Thursday, January 21, 2016

Virtually Every Important Market Around The World Tanked On Wednesday......

Virtually Every Important Market Around The World Tanked On Wednesday

Things are looking increasingly shaky for central planners around the globe.

Volatility has coursed through financial markets in 2016 and at least 40 equity markets around the world with a total value of $27 trillion are now in bear territory as turmoil in China shows no signs of abating and the selloff in crude oil deepens.


U.K.  FTSE 100       5,674      
-203  Down 3.45%

9,392     -272 Down 2.82%

FRANCE CAC 40     4,125     -147 Down 3.45%

ITALY FTSE MIB     17,968   -913 Down 4.83%

SPAIN IBEX 35        8,281     -274 Down 3.20%


JAPAN  Nikkei 225 16,416    -632  Down 3.71%

HONG KONG  Hang Seng 18,886  -750  Down 3.82%

CHINA      Shanghai 2,977          -31   Down 1.02%

INDIA        Sensex 24,062          -418  Down 1.71%

SINGAPORE  Singapore 2,560    -78     Down 2.97%


Dow: 15,766.7, -249.3 (-1.6%)

S&P 500: 1,859.3, -22, (-1.2%)

Nasdaq: 4,471.7, -5.3, (-0.1%)

WTI crude oil: $26.55, -6%

Now THAT was ugly.......

In one of the most chaotic days on Wall Street you'll ever see, stocks  finished lower but off their worst levels of the day. The Dow swinging more than 1,000 points on the day.

Near midday the Dow was down more than 550 points while each of the major stock indexes were off more than 3%. Crude oil fell as much as 7% at one point.

The MSCI all-world stock index, as well as London's benchmark FTSE 100, also joined the Nikkei in bear-market territory as the first few weeks of 2016 have seen trillions in market cap get erased from stocks around the world.

The S&P 500 close was just below the big 1,862 "Ebola low" the market put in back in October 2014 and below the important 1867 support level. With this important support level taken out stocks are now officially in a downtrend, breaking from the roughly flat behavior that has dominated markets over the last 16 months or so.

Markets need to hear that the bias of monetary policy remains accommodative. We'll get no lasting rebound without some fundamental news that really shifts sentiment.

Where do we go next? 

Well, we're obviously getting more and more oversold in the short term. That means we're likely to see more rally and bounce attempts like we had Tuesday of this week and Thursday of last week. Indeed, we had an intraday bounce today, with the Dow rallying from minus-566 to minus-249.

But unlike the rallies we saw in the six-plus year bull market from 2009 through early 2015, those rallies aren't turning into powerful V-shaped moves to new highs. Investors are instead taking advantage of them to unload stocks at better prices, or to re-load short positions.

Investors have clearly lost faith in the ability of funny money to prop up asset prices for more than short periods of time, not to mention confidence in the economic and inflation outlook.

We've seen two major bear markets in the past 16 years — bear markets that wiped out vast amounts of wealth, you don't want to suffer those kinds of losses again.

After extreme periods of overvaluation through history you often get multi decade periods of markets going sideways to down with huge cyclical swings.

Social crisis will eventually eclipse economic crisis in the U.S. That is to say, our society today is so unequipped to deal with a financial collapse that the event will inevitably trigger cultural upheaval and violent internal conflict.

Deflation is more seriously entrenched than perhaps we want to admit. At this point we are certainly experiencing deflationary winds and the economy is already in, or heading for, a very nasty 
recession, perhaps a global depression. 

China will exert a negative influence on the rest of the world by reinforcing the deflationary tendencies that are already prevalent. China is responsible for a larger share of the world economy than ever before and the problems it faces have never been more intractable...the EU is on the verge of collapse. The Greek crisis taught the European authorities the art of kicking the can down the road, although it would be more accurate to describe it as kicking a ball uphill so that it keeps rolling back down. The EU now is confronted with not one but five or six crises at the same time.

China has much more to do with the deflationary storm that is brewing than most believe. China over the last two decades, and especially the last decade, has been on a building and spending spree like we've never seen before.

China also managed to stockpile cash over this same period, mostly through currency manipulation that allowed their very cheap goods to flood world markets. They overdid it. The consequences of all of this are the drops in demand for commodities and raw materials. We are just sniffing the early winds of what this deflationary storm will bring us.

Debt, debt, and more debt. By driving rates into the gutter, global central banks helped encourage massive "hot money" flows to risky corners of the world in search of higher yields. Now that liquidity is drying up, commodity prices are plunging, and foreign currencies are in freefall, those debts are coming home to roost.

It's Black Wednesday for emerging markets, one strategist warned and Thursday is not looking any better.

This year's emerging market turmoil is already worse than in the same period in 1998's Asian financial crisis. The rout in emerging markets could continue for some time, especially as the major global central banks have exhausted their ammunition in recent years, making it unlikely that they will rescue global markets this time around. More than $2 trillion has been wiped out from the value of developing-nation equities this year. The drop has exceeded the 7.9 percent decline in the gauge in the same period in 1998 during the Asian financial crisis and the drop in 2009 amid the global financial crisis.

Emerging market-based corporations are defaulting on their debts at the highest rates since 2004. Roughly $500 billion has flowed out of EM countries in the past year, driving yields up for borrowers around the world.

The Baltic Dry Index, a measure of international trade often seen as a bellwether for the global economy has crashed to its lowest level ever, fueling fears we could be heading for another 2008-style crash.

Back in November, the Baltic Dry Index dropped below 500 for the first time in recorded history, and it has kept falling ever since. On Wednesday morning it fell to a low of 369.

To put that into perspective, the index was as high as 1,222 in August, and it has fallen 84% from a recent peak of 2,330 in late 2013.

The Baltic Dry Index measures how much it costs to ship "dry" commodities around the world — raw materials like grain and steel.

The index is frequently used as a "canary in the mine" for the state of the global economy and how well international trade is performing. If the price is low, it suggests trade is slowing. This graph from Capital Economics shows just how closely the index tracks world trade volumes.

When you consider that the Baltic Dry is lower than it has ever been at the same time as the world's markets are undergoing a period of intense volatility in asset classes from stocks to oil to rough rice, it's not such a stretch to imagine a crash could be around the corner.

Not only might the Baltic Dry's crash be signalling another big global correction, it also highlights the dire straits the shipping industry is in.

For now, and with a number of very good reasons everyone's just selling everything!

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