Market Talk

Trading Community

On Wednesday, China’s Securities Finance Corporation — known as CSF — announced that it will lend billions to big Chinese brokerage firms so they can buy more stocks. The goal is to purchase enough shares that stock prices stop plunging. These measures have resulted in a positive performance for the Chinese market (+5.8% on the day) which also had positive effects on other Asian markets, with the Nikkei managing to also close in positive territory (+0.6%). China Securities Regulatory Commission called the decline in Chinese stocks an “irrational sell-off”, but some extent it has been a retail speculative bubble. Roughly half of all listed companies have actually pulled their shares off the market as reported by CNN. Clearly, that wouldn’t be allowed in the U.S. markets.

Many so-called pundits are calling this China’s 1929. They clearly do not understand what they are saying. True, a 30% drop was more than the entire value roughly equivalent to the UK’s economic output last year. Nevertheless, this is a fall from a recent reaction rally, not a Phase Transition, as was the case in the USA back in 1929 or Tokyo in 1989. In the case of the USA, the 1929 high was not exceed until 1954, or 25 years intraday, or 26 years from the highest closing of 1928. We do not see that happening in the case of China. Still, the reversal in the immediate downtrend should have taken place on July 9th. So far that appears to be correct. The next key turning point is two weeks from now.

Nevertheless, the bounce in China has in turn provided a strong European opening which gained pace throughout the day. The European peripheral (Equity) markets provided some strong closes tonight with Portugal, Italy and Spain all closing +4%, +3.55% and +2.65% respectively.

The tone was similar in the bond markets but as Bunds traded lower (price/higher yield) the peripherals spreads tightened to core.  Markets do not need an excuse to be thin these days but many were offered that the tube strike had delayed traders getting to the office and so a support bid was being shown – until the trader arrived! Any excuse these days I guess!

The Euro continues to play around the 1.10 level and Sterling finds it difficult to climb above the 1.54 handle. Yesterday’s budget really has not helped cable and the long term trend appears to be setting its course.

Greece attempts once again this evening to present a palatable plan to Brussels — increasing pension age and VAT increases (23% for restaurants is the rumor); but really the writing is on the wall and the only people that can not see that is the Greek government itself! They seem to keep trying to stay in the Euro and that is just amazingly stupid. Greece will not recover until it leaves the Euro.