Tuesday, July 7, 2015

China's Growing Chaos, Russian Bombers Fly Near U.S., Global Markets Crumble



Chinese stock market chaos could be worse than Greek debt crisis


A stock market crash there has seen $3.2 trillion wiped from the value of Chinese shares in just three weeks, triggering an emergency response from the government and warnings of “monstrous” public disorder.

And the effects for Australia could be serious, affecting our key commodity exports and sparking the beginning of a period of recession-like conditions.

“If China does not find support today, the disorder could be monstrous.”

In an extraordinary move, the People’s Bank of China has begun lending money to investors to buy shares in the flailing market. The Wall Street Journal reports this “liquidity assistance” will be provided to the regulator-owned China Securities Finance Corp, which will lend the money to brokerages, which will in turn lend to investors.
The dramatic intervention marks the first time funds from the central bank have been directed anywhere other than the banks, signalling serious concern from authorities about the crisis.
At the same time, Chinese authorities are putting a halt to any new stock listings. The market regulator announced on Friday it would limit initial public offerings — which disrupt the rest of the market — in an attempt to curb plunging share prices.

All short-selling — the practice of betting that stocks will fall — has been banned, and Chinese media has rushed to reassure citizens.

Yesterday, shares in big state companies soared in response to the but many others sank as jittery small investors tried to cut their losses, Associated Press reports. The market benchmark Shanghai Composite closed up 2.4 percent but still was down 27 percent from its June 12 peak.
Experts fear it could turn into a full-blown crash introducing even more uncertainty into global markets as Europe teeters on the edge of a potential eurozone exit by Greece, after Sunday’s controversial referendum.







As Americans were celebrating the Fourth of July holiday, four Russian long-range bomber aircraft flew close enough to the US shores that they were intercepted by military fighter jets. The first set of two bombers flew near Alaska and just 30 minutes later a separate set flew far off the west coast of California.
According to officials at NORAD the flights stayed within international airspace and at no time did any of the Russian bombers enter or get close to entering sovereign North American boundaries.
The first incident occurred at approximately 10:30 a.m. EDT on July 4, when Alaskan-based NORAD F-22 fighters intercepted and visually identified two Russian TU-95 "Bear" long-range bomber aircraft flying off the coast of the Aleutian Islands within the Air Defense Identification Zone (an area of international waters that stretches 200 miles from US coastline), officials at NORAD said in a statement to ABC News.
Then at approximately 11 a.m. EDT, NORAD F-15 fighters from the Continental NORAD Region intercepted and visually identified two additional Bear bombers flying off the central California coast, well away from U.S. sovereign airspace.
While Northcom is not saying precisely how far out the California intercept occurred, one official said it was on the outer lines of the ADIZ, meaning it could have been as far out as 200 miles. US airspace begins 12 miles from the coasts. The US asks military aircraft from other countries operating in that space to identify themselves and will make sure they've changed course away from US shores before backing away.
While intercepts of Russian aircraft off Alaska occur frequently, intercepts off California are less common. In June last year a two long-range Russian bombers flew within 50 miles of northern California.









Investors tend to respond to impending doom by selling risky stuff and hiding out in safer assets -- namely, bonds in places such as Germany and the U.S.
There’s a problem with that formula this time around: Traders aren’t so sure they can find anything that’s truly safe right now. 
So, instead of piling into sovereign debt of developed nations, traders are pulling their money out of those places as the Greek economy teeters on the brink of collapse, Puerto Rico talks about delaying some debt payments and China’s stock market suffers its biggest selloff since 1992.
Investors yanked $2.9 billion from European government bond funds last week, more than ever before, and pulled $699 million from short-term investment-grade U.S. bond funds, Bank of America Corp. and Wells Fargo & Co. data show. While these assets have traditionally been havens during rocky periods, they look less appealing now after more than six years of unprecedented monetary stimulus that pushed yields to record lows.

Why is that a problem? Well, the European Central Bank’s bond-purchasing program this year sent yields so low (negative, in fact) that investors revolted, selling German debt in the face of some signs of economic growth and causing unprecedented volatility. In the U.S., the economy has improved enough that the Federal Reserve is planning to raise interest rates this year from virtually zero, where they’ve been since 2008.


And nations and companies around the world have taken on unprecedented amounts of debt, all with the hope of igniting some growth, with the results being rather tepid.
“All of the mechanisms that function so smoothly when things went wrong, all of those got broken this spring,” said Jim Vogel, an interest-rate strategist at FTN Financial. “No one has confidence that assets are going to go back to their traditional relationships.”
In other words, don’t count on government bonds to be the ballast of your investments through the rockiness that’s coming. Or perhaps that’s already started to arrive.


Investors are clearly getting more concerned about a full-blown selloff in assets globally after Greece rejected austerity measures required to receive additional bailout funds, and as the Shanghai Composite Index fell 25 percent from its peak in mid-June.





No comments: