by a flagging global economy may whet China´s appetite. That, in turn, would cushion the impact on prices of the slowdown. What is clear, however, is that there will be no return to China´s 2008-09 stimulus-inspired commodities shopping spree. When enough bridges, railways, highways, and basic urban infrastructure have been built around each person, it will be difficult to keep finding more things to build. Data over the weekend showed a surprising -20% plunge in China’s imports in January ´15, compared with a year earlier, worsening from the -2.4% fall in December, and suggesting China’s economy is still losing momentum despite a recent raft of liquidity injections by the People´s Bank of China to support growth. ------------------ The Continuous Commodity Index (CCI) is a broad grouping of 17 equally weighted commodity futures, has tumbled to a five year low, and is lowering the inflation rates in most countries around the world. ---------------------------------------------China literally props up demand for most of the raw materials but especially iron ore, coal and copper, which defined the boom years that were known as the “commodity super-cycle”. Iron ore and coal producers have suffered arguably the most from China’s cooling economy. After entering a bear market back in March, iron ore delivered to Qingdao in China fell 47pc last year to settle at around $71 per tonne. The surplus in iron ore supply which began to emerge at the beginning of the year is expected to widen to around 300-million tons of Iron-ore by the end of 2017 as major producers such as Rio Tinto and BHP Billiton continue to consolidate their output into bigger and more productive mines.---------------------------- Across the board, from industrial metals through to soft commodities and oil, prices have dipped sharply over the last year as a combination of weakening demand growth and excess supply became a common theme across the entire sector. Although lower prices for the basic building blocks of industrial growth should help to boost the broader global economy and ultimately support long term demand it could be a number of years before a new upward cycle in the sector begins to take shape. Until then prices are likely to remain under pressure due to a strengthening US$, as the balance of power remains with major consumers and not the producers. At the top of the list of concerns worrying analysts has been the economic health of China. This anxiety over the world’s biggest consumer of industrial raw materials is expected to continue.---------------------------------------- After buying up the world’s commodities, China has also geared up to trade more of them. China has overtaken the US as world’s largest commodity Futures market, according to China Futures Association. China, currently has three commodity futures exchanges, with agricultural commodities, such as soybean, soybean oil, corn, palm oil, soy-meal,-- mainly traded on the Dalian Commodity Exchange and gluten wheat, sugar, cotton, rapeseed oil trading on the Zhengzhou Commodity Exchange, and copper, aluminium, zinc, lead, gold, deformed steel bar, wire rod, natural rubber and fuel oil, --- mainly traded on the Shanghai Futures Exchange.
Archived Comments:
Slumping Chinese Imports weigh on Commodity prices
 
Euro Plunges to 12-year low vs US$ as German Schatz Yield Sinks below Zero percent
Updated11:10 PM, Mar-15, Sun
The Euro is lurching lower and lower as it continues to plummet towards parity with its main rival, the US$. On March 12th, the Euro briefly hit $1.0500,- it’s lowest in 12-years, and most likely, its rapid and slippery descent has further to go. The Euro’s sharp decline has been dramatic — as recently as May ‘14, it was trading just shy of $1.40 and many companies across Europe were openly complaining about the impact on their exports. Prior to the ECB’s intervention to weaken the Euro, it managed to hold its own during the Greek, Italian, Irish, Portuguese, and Spanish debt crisis, which at times even threatened the common currency’s very existence. But in the aftermath of its -25% devaluation over the past 10-months, the complaints emanating from exporters are now coming out of Britain or the US, where firms face the prospect of being priced out of Euro-zone markets. --------------------------------------So what’s behind the turnaround? The European Central Bank has not only cut interest rates to the bone, but has also started printing 60-billion Euros /month to grease the skids under the Euro. The ECB had been reluctant to monetize the debts of sovereign governments for years, but in 2014 it decided to change course. As politicians faced the prospect of a protracted recession and falling prices, which can further weigh on an economy, the ECB slashed its overnight repo rate to 0.05% in September. The move weakened the Euro by pushing Germany’s benchmark 2-year and 5-year schatz yields below zero percent.------------------------------------------ When that proved insufficient to stop the spiral of price deflation, the ECB started buying government bonds with newly-created Euros. The hope is that €1.1-trillion of injections into the Euro-zone money markets, over the next 18-months, will inflate the value of stock markets and lift the inflation rate higher. Whether or not the tsunami of liquidity works to lift consumer prices, it will increase Euros in circulation, thus diluting its value.----------------------------------------- The toxic poison that’s killing the Euro, dubbed “Q€,” is lowering the long-term interest rates of most Euro-zone countries. With the yields on European government at historic lows and in some cases negative, the returns to investors are evaporating. The ECB and national central banks of Euro zone countries, together known as the Euro-system, began buying bonds on Monday to start the long-awaited quantitative easing, “Q€,” scheme. Barclays strategists estimate the Euro-system, led by the ECB will purchase €850-billion of government bonds in the year ahead, while at the same time, Euro-zone government will be issuing €290-billion of net new debt, and thus, shrinking available supply. --------------------------------------- The Euro-system is also buying smaller amounts of corporate debt, including asset backed securities and covered bonds. Thus, “Q€,” will shrink the supply of government bonds available, and enable the ECB to keep 10-year bond yields pinned well below 1% for the next few years. The ECB could face a major headache if it finds it harder to buy one particular bond from a country in a shrinking marketplace, where investors are hoarding supply. If the ECB needs to make that purchase to meet the target, it might be forced to pay above-market prices for the bonds and push yields significantly lower, leading to bigger market distortions. -------------------------------------------As of today, the 10-year bond yield for Austria, Germany and France have declined into a range between +25-bps and +50-bps, while the yield for Switzerland’s 10-year bond is below zero percent (-9-bps). Seeking to soothe concerns the ECB might struggle to meet its €60-billion /month spending target, ECB chief Mario Draghi says sellers would be found among foreign investors that hold about half the region’s debt. Overseas investors should be the most willing to sell Euro denominated debt to avoid currency losses. ------------------------------------ The Euro has fallen against many currencies, but its drop has been particularly pronounced against the US$. That’s because while the telegraphing and implementation of “Q€,” has been weakening the Euro, the Federal Reserve (the Fed) has been bolstering the dollar. The US-economy is creating more than 200,000-jobs /month, and the Fed ended its own QE-scheme on October 31st, and now says it is ready to start raising short-term US-interest rates.
Archived Comments:
Euro Plunges to 12-year low vs US$ as German Schatz Yield Sinks below Zero percent
 

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