90 seconds at 9 am: Storm hits markets

90 seconds at 9 am: Gold tumbles; equities fall; credit spreads up sharply; China credit squeeze worsens; oil down 4%; NZ$1 = US$0.773, TWI = 72.8

21st Jun 13, 7:31am by David Chaston

Here's my summary of the key news overnight in 90 seconds at 9 am, including news that markets worldwide have capitulated in the face of perceived new risk.

Gold is down dramatically, as the main marker for this retreat. It is currently at US$1,280/oz, a level it has not been at since September 2010.

Credit spreads have shot sharply higher.

Equities are in retreat. At mid-day in New York the Dow is down more than 2%. Oil is down 4%.

The latest prices on milk powders and cheese are soft in US dollars although generally holding in NZ dollars.

China's credit squeeze is the catalyst but yesterday's announcements from the Fed's started the wobble (although why that would be is unclear, almost illogical).

Interbank rates in China hit an unprecedented 12% overnight and there are real fears on how this will play out from here. The POBC has injected cash but whether it is enough to calm things is uncertain. Things aren't helped by the worst flash PMI result in China in a long time; manufacturing is contracting there. The signs of weakness in China mount.

Euro area manufacturing has contracted further in data overnight for June, and the China slowdown won't help them in coming months.

All this overshadowed news that sales of new homes in the US were up to a three year high in May, and that US manufacturing rose in June.

And in the latest twist in the multi-national tax avoidance saga, Cadbury is in the spotlight.

Speaking of multinationals, ANZ is under the spotlight in Australia with new plans to offshore jobs, many to New Zealand. An internal document has been leaked by the Finsec union that describes plans to "leverage offshore voice capability in New Zealand and build scale in Manila". Finsec's New Zealand branch has been silent on the news.

The NZ dollar starts today sharply lower at 77.3 USc, 88.1 AUc, and the TWI is at 72.8. The British pound is up against the NZ dollar to more than 2:1.

No chart with that title exists.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

11 Comments

by steven | 21st Jun 13, 8:12am 1371759120

Up early David, could we try and not link to the FT that demands registration?

If its risk why has gold dropped and not risen?

Seems to be lots of conflicting info here.

Steven

by Roelof | 21st Jun 13, 8:48am 1371761324

Steven... In my experience... the first stage of a rush to the exit door.... is a rush to liquidity and also safety

In that case anything and everything that is highly leveraged .and has a speculative element.... is likely to drop in price initially.

So.. I'd be wary about reading to much into the drop in gold... just yet.

The next couple of mths might show how keen the Central Banks really are about taking their foot off the pedal.....

Cheers Roelof

by steven | 21st Jun 13, 9:13am 1371762780

Yep, I dont or try to avoid reading too much into daily and even weekly numbers....too much noise. The speculative element of course hides whats really going on. How can you read the numbers with any confidence without knowing how much of the number and the change in that number is speculation and not actual market signal? I mean some "real" ppl might be buying gold as a protection, so the price of gold should go up but the speculators decide its time to exit, so the NET we see is down....Same with oil, demand might be up 4% as there is a real recovery underway but the gamblers exit, so its price drops....4%, an 8% error...

Hence I look at 3 and 6 months trends with interest....things ike the BDI with many months of decline is a clear drop. David C sometimes comments on such being up on the day, but its gone the next.....and the trend remains.

Yes, liquidity = cash, what I'd expect in a deflationary event. Not sure where is safe however, the US bond market seems to have caused some losses...maybe the exit in that will reverse fast.

I really worry about the over-heated and indebted housing market, when the implodes the result will be awful for all of us....hello Ireland and inter-generational debt comes to mind.

regards

by powerdownkiwi | 21st Jun 13, 9:35am 1371764149

Agreed. Even a lemming-rush out of the Dow, doesn't actually represent what is the long-term change in real activity. This is one problem with what daily news relates, relative to relativity.

by scarfie | 21st Jun 13, 10:35am 1371767703

The most interesting chart of all is the massive multi year wedge in oil price. I find Dailyfx have good free and easy charts to use. After Steven's comments I overlayed gold and the SPX 500 and it does paint a very confusing picture compared to past action in 2008/10/11.

by starfish1 | 21st Jun 13, 9:42am 1371764544

Emerging markets are particularly being hit hard. China looks to be the biggest concern and a crash could be possible. Expect to hear a lot of news out of China within the next 3 months. As China has a correction I suspect many Chinese will start buying gold and silver and particularly so with the prices on offer now.

by bigblue | 21st Jun 13, 10:14am 1371766442

So low interest rates for longer and QE continued beyond 2014 now that Bernanke has tested the negative reaction to an easing?

by kin | 21st Jun 13, 10:14am 1371766499

Is this the beginning of the beginning ??? (GFC.II )

China is finally imploding...overnight interbank spiked up to 25%....until PBOC intervened and yet it closed at 12%....

The shadow banking sector of China is finally seeing light at the end of the tunnel....into a fast moving train...or Dracula of shadow banking getting the heat of the Sun....Australia which relies on China for oxygen is suffocating and NZ cousin will soon feel the heat...

Bond rates all over the world is shooting up...wonder what it will do to NZ addiction to foreign borrowing ??? (a hint.....our NZ dollar is below UD$0.77 cents )

Gold and ALL commodities are getting crushed, as does equities and bonds....All because Ben Bernanke says "IF.....we will REDUCE QE" a BIG "IF"....

I can safely guarantee he will be backpedaling soon...but then it might be too late for some who cannot top up their margins on time...or get their loans recalled when interest spiked.....

by JB | 21st Jun 13, 10:16am 1371766616

There was no rush out of the Dow.
Strong buying support emerged at lower price levels.
Just different investors with a different view of the future.

by iconoclast | 21st Jun 13, 11:25am 1371770742

David Chaston says: China's credit squeeze is the catalyst but yesterday's announcements from the Fed's started the wobble (although why that would be is unclear, almost illogical)

Well, first, you could check the dictionary definition of the word Taper. One meaning is to ease off, another meaning is a "wick" or "fuse" to ignite something, and second, should you choose to look, the 20th and 21st june are two designated dates in the financial calendar that have been set in stone all year. No surprises here. Right on time.

by Kiwi | 21st Jun 13, 12:32pm 1371774769

There seem to be big regulatory changes happening in the Chinese infant milk market which could affect NZ companies.

Companies that produce baby formula will be required to have their own dairy farms,according to measures released by nine ministries on Thursday.

The General Administration of Quality Supervision, Inspection and Quarantine said onThursday it would take stricter measures, such as requiring all overseas dairy producers toregister in China before they can export to the country, and banning companies fromoutsourcing baby formula production.

http://www.chinadaily.com.cn/business/2013-06/21/content_16642075.htm

"banning companies fromoutsourcing baby formula production" seems a bit ominious to the status quo.

Does this mean that Chinese companies have to build their own factories in NZ rather than getting NZ companies to supply them?