2015-08-31

Will Death Crosses and World Markets Rain on China's Parade This Week?

UPDATE Sept 3, 2015: Inside the Politics of Chinese Market Intervention: Government of China is intervening in China's stock markets by buying stocks on the Chinese Markets and in other ways-- Atlantic Council Senior Fellow Jamie Metzl weighs in on the China slowdown. He speaks on "Bloomberg Markets," September 2, 2015.

UPDATE August 31, 2015: S&P 500 ends August with worst month on record since 2012. Capital controls coming to China (see below).

SocGen: Half-Hearted Capital Controls Are Coming to China - Bloomberg Business: "To reduce the extent to which the People's Bank of China needs to offset outflows with foreign exchange intervention, the economist sees a high probability that capital controls will soon be instituted... This solution, the economist admits, is only a temporary one, as the People's Bank of China doesn't have an unlimited amount of foreign assets to sell to defend the currency. And while a free-floating currency would cause too much short-term stress, this Band-Aid approach won't stop the bleeding. "Not letting the currency go requires significant FX intervention that will not prevent ongoing capital outflows but which will result in tightening domestic liquidity conditions; but letting the currency go risks more immense capital outflow pressures in the immediate short term, external debt defaults and possibly further domestic investment deceleration," says Yao."

 UPDATE: If the Options Market Is Right, China's Stock Rescue Is Doomed - 30 Aug 2015 - Bloomberg Business: "... While policy makers are trying to bolster the market before President Xi Jinping takes the stage in a World War II victory parade this week, bears argue that valuations are too high for the rally to last. Chinese investors have about 5 trillion yuan ($783 billion) of borrowed money riding on stocks, and many of them are looking for a chance to exit, according to Bank of America Corp..."

Is China in the Midst of a Hard Landing? Gordon Chang, author of "The Coming Collapse of China," discusses the outlook for China's economy with Bloomberg's Joe Weisenthal and Alix Steel on "What'd You Miss?" on August 28, 2015.

S&P 500 Index 1-year chart as of August 28, 2015
S&P 500 Index 1-year chart as of August 28, 2015 (source: google.com)
Jeffrey Gundlach says US equity markets face another major leg down: "The U.S. stock market is in a mode of uncertainty, at best. You don't correct all of this in three days."--DoubleLine Capital's co-founder Jeffrey Gundlach, in a telephone interview with Reuters, last Monday.

The Week Ahead: Death Cross patterns; will global markets rain on China's parade?

‘Death cross’ patterns spread like a bearish virus - MarketWatch: "Many chart watchers believe a death cross indicates that a shorter-term decline has developed into a longer-term downtrend. There were 263 stocks within the S&P 500, or about 53%, that had a 50-day moving average (MA) below their 200-day MAs through afternoon trade Friday [Aug 28, 2015]. Shares of the biggest S&P 500 company by market capitalization, Apple Inc. AAPL, +0.33% produced a death cross on Aug. 26 ... the Dow Jones Industrial Average produced a death cross on Aug. 11. The blue-chip index was down 47 points in recent trade, and had lost nearly 800 points since the pattern appeared. On Friday, 18 Dow stocks, or 60%, had death crosses hanging over them. Many have questioned whether a well-telegraphed moving average crossover is really a bearish signal or not. But at the end of 2008, three months before the market bottomed, all 30 Dow stocks had produced death crosses."
But markets recovered last week due to intervention by the government of China buying stocks on the Chinese markets (and selling U.S. Treasuries), thereby stopping the downward spiral of Chinese, and global, stock markets. And the reason China's government intervened?  China's "authorities want to stabilize equities before a Sept. 3 military parade celebrating the 70th anniversary of the World War II victory over Japan, said two of the people, who asked not to be identified because the move wasn’t publicly announced" according to Bloomberg.

Despite interventions and preparations, world markets could rain on China's parade this week, on the other hand, maybe the sun will shine.

Caveat Emptor!

 See also on Domain Mondo: Global Markets Addicted to Central Bank and Government Manipulation




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