MARKETS FALLING EVERYWHERE! Stocks, Bonds, And Commodities Around The World Are Getting Hit. CHINA’S BANKING SYSTEM MELTING DOWN!

Markets tanking around the world, China contraction worsens, and gold has another spectacular crash!



All of this slammed markets in Asia.

  • Japan’s Nikkei closed down 1.7%.
  • Hong Kong’s Hang Seng closed down 2.6%.
  • Australia’s S&P/ASX closed down 2.1%.

And now Europe is getting pummeled.

  • England’s FTSE is down 1.4%.
  • France’s CAC 40 is down 1.6%.
  • Germany’s DAX is down 1.8%.
  • Spain’s IBEX is down 1.3%.
  • Italy’s FTSE MIB is down 0.9%.

And the U.S. markets, where the sell-off began, hasn’t finished tumbling.  Dow futures are down by 50 points 100points.
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Stock Futures:

After the Fed—What’s the Market’s Next Move?

Markets are at an inflection point, digesting the idea of higher interest rates now that theFederal Reserve has set the stage to end the extraordinary bond-buying program it undertook to help the economy and revive the housing market.

Comments from Fed Chairman Ben Bernanke Wednesday that the Fed could begin to cut back on purchases later this year sent Treasury yields higher, gold lower, the dollar higher, and stocks spiraling downward, as the markets adjusted to the idea of a higher rate environment. The 10-year yield reached 2.35 percent, its highest level since March, 2012. The Dow fell 206 points to 15,112 and the S&P 500 was off 22 to 1628.

“What’s got (stocks) spooked here is what’s happening in other assets,” said Art Cashin, director of NYSE floor operations at UBS. “If you look at the currencies, they exploded, the Brazil real and a couple of others.The yield on the 10-year is also moving up…Stocks are being influenced by machine-gun moves in a number of other things.”

Fed Keeps Low-Rate Policy Intact; Treasury Yields Spike Anyway; Hissy Fit Over Fluff

Curve Watchers Anonymous has a close eye on treasury yields in the wake of essentially no news from Bernanke as to when the Fed might actually begin hiking rates.

A mere hint the Fed might slow its QE program was enough to send treasury yields and the US dollar higher and stocks lower.

Yield Curve 2013-06-19

click on chart for sharper image

Curve Watchers Anonymous notes the yield on the 10-year note is up 13 basis points from yesterday, and the 5-year note is up 17 basis points from yesterday.


Bernanke On Soaring Interest Rates: “We Were A Little Puzzled By That”

Here’s the Real Reason the Fed Will Taper QE: Pro

“The Fed is NOT going to taper because the economy is too strong or because we have sustained core (wage) inflation, or because we have full employment—none of these conditions will be seen for some years to come,” Nomura’s fixed income strategist said in a recent missive to clients.

“Rather, I feel that the Fed is going to taper because it is getting very fearful that it is creating a number of significant and dangerous leverage driven speculative bubbles that could threaten the financial stability of the U.S. In central bank speak, the Fed has likely come to the point where it feels the costs now outweigh the benefits of more policy.”

China Money Rates Jump to Records as PBOC Lets Cash Crunch Build

The seven-day repurchase rate, which measures interbank funding availability, rose 270 basis points, or 2.70 percentage points, to 10.77 percent in Shanghai, according to a daily fixing announced by the National Interbank Funding Center. That was the highest in data going back to March 2003. The one-day raterose by an unprecedented 527 basis points to an all-time high of 12.85 percent, a separate fixing showed. An intra-day gaugeof the one-day rate touched a record 25 percent.

China Interbank Market Freezes As Overnight Repo Explodes To 25%

It seems liquidity (or counterparty mistrust) is beginning to reach extreme levels in China as the nation’s banking system is now quoting overnight repo transactions at 25%. The explosion in funding costs echoes the collapse in trust (and surge in TED spread) among US banks in the run-up to the Lehman bankruptcy. MSCI Asia-Pac stocks are down over 3% with China’s Shanghai Composite -2.5% at seven-month lows.

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  • China’s 1-day Repo Rate Climbs to Highest Since at Least 2006

China’s bond market is also collapsing:

Yield on 3.1% govt bonds due January 2016 jumps 39 bps to 3.749%, biggest rise since notes were issued in January

China this week…


US in the run-up to Lehman…

Charts: Bloomberg


Shanghai Composite Falls After Disappointing Manufacturing Report And Amid Credit Crunch

The Shanghai Composite is down nearly 2% to 2,101.

This follows on disappointing manufacturing data, with the HSBC Flash PMI reading hitting a nine-month low of 48.3. The contraction in manufacturing comes as analysts are lowering their growth forecasts for China.

Concerns about a liquidity crunch continued to mount, and stocks also took a beating as money market rates surged.  Fed chairman Ben Bernanke’s prepared remarks that the taper could begin as early as this year, also hurt Asian markets.
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The Mechanism That Holds Chinese Banks Together Is Falling Apart

China’s seven day repo rate hit a record high of 12% according to Bloomberg, the biggest one-day increase since 2006.


Meanwhile the overnight repo rate was quoted near 25%.

The liquidity squeeze in China first began ahead of the Dragon Boat festival earlier this month. Spikes in interbank rates are common right before holidays.

But Diana Choyleva at Lombard Street Research said this is symptomatic of a bigger problem. She said capital flows had “become a more important driver of domestic liquidity conditions in China’s managed exchange rate system.”

This chart from Bloomberg BRIEF’s Michael McDonough showed the early run up in the seven-day repo rate:


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HSBC China Flash PMI fell to a nine-month low of 48.3 in June.


This was below expectations for a marginal decline to 49.1, from 49.2 in May.

A reading below 50 indicates contraction.

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Nikkei Slides After Bernanke Says Taper Could Begin This Year

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The Australian Dollar Gets Taken To The Blender

now it’s falling after that bad Chinese Flash PMI.



This is the perfect storm: Weakening demand for commodities from China, and a strengthening US dollar thanks to an improving US economy and monetary tightening.
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$171 Billion in ETF assets having a bummer of a year so far!


The inset table above reflects the 7 largest ETF’s in the U.S. So far this year, 5 of the 7 are either under performing the S&P 500 by 10% or more, three of them by more than 25%! These funds total $171 Billion in assets! 3 of the top 7 are actually underwater YTD! (VWO, GLD & EEM).


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