Investors fled the US and European stockmarkets in a sell-off triggered by a wave of increasing alarm over the global economic outlook.
The Dow Jones Industrial Average fell 268.22 points, or 2.7 per cent, to finish at 9870.30. The Standard & Poor's 500 Index dropped 33.33 points, or 3.1 per cent, to close at 1041.24. The Nasdaq Composite Index slid 85.47 points, or 3.85 per cent, to end at 2135.18.
All but one stock in the S&P 500 ended lower as escalating doubts about the stability of Europe's banks roiled markets once again.
"The day started with overseas - China - that was bad," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. "Then it got banged out with the consumer confidence and it all just kind of went from there."
The S&P 500 had tumbled below its 2010 intraday low of 1040.78 during the session, which analysts said could ignite further declines. The index closed at its lowest level since October 30, breaking its closing low for the year at 1050.47 - another bearish signal for markets.
"Everybody is talking about 1040, that it is the do-all, end-all, blow it up, end of the world, blood on the streets level. The market crashes, the S&P goes to 900," said Marc Pado, US market strategist at Cantor Fitzgerald & in San Francisco.
Economically sensitive sectors such as materials, industrials and financials were among the hardest hit.
Boeing slid 6.3 per cent to $US63.04 and Caterpillar shed 5.5 per cent to $US60.85. Diversified manufacturer 3M, which raised its second-quarter sales outlook last night, was not immune to the selling pressure, dipping 0.6 per cent to $US78.49.
Fears about the strength of the banking system surfaced again, with investors worried about a potential liquidity shortfall of more than 100 billion euros in the financial system as European banks repay 442 billion euros in emergency loans on Thursday.
The KBW Bank index fell 4.4 per cent and broke its 200-day moving average today at 48.00, which it had made a stand at last Thursday and Friday.
"The break of the 200-day moving average fueled more selling. Technically, this is another sign of weakness in the financials," said Elliot Spar, option market strategist at Stifel Nicolaus in Shrewsbury, New Jersey.
The CBOE volatility index, known as Wall Street's fear gauge, surged 22 percent to a session high of 35.39, its highest level since early June, in a sign more volatility could be in the offing. [ID:nN29161109]
Earlier in the day, the Conference Board corrected its leading economic index for China to an April gain of 0.3 per cent from a previously reported rise of 1.7 per cent, a sharp revision that undermined confidence in China's ability to sustain strong growth.
The correction prompted investors to turn against riskier assets, adding to a global sell-off. The Shanghai Composite Index fell 4.3 per cent to end at a 14-month low.
US consumer confidence dropped sharply in June, after rising for three months, on worries about the labor market, according to a report from the Conference Board. The news heightened fears of an economic slowdown after a recent spate of weak data from the housing and job markets.
‘‘Already under solid pressure amid the backdrop of lingering euro-area financial market concerns and a steep downward revision in a piece of Chinese economic data, global equity markets have extended losses following a much larger-than-expected drop in US consumer confidence,’’ analysts at Charles Schwab & Co said in a report.
About 11.38 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, above last year's estimated daily average of 9.65 billion.
Declining stocks outnumbered advancing ones on the New York Stock Exchange by 2,831 to 259, while on the Nasdaq, there were 2,393 declining stocks and only 279 advancers.
Reuters, AFP
Showing posts with label global bond market. Show all posts
Showing posts with label global bond market. Show all posts
Wednesday, 30 June 2010
Wednesday, 25 February 2009
Dr Doom says US govt bonds next bubble to burst
Dr Doom says US govt bonds next bubble to burst
SINGAPORE, Feb 23 – As usual, Dr Marc Faber, the author of The Gloom Boom and Doom Report and contrarian views, did not disappoint the masochist in us as he gave his spiel on the causes of the current economic turmoil at a dialogue on Friday organised by The Business Times in partnership with Julius Baer, one of Switzerland's leading wealth managers.
His topic “Were You Born Before Or After 2007”, that is, before or after the global economies began their steep decline, got nearly 400 bankers and businessmen intrigued enough to spend four-and-a-half hours at the Ritz Carlton Singapore.
Luckily lunch was served before Dr Doom, as Dr Faber is often called, took the floor. The picture he painted was indeed gloomy, with no end in sight of what appears to be a very long tunnel.
The present credit crisis caused by ultra expansionary monetary policies was very serious, he said – as if the audience of bankers and business were not already aware of this.
He went on to add that non-financial credit growth has declined from an annual rate of 16 per cent in late 2006 to between 1 and 2 per cent now.
The deleveraging taking place among financial intermediaries is negative for the American economy that is addicted to credit growth, he pointed out. The United States' trade and current account deficits will shrink further and diminish international liquidity. This is bad for asset prices.
“We had an unprecedented global economic boom between 2002 and 2007. A colossal global economic bust is now following,” he said.
And worse might follow, as he noted: There was still one bubble more to be deflated – US government bonds.
Adding more fuel to his fire of gloom was his warning that regardless of the policies followed by the US government and its agencies, the American consumer was in a recession, which will only deepen.
“Expansionary monetary policies, which caused the current credit crisis in the first place, are the wrong medicine to solve the current problems. They can address the symptoms of excessive credit growth, but not the cause,” he noted.
Expansionary fiscal and monetary policies will, after a bout of deflation, lead to much higher inflation rates, which will have a negative impact on the valuation of equities in real terms, he observed.
“But what options does the Federal Reserve have with a total credit market debt to GDP (Gross Domestic Product) of more than 350 per cent?” he asked rhetorically.
And if that was bad enough, he raised the spectre of war looming on the horizon, noting that geopolitical tensions were on the rise. He predicted that commodity shortages, especially of oil, would lead to increased international tensions and to what he called resource nationalism.
The shortage of oil would be caused not only by increased demand from China and India, but also the Middle East. “Not only do they (the Middle East) produce oil, they produce too many babies,” he said in one of the few light moments of his dialogue.
The good doctor, however, had some upbeat investment advice: In Asia, avoid real estate in financial centres, but look at things such as soft commodities, which, while volatile, are on an upward trend.
There are also opportunities in pharmaceutical and hospital management companies, and in banks, insurance companies and brokers, especially in emerging economies.
Opportunities also abound in plantations and farmlands in Indonesia, Malaysia, Latin America and the Ukraine. He also advised investors to go long on gold and corporate bonds but to dump US government bonds.
However, what was lacking at the talk were solutions to the current crisis. And answers. When can we see the light at the end of the tunnel? How long is the tunnel that we are in? – Today
http://www.themalaysianinsider.com/index.php/business/18977-dr-doom-says-us-govt-bonds-next-bubble-to-burst
SINGAPORE, Feb 23 – As usual, Dr Marc Faber, the author of The Gloom Boom and Doom Report and contrarian views, did not disappoint the masochist in us as he gave his spiel on the causes of the current economic turmoil at a dialogue on Friday organised by The Business Times in partnership with Julius Baer, one of Switzerland's leading wealth managers.
His topic “Were You Born Before Or After 2007”, that is, before or after the global economies began their steep decline, got nearly 400 bankers and businessmen intrigued enough to spend four-and-a-half hours at the Ritz Carlton Singapore.
Luckily lunch was served before Dr Doom, as Dr Faber is often called, took the floor. The picture he painted was indeed gloomy, with no end in sight of what appears to be a very long tunnel.
The present credit crisis caused by ultra expansionary monetary policies was very serious, he said – as if the audience of bankers and business were not already aware of this.
He went on to add that non-financial credit growth has declined from an annual rate of 16 per cent in late 2006 to between 1 and 2 per cent now.
The deleveraging taking place among financial intermediaries is negative for the American economy that is addicted to credit growth, he pointed out. The United States' trade and current account deficits will shrink further and diminish international liquidity. This is bad for asset prices.
“We had an unprecedented global economic boom between 2002 and 2007. A colossal global economic bust is now following,” he said.
And worse might follow, as he noted: There was still one bubble more to be deflated – US government bonds.
Adding more fuel to his fire of gloom was his warning that regardless of the policies followed by the US government and its agencies, the American consumer was in a recession, which will only deepen.
“Expansionary monetary policies, which caused the current credit crisis in the first place, are the wrong medicine to solve the current problems. They can address the symptoms of excessive credit growth, but not the cause,” he noted.
Expansionary fiscal and monetary policies will, after a bout of deflation, lead to much higher inflation rates, which will have a negative impact on the valuation of equities in real terms, he observed.
“But what options does the Federal Reserve have with a total credit market debt to GDP (Gross Domestic Product) of more than 350 per cent?” he asked rhetorically.
And if that was bad enough, he raised the spectre of war looming on the horizon, noting that geopolitical tensions were on the rise. He predicted that commodity shortages, especially of oil, would lead to increased international tensions and to what he called resource nationalism.
The shortage of oil would be caused not only by increased demand from China and India, but also the Middle East. “Not only do they (the Middle East) produce oil, they produce too many babies,” he said in one of the few light moments of his dialogue.
The good doctor, however, had some upbeat investment advice: In Asia, avoid real estate in financial centres, but look at things such as soft commodities, which, while volatile, are on an upward trend.
There are also opportunities in pharmaceutical and hospital management companies, and in banks, insurance companies and brokers, especially in emerging economies.
Opportunities also abound in plantations and farmlands in Indonesia, Malaysia, Latin America and the Ukraine. He also advised investors to go long on gold and corporate bonds but to dump US government bonds.
However, what was lacking at the talk were solutions to the current crisis. And answers. When can we see the light at the end of the tunnel? How long is the tunnel that we are in? – Today
http://www.themalaysianinsider.com/index.php/business/18977-dr-doom-says-us-govt-bonds-next-bubble-to-burst
Monday, 9 February 2009
Bond market calls Fed's bluff as global economy falls apart
Bond market calls Fed's bluff as global economy falls apart
Global bond markets are calling the bluff of the US Federal Reserve.
By Ambrose Evans-Pritchard
Last Updated: 7:22PM GMT 08 Feb 2009
Comments 80 Comment on this article
The yield on 10-year US Treasury bonds – the world's benchmark cost of capital – has jumped from 2pc to 3pc since Christmas despite efforts to talk the rate down.
This level will asphyxiate the US economy if allowed to persist, as Fed chair Ben Bernanke must know. The US is already in deflation. Core prices – stripping out energy – fell at an annual rate of 2pc in the fourth quarter. Wages are following. IBM, Chrysler, General Motors, and YRC, have all begun to cut pay.
The "real" cost of capital is rising as the slump deepens. This is textbook debt deflation. It was not supposed to happen. The Bernanke doctrine assumes that the Fed can bring down the whole structure of interest costs, first by slashing the Fed Funds rate to zero, and then by making a "credible threat" to buy Treasuries outright with printed money.
Mr Bernanke has been repeating this threat since early December. But talk is cheap. As the Fed hesitates, real yields climb ever higher. Plainly, the markets do not regard Fed rhetoric as "credible" at all.
Who can blame bond vigilantes for going on strike? Nobody wants to be left holding the bag if and when the global monetary blitz succeeds in stoking inflation. Governments are borrowing frantically to fund their bail-outs and cover a collapse in tax revenue. The US Treasury alone needs to raise $2 trillion in 2009.
Where is the money to come from? China, the Pacific tigers and the commodity powers are no longer amassing foreign reserves ($7.6 trillion). Their exports have collapsed. Instead of buying a trillion dollars of extra bonds each year, they have become net sellers. In aggregate, they dumped $190bn over the last fifteen weeks.
The Fed has stepped into the breach, up to a point. It has bought $350bn of commercial paper, and begun to buy $600bn of mortgage bonds. That helps. But still it recoils from buying Treasuries, perhaps fearing that any move to "monetise" Washington's deficit starts a slippery slope towards an Argentine fate. Or perhaps Bernanke doesn't believe his own assurances that the Fed can extract itself easily from emergency policies when the cycle turns.
As they dither, the world is falling apart. Events in Japan have turned deeply alarming. Exports fell 35pc in December. Industrial output fell 9.6pc. The economy is contracting at an annual rate of 12pc. "Falling exports are triggering a downward spiral of production, incomes and spending. It is important to prepare for swift policy steps, including those usually regarded as unusual," said the Bank of Japan's Atsushi Mizuno.
The bank is already targeting equities on the Tokyo bourse. That is not enough for restive politicians. One bloc led by Senator Koutaro Tamura wants to create $330bn in scrip currency for an industrial blitz. "We are facing hyper-deflation, so we need a policy to create hyper-inflation," he said.
This has echoes of 1932, when the US Congress took charge of monetary policy. We are moving to a stage of this crisis where democracies start to speak – especially in Europe.
The European Central Bank's refusal to follow the lead of the US, Japan, Britain, Canada, Switzerland and Sweden in slashing rates shows how destructive Europe's monetary union has become. German orders fells 25pc year-on-year in December. French house prices collapsed 9.9pc in the fourth quarter, the steepest since data began in 1936. "We're dealing with truly appalling data, the likes of which have never been seen before in post-War Europe," said Julian Callow, Europe economist at Barclays Capital.
Spain's unemployment has jumped to 3.3m – or 14.4pc – and will hit 19pc next year, on Brussels data. The labour minister said yesterday that Spain's economy could not "tolerate" immigrants any longer after suffering "hurricane devastation". You can see where this is going.
Ireland lost 36,500 jobs in January – equal to a monthly loss of 2.3m in the US. As the budget deficit surges to 12pc of GDP, Dublin is cutting wages, disguised as a pension levy. It has announced "Rooseveltian measures" to rescue the foundering companies.
The ECB's obduracy has nothing to do with economics. It fears zero rates as a vampire fears daylight, because that brings the purchase of eurozone bonds ever closer into play. Any such action would usher in an EMU "debt union" by the back door, leaving Germany's taxpayers on the hook for Club Med liabilties. This is Europe's taboo.
Meanwhile, Eastern Europe is imploding. Industrial output fell 27pc in Ukraine and 10pc in Russia in December. Latvia's GDP contracted at a 29pc annual rate in the fourth quarter. Polish homeowners have had the shock from Hell. Some 60pc of mortgages are in Swiss francs. The zloty has halved against the franc since July.
Readers have berated me for a piece last week – "Glimmers of Hope" – that hinted at recovery. Let me stress, I was wearing my reporter's hat, not expressing an opinion. My own view, sadly, is that there is no hope at all of stabilizing the world economy on current policies.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4560901/Bond-market-calls-Feds-bluff-as-world-falls-apart.html
Global bond markets are calling the bluff of the US Federal Reserve.
By Ambrose Evans-Pritchard
Last Updated: 7:22PM GMT 08 Feb 2009
Comments 80 Comment on this article
The yield on 10-year US Treasury bonds – the world's benchmark cost of capital – has jumped from 2pc to 3pc since Christmas despite efforts to talk the rate down.
This level will asphyxiate the US economy if allowed to persist, as Fed chair Ben Bernanke must know. The US is already in deflation. Core prices – stripping out energy – fell at an annual rate of 2pc in the fourth quarter. Wages are following. IBM, Chrysler, General Motors, and YRC, have all begun to cut pay.
The "real" cost of capital is rising as the slump deepens. This is textbook debt deflation. It was not supposed to happen. The Bernanke doctrine assumes that the Fed can bring down the whole structure of interest costs, first by slashing the Fed Funds rate to zero, and then by making a "credible threat" to buy Treasuries outright with printed money.
Mr Bernanke has been repeating this threat since early December. But talk is cheap. As the Fed hesitates, real yields climb ever higher. Plainly, the markets do not regard Fed rhetoric as "credible" at all.
Who can blame bond vigilantes for going on strike? Nobody wants to be left holding the bag if and when the global monetary blitz succeeds in stoking inflation. Governments are borrowing frantically to fund their bail-outs and cover a collapse in tax revenue. The US Treasury alone needs to raise $2 trillion in 2009.
Where is the money to come from? China, the Pacific tigers and the commodity powers are no longer amassing foreign reserves ($7.6 trillion). Their exports have collapsed. Instead of buying a trillion dollars of extra bonds each year, they have become net sellers. In aggregate, they dumped $190bn over the last fifteen weeks.
The Fed has stepped into the breach, up to a point. It has bought $350bn of commercial paper, and begun to buy $600bn of mortgage bonds. That helps. But still it recoils from buying Treasuries, perhaps fearing that any move to "monetise" Washington's deficit starts a slippery slope towards an Argentine fate. Or perhaps Bernanke doesn't believe his own assurances that the Fed can extract itself easily from emergency policies when the cycle turns.
As they dither, the world is falling apart. Events in Japan have turned deeply alarming. Exports fell 35pc in December. Industrial output fell 9.6pc. The economy is contracting at an annual rate of 12pc. "Falling exports are triggering a downward spiral of production, incomes and spending. It is important to prepare for swift policy steps, including those usually regarded as unusual," said the Bank of Japan's Atsushi Mizuno.
The bank is already targeting equities on the Tokyo bourse. That is not enough for restive politicians. One bloc led by Senator Koutaro Tamura wants to create $330bn in scrip currency for an industrial blitz. "We are facing hyper-deflation, so we need a policy to create hyper-inflation," he said.
This has echoes of 1932, when the US Congress took charge of monetary policy. We are moving to a stage of this crisis where democracies start to speak – especially in Europe.
The European Central Bank's refusal to follow the lead of the US, Japan, Britain, Canada, Switzerland and Sweden in slashing rates shows how destructive Europe's monetary union has become. German orders fells 25pc year-on-year in December. French house prices collapsed 9.9pc in the fourth quarter, the steepest since data began in 1936. "We're dealing with truly appalling data, the likes of which have never been seen before in post-War Europe," said Julian Callow, Europe economist at Barclays Capital.
Spain's unemployment has jumped to 3.3m – or 14.4pc – and will hit 19pc next year, on Brussels data. The labour minister said yesterday that Spain's economy could not "tolerate" immigrants any longer after suffering "hurricane devastation". You can see where this is going.
Ireland lost 36,500 jobs in January – equal to a monthly loss of 2.3m in the US. As the budget deficit surges to 12pc of GDP, Dublin is cutting wages, disguised as a pension levy. It has announced "Rooseveltian measures" to rescue the foundering companies.
The ECB's obduracy has nothing to do with economics. It fears zero rates as a vampire fears daylight, because that brings the purchase of eurozone bonds ever closer into play. Any such action would usher in an EMU "debt union" by the back door, leaving Germany's taxpayers on the hook for Club Med liabilties. This is Europe's taboo.
Meanwhile, Eastern Europe is imploding. Industrial output fell 27pc in Ukraine and 10pc in Russia in December. Latvia's GDP contracted at a 29pc annual rate in the fourth quarter. Polish homeowners have had the shock from Hell. Some 60pc of mortgages are in Swiss francs. The zloty has halved against the franc since July.
Readers have berated me for a piece last week – "Glimmers of Hope" – that hinted at recovery. Let me stress, I was wearing my reporter's hat, not expressing an opinion. My own view, sadly, is that there is no hope at all of stabilizing the world economy on current policies.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4560901/Bond-market-calls-Feds-bluff-as-world-falls-apart.html
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