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January 7 pounds Destroyed Worst hit Since May 2010
- Poor movement of pounds getting worse enter the ninth day in the forex market despite slightly higher on Asian session trade. However, the European session on Thursday (7/01) fell back by the high temperature will market concerns global economic and political conditions in spite of the release of the Halifax HPI increased.
- Data Halifax HPI is an indicator that measures the change in price of homes financed by Halifax Bank of Scotland, and the data in December showed an increase of 1.7 percent from the period of November only 0 percent. But the pound remained severe drop to fall into the worst position since May 2010.
- In addition, the market still choose to hunt safe haven assets after the debate on the global market fears intensified after the Chinese economy; Middle East conflict between the Saudi Arabia and Iran; then added hot political temperature on the Korean peninsula after the hydrogen bomb test North Korea.
- In terms of the movement of the US dollar index trading this afternoon observed sufficiently corrected down by profit taking in the market responds to the debate on the global market as well as the drop in world crude oil. The sentiment seems to be ignoring positive economic data jobless claims are expected to decline from the previous period.
- Pound exchange rate movements in the European session (1125: 35 GMT) moves the weak against the US dollar, having opened weaker at 1.4632 in early trading (0000 GMT), the GBPUSD pair fell 73 pips or 0.7% and the value of the rolling is at 1.4569.
- For further trade until the close of trading tomorrow, Mr Tri Utomo of The News Time Line estimates pair GBPUSD will go down continue to support the range of 1.4558 - 1.4478. But if there is a revision could rise to resistance range 1.4675 - 1.4718.
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Worse Truncated US Trade deficit Exports Since January 2012
- The US Commerce Department has released the performance of its foreign trade deficit which has always managed to reduce its deficit in November due to reduced number of imports compared to exports that are declining. Reduced imports of the country triggered by the strengthening dollar.
- From the overnight release indicated the US trade deficit fell to $ 42.4 billion in November 2015, lower than the deficit of $ 44.6 billion in October, lower than market expectations.
- The deficit was reduced due to a sharp decline in imports by 1.7 percent to $ 224.6 billion in November, lower than $ 228.4 billion in imports Oktober.Posisi eleventh month in 2015 is the lowest import in the last 9 months. Reduced imports of the country occurred in consumer products including mobile phones and household goods others. United States Balance of Trade
- Meanwhile the Commerce Department also reported a decrease in export activity which is the lowest since January 2012 exports fell by 0.9 percent. American exports decreased to be $ 182.2 billion in November from $ 183.8 billion in October. The fall in commodity exports consumer goods, industrial and household goods.
- More details to trade in goods and services, a decline in the deficit due to reduced trade deficit of $ 2.3 billion to $ 61.3 billion surplus in the services sector and a decrease of $ 0.1 billion to $ 18.9 billion. However, in annual trade deficit in goods and services increased 5.5 percent to $ 25.2 billion from the same period in 2014.
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World Bank World Economic Crop, Russia and Brazil ascertained Recession
- In its annual report on global economic growth projections published in January and June, the World Bank cut its outlook for global economic growth in 2016 were contributed by the economic weakness of developing countries or emerging markets since 2015.
- Global economic growth is expected to grow to 2.9 percent this year, lower than the projections released in June, which is 3.3 percent. The growth is still higher than the growth in 2015, which only reached 2.4 percent. In 2015 the global economy much trimmed by a decline in commodity prices, sluggish trade and outflows of capital and financial turbelensi.
- Global economic growth will be raced this year in case of rapid growth in high-income countries, stabilizing commodity prices and reform of the Chinese economy towards consumption growth model successfully.
- For developing countries, the World Bank projected the economy would grow by 4.8 percent in 2016, while in June and is set to grow by 5.2 percent. Growth is projected to slow down again in China, while Russia and Brazil is expected to remain in recession in 2016.
- Growth in emerging market economies this year are projected to decline after the US central bank to raise interest rates for the first time in almost a decade as o, 50 percent from the previous 0.25 percent. The risk of capital outflows out after the Fed's monetary policy tightening economic detriment of developing countries.
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China's 29 Minutes of Chaos: Stunned Brokers and a Race to Sell
- Even by the rough-and-tumble standards of China’s stock market, it was a chaotic 29 minutes.
- With share prices going into free fall almost as soon as local exchanges opened, market gurus at Huaxi Securities Co. were at a loss to explain why. One manager of $46 million in Shanghai liquidated all his holdings. Other investors, including a top-performing hedge fund, tried in vain to cash out as circuit breakers brought trading to an abrupt halt.
- By 9:59 a.m. local time it was all over -- except that it wasn’t. Next came a torrent of calls from angry clients upset by the carnage in a week that’s seen two abbreviated trading sessions and a 12 percent tumble in the benchmark CSI 300 Index. And it’s only January 7th.
- "We are dealing with a flood of angry phone calls from clients complaining about the market plunge and the circuit breaker," said Wei Wei, an analyst at Huaxi Securities in Shanghai. "We are also feeling at a loss and confused today as we didn’t quite figure out what was going on in the market."
- There’s certainly an Alice-in-Wonderland quality to this week’s selloff, which has radiated across global equity markets and rattled investor confidence in the world’s second-largest economy. It’s not as if China’s growth story is over. True, the yuan is weakening and the economy is decelerating to its slowest annual pace since 1990, but that’s been known for some time. The currency is actually holding up well versus just about everything but the dollar, and analysts are predicting a 6.5 percent economic expansion this year.
- Market Intervention
- What does seem to worry investors is how deftly, or ineptly, Chinese authorities will manage a stock market that’s gone from boom to bust and back again more times in the past 12 months than most major peers do over the course of a decade. After policy makers took extreme steps to prop up shares last summer, analysts are struggling to gauge how Beijing will react to a renewed bout of volatility that threatens to weigh on business and consumer confidence.
- Criticism is intensifying over market-wide circuit breakers, launched at the start of this year, that kick in when there’s a 5 percent swing in the CSI 300. That halts trading for 15 minutes, with exchanges shutting for the rest of the day if the index moves by 7 percent, as it did on Monday and Thursday.
- In a market with some of the world’s highest volatility, circuit breakers throw up a new wild card that the nation’s 99 million individual investors are still getting used to.
- "It is clearly adding some unintended consequences, such as people trying to sell before the break, which is actually accelerating the decline," said Gerry Alfonso, a trader at Shenwan Hongyuan Group Co. in Shanghai. "Investors need time to adapt to the new rules. This type of development in a retail-driven market is bound to be challenging."
- Meanwhile, confusion reigns over how policy makers will react to the selloff. Obvious signs of intervention were absent on Thursday, even after share purchases by state-controlled funds on Tuesday helped the CSI 300 eke out a 0.3 percent gain. While people familiar with the matter said the securities regulator held an unscheduled meeting on the market, it ended without a decision on policy action. Officials unveiled plans to curb share sales by major stockholders just a day before an existing ban was due to expire.
- Abrupt Halt
- Some investors had no choice but to sell on Thursday. Take Chen Gang, who helps oversee the equivalent of $46 million as the chief investment officer at Shanghai Heqi Tongyi Asset Management Co. Chen dumped his firm’s equity holdings and said he won’t get back into the market until regulators improve the circuit breaker system. Many private funds and hedge funds in China have agreements with investors spelling out mandatory liquidation levels if their holdings drop below a certain value.
- “This is insane,” Chen said in an interview on Thursday. “We were forced to liquidate all our holdings this morning.”
- Then again, Kelvin Tay, the regional chief investment officer at UBS Group AG’s wealth management business in Singapore, sees a buying opportunity. "This week has been a disaster" but "it’s fun in a perverse way," he said. "Investors need to separate the sound from the noise. This is an opportunity to pick up stocks that are undervalued."
- Some other managers couldn’t sell fast enough. Jiao Ji, whose hedge funds averaged a 61 percent return during the $5 trillion summer rout after he sold out before the crash, said the trading halts came so quickly that he didn’t have time to unload his holdings this time.
- “It was quite abrupt on Monday, and it’s even more abrupt today,” said Jiao, the chairman of Sunrise Investment, based in northeastern China’s Jilin province. “There’s not even a chance for a rebound.”
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China Panic Clashes With Outlook for Modest 2016 Growth Slowdown
- The panic seen in Chinese financial markets this week, with a sliding yuan and stock trading suspensions, is increasingly out of whack with what economists anticipate will be another modest slowdown in the world’s No. 2 economy.
- While stock sell-offs in economies like the U.S. can pose major economic challenges because of the impact on household wealth, that’s less been the case in China. Retail sales grew through 2015 despite a market rout that at one stage erased $5 trillion in value, underscoring how a policy-driven shift to a consumption and services-fueled economy, instead of heavy industry, is gaining traction.
- "Sentiment about China is so downbeat right now that there’s a good chance of a positive surprise over coming months," said Mark Williams, chief Asia economist for Capital Economics Ltd. in London, who previously worked on China issues at the U.K. Treasury. "There are signs that policy stimulus is having an effect. Most of the more reliable indicators of activity have stabilized."
- Monthly indicators due Jan. 19 are poised to show continued gains in retail sales, and some acceleration in industrial output from November to December, according to Goldman Sachs Group Inc. Meantime, evidence indicates that house prices are steadying, metals prices have picked up from historical lows and demand for credit is reemerging. Surveys of the services sector, while mixed, remain in expansion territory.
- "The relationship between what happens in China’s markets and what’s going on in the economy has always been tenuous," Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a note. "At the start of 2016, it’s showing signs of breaking down completely."
- Stock investors have been spooked this week by the introduction of circuit-breakers and uncertain prospects for the lifting of a suspension of certain sales. Another concern has been China’s shift to target the yuan against a basket of currencies; that’s seen the currency tumble versus the dollar this week, though it’s proving more stable when viewed on a trade-weighted basis.
- "China is really walking on eggshells," said Qian Wang, Hong Kong-based senior economist for Asia Pacific at Vanguard Group Inc. "People are very easy to panic with some minor news."
- Shutting Down
- The sell-off continued on Thursday. Chinese stock exchanges closed early for the second time this week after the CSI 300 Index plunged more than 7 percent. The yuan dropped 0.6 percent in onshore trading at 4:07 p.m. local time after the central bank cut its reference rate.
- The downs and ups of China’s stock market are driven by individual equities investors, of which there are 99 million, accounting for around 80 percent of trading. The ratio of Chinese people exposed to the market is small, in a country of 1.4 billion people. In the U.S., a Gallup poll in April 2014 found that 55 percent of those surveyed reported holding stocks, down from 62 percent in early 2008.
- China’s gross domestic product growth will slow this year by just 0.4 percentage point, according to the median forecast of Bloomberg economists -- the same as in the past couple years and much less than the roughly 2 percentage point deceleration of 2012, a year when Chinese equities eked out a gain. The GDP advance this year will also be off of a base that’s almost $1 trillion bigger than in 2014.
- To be sure, the economy is far from the old trajectory of 10 percent growth that helped stoke exports from Australia to Brazil. A sharp rebound is unlikely -- perhaps ever. A period of "L-shaped growth" is in store, the Communist Party’s official People’s Daily reported on Monday, citing an “authoritative” person who wasn’t identified.
- Historic Shift
- "Under the current situation, it’s impossible to have a V-shaped recovery via short-term stimulus," the person said, according to the article on the front page, where President Xi Jinping typically features.
- The wild card may come from the yuan. While the weakening currency should help exporters, it has also sparked capital to leave China at a record pace as investors and companies rush to squirrel money out of the country and into rival currencies like the dollar. That flow of capital has forced the People’s Bank of China to intervene and support the yuan by buying dollars, in the process running down its foreign-exchange reserves. The hoard fell by $108 billion in December from the previous month, to $3.3 trillion.
- Yuan Concern
- And if China’s market ructions impair overseas economies, there won’t be much help from exports. Stocks from Europe to the U.S. have dropped this week as the yuan slid.
- "The real risk is the policy uncertainty over the currency," said Qian.
- Market participants complain that China’s exchange-rate policy lacks transparency. The PBOC has weakened its daily fixing by 2.57 percent since qualifying for entry into the International Monetary Fund’s reserves basket on Nov. 30. At the same time, the central bank has stepped into the currency market to prevent excessive volatility in the exchange rate.
- For all the market upheaval, indications are that China’s economy will hold up even if stocks don’t.
- "There has always been a disconnect," said Richard Jerram, the chief economist at the Bank of Singapore. "If you look back over the last 10 or 15 years they have been distant cousins at best."
- Global markets are facing a crisis and investors need to be very cautious, billionaire George Soros told an economic forum in Sri Lanka on Thursday.
- China is struggling to find a new growth model and its currency devaluation is transferring problems to the rest of the world, Soros said in Colombo. A return to positive interest rates is a challenge for the developing world, he said, adding that the current environment has similarities to 2008.
- Global currency, stock and commodity markets are under fire in the first week of the new year, with a sinking yuan adding to concern about the strength of China’s economy as it shifts away from investment and manufacturing toward consumption and services. Almost $2.5 trillion was wiped from the value of global equities this year through Wednesday, and losses deepened in Asia on Thursday as a plunge in Chinese equities halted trade for the rest of the day.
- “China has a major adjustment problem,” Soros said. “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.”
- Soros has warned of a 2008-like catastrophe before. On a panel in Washington in September 2011, he said the Greece-born European debt crunch was “more serious than the crisis of 2008.”
- Soros, whose hedge-fund firm gained about 20 percent a year on average from 1969 to 2011, has a net worth of about $27.3 billion, according to the Bloomberg Billionaires Index. He began his career in New York City in the 1950s and gained a reputation for his investing prowess in 1992 by netting $1 billion with a bet that the U.K. would be forced to devalue the pound.
- Measures of volatility are surging this year. The Chicago Board Options Exchange Volatility Index, known as the fear gauge or the VIX, is up 13 percent. The Nikkei Stock Average Volatility Index, which measures the cost of protection on Japanese shares, has climbed 43 percent in 2016 and a Merrill Lynch index of anticipated price swings in Treasury bonds rose 5.7 percent.
- China’s Communist Party has pledged to increase the yuan’s convertibility by 2020 and to gradually dismantle capital controls. Weakness in the world’s second-largest economy remains even after the People’s Bank of China has cut interest rates to record lows and authorities pumped hundreds of billions of dollars into the economy. Data this week reinforced a sluggish manufacturing sector.
MEANWHILE
George Soros Sees Crisis in Global Markets That Echoes 2008
China Stock Drops Again Over 7%, trade Terminated
- Venturing stock trading on Thursday (07/01), the current Chinese stock exchanges suspended from all trade after CSI300 index tumbled more than 7 percent in early trade, triggering the circuit breaker market for the second time this week.
At the time of cessation of trading, the Shanghai index dropped -245.96 points or -7.32% at 3115.89.
- China's re-stock slump was triggered fears of a slowdown in the Chinese economy with the depreciation of its currency as well as the drop in oil prices.
- The Shanghai index plunged 7.32 percent when trading was halted, while the Shenzhen index dropped 8.34 percent. CSI300 index, the benchmark index against which define the new circuit breaker set, fell 7.21 percent. If the index goes up or down 5 percent, the market stopped all trading for 15 minutes. If the move 7 percent, trading will be suspended for the remainder of the day. In total on Thursday, China's stock traded only about 15 minutes.
- Before the trade, the People's Bank of China (PBOC) set the midpoint at 6.5646 yuan per dollar, 0.5 percent weaker than a fixed exchange rate Wednesday, the biggest decline since the devaluation beginning in mid-August. In spot trading, the dollar-yuan pair is at 6.5906. Expectations the yuan will continue to weaken can spur investment flows out of China.
- Chinese slowdown fears further compounded this week after Caixin non-manufacturing Purchasing Managers' Index (PMI), the size of the activity for the services sector, showed a slowdown in the rate of growth on Wednesday.
- The country is experiencing a structural rebalancing of the manufacturing-oriented to service-oriented economy, so the growth of the services sector is a key sign of success. The Caixin non-manufacturing PMI for December fell to 50.2, from 51.2 in November. A reading above 50 indicates an expansion in activity in this sector.
- Mr Tri Utomo dari The News Time Line estimates at the next trade Shanghai index is still potentially weakened by fears of a slowdown in the Chinese economy. Stimulus made by the government of Beijing will be the focus, and if positive, will provide reinforcement Shanghai index. The index will move in the range 3076-2999 Support through the level and if the price rose will try to penetrate the resistance level at 3245-3338.