90 seconds at 9 am: China's tumbling stock market sends iron ore price plunging

China's stock market seizes up, iron ore prices crash, NY Stock Exchange re-opens; UST 10yr yield rises, NZ$1 = 67.4 US¢, 90.6 AU¢, TWI-5 = 71.7

9th Jul 15, 7:50am by Jenée Tibshraeny

Here's my summary of the key issues overnight that affect New Zealand, with news the New Zealand dollar has soared as uncertainty grips the US and Australian markets.

China's tumbling stock market is showing signs of seizing up. Companies are scrambling to escape the retreat by suspending their shares, and indices are plunging as the securities regulator warns of a "panic sentiment" gripping investors.

Beijing has unveiled further measures to arrest the sell-off, and the People's Bank of China says it will step up support to brokerages enlisted to prop up shares.

China's wobbles are sending commodity prices down, hitting Australia hard. The price of iron ore has plunged to its lowest level in at least six years. It's dropped 10% to less than US$45 a tonne, as demand from China threatens being cut, just as producers had planned to raise output. The Australian dollar has responded by falling to a six-year low against the US.

The race to save Greece from bankruptcy is gathering pace. Athens has submitted a request to the European Stability Mechanism bailout fund, to get a three-year loan, of an unspecified amount. It's promised to start implementing the tax and pension measures sought by creditors as early as Monday. European authorities are speeding up their review of the request.

The New York Stock Exchange has just re-opened after a technical glitch stopped trading for nearly four hours. It was the longest suspension at the exchange in recent years, even though trading could continue on other stock exchanges.

The UST 10yr yield benchmark has risen from this time yesterday, to 2.22%.

New Zealand swap rates have dropped sharply, with the 2-year rate the lowest it's been since May 2013, at 2.93%.

Oil prices continue to fall today. The US benchmark price is US$51/barrel, and Brent crude is just below US$57/barrel.

The gold price has rebounded slightly from its US$20 fall yesterday, to US$1,161/oz.

The New Zealand dollar has soared this morning. It's up 90 bp to 67.4 US¢, up more than a cent to 90.6 AU¢, and up to 60.9 euro cents. The TWI-5 has risen from its three-year low to 71.7.

If you want to catch up with all the local changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here »

Daily exchange rates

Select chart tabs

Source: RBNZ

Source: CoinDesk

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.

31 Comments

by Andrewj | 9th Jul 15, 8:49am 1436388552

The Shanghai Composite Index fell 5.9 percent on Wednesday. It's now about 32 percent below the peak of 5,166 it reached on June 12. The unwinding of margin loans is adding fuel to the fire. Individual investors in China, as we all know by now, have used generous margin financing terms to enter the stock market and then build up their portfolios. Less-known is that Chinese companies have been doing the same thing by using their own corporate stock to secure loans from banks.Says Nick Lawson at Deutsche Bank: "Stocks are being suspended by the companies themselves because many have bank loans backed by shares which the banks themselves may want to liquidate, joining the queues of margin sellers."
Nomura analysts added that: "Some bank loans have been extended with shares of listed companies put up as collateral."
http://www.bloomberg.com/news/articles/2015-07-08/this-is-why-so-many-c…

by sharetrader | 9th Jul 15, 9:24am 1436390656

wow talk about a gambling mentality, that is a huge mess they have created this will not end well

by Andrewj | 9th Jul 15, 9:58am 1436392699

found this comment on some blog, suspect it's true.
>>>>
Oh it's gonna get better, there's a lot and I do mean a lot of bad debt in China. A lot of banks over the last two years have been trying to claim it, and suddenly find there's no assets to seize and in some cases assets have been used upwards of half a dozen times under different names. When it pops it's going to be massive, and exceptionally nasty.

by Henry_Tull | 9th Jul 15, 9:42am 1436391731

don't forget Shenzhen mkt
and the local stock there Hunan Dakang Pasture Farming Co Ltd, owner of Crafar and Synlait Farms, partner to Fonterra and Landcorp. down about half (was 12.70, last 5.55) and now suspended/ Trading has been halted for 002505:CH

http://www.bloomberg.com/quote/002505:CH

http://www.dakangmuye.com/en-us/about/partner

http://quicktake.morningstar.com/stocknet/secdocuments.aspx?symbol=0025…
tuff to read

http://www.dakangmuye.com/en-us/product/ruye
Theland Pastures - The biggest proprietary pastures in New Zealand
Theland has several self-owned pastures situated in the key dairy regions of New Zealand at 40 degrees north, the same latitude as other best pastures in Australia, Holland and Ireland. With their unique unspoiled natural environment, these pastures are called "the Golden pastures out of golden pastures".

by Henry_Tull | 9th Jul 15, 9:56am 1436392581

and Beingmate
http://www.bloomberg.com/quote/002570:CH

52Wk Range
12.11 - 30.97
now 12.11 and suspended

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=114…
Beingmate's Shenzhen-listed shares closed down 10 per cent (the maximum daily limit imposed on share price losses) on Tuesday, at 12.11 yuan, but did not trade at all yesterday.

The firm's stock price has now dropped 32 per cent from the 18 yuan per share price Fonterra paid for its investment, which was part of partnership that includes a potentially lucrative distribution agreement for the New Zealand company's Anmum infant formula brand.

as for this borrowing to buy shares, even if the market was open.

by Stephen Hulme | 9th Jul 15, 10:10am 1436393446

Cripes, and that's not the worst of it. US interest rate hikes are firmly off the table after the release of the Fed FOMC minutes coupled with recent events. The lifting of NZD/USD fx pair shorts confirm as much.

by MikeM | 9th Jul 15, 10:29am 1436394596

Yep, and I wouldn't be surprised to see a 2.00% OCR within 12 months. Look for a 50bps slice at the next meeting. Cover your eyes at the next dairy auction.

by sharetrader | 9th Jul 15, 10:54am 1436396094

yes at least we hava rate we can cut to get the economy moving again.

by steven | 9th Jul 15, 11:17am 1436397428

You are smelling fear? got to wonder.

Just something to consider though on the OCR. We have to borrow from offshore, if investors decide that we are a big risk and want say 7% it doesnt matter diddly if the OCR is 2% or even 1%, i cant see why mortgages wouldnt be 9%~9.5% even facing a severe recession/depression. Of course those with excessive mortgages are going to start to default then, nasty.

by sharetrader | 9th Jul 15, 11:20am 1436397619

not fear but i work in an industry that is one of the first to feel the effects of a downtown and it has been slowly building for months

by sharetrader | 9th Jul 15, 10:30am 1436394631

i read those this morning and i think they have missed the window to put one hike in to see what happens and now wont raise rates at all even next year as there economy slows

by cowboy | 9th Jul 15, 1:01pm 1436403694

Given retail rates are low already, a slim trim won't achieve much more.
Where is such a rate drop supposed to affect our economic activity?? (previously it would create house sales which create new mortgages and released old equity)

by Kate | 9th Jul 15, 10:33am 1436394784

I was working as a recruitment consultant in 1987. Will never forget it - one day boom, next day bust - literally. The effects of the market crash on the employment market was swift and brutal.

by antonymouse | 9th Jul 15, 9:38am 1436391504

Greece's creditors refuse to consider declaring all of this bad debt null and void—not because of anything having to do with Greece, which is small enough to be forgiven much of its bad debt without causing major damage, but because of Spain, Italy and others, which, if similarly forgiven, would blow up the finances of the entire European Union. Thus, it is rather obvious that Greece is being punished to keep other countries in line. Collective punishment of a country—in the form of extracting payments for onerous debt incurred under false pretenses—is bad enough; but collective punishment of one country to have it serve as a warning to others is beyond the pale.

Add to this a double-helping of double standards. The IMF won't lend to Greece because it requires some assurance of repayment; but it will continue to lend to the Ukraine, which is in default and collapsing rapidly, without any such assurances because, you see, the decision is a political one.

http://cluborlov.blogspot.co.nz/2015/07/financial-nonsense-overload.html

by Doubting Tom | 9th Jul 15, 2:03pm 1436407418

So the Greek governments of yesteryears have no responsibility for the debt they have racked up? As far as I can remember Greece was and is not far off from a Third World country, similar to Spain, Portugal and Ireland. The latter are trying their best to get out of the predicament they are in and Greece should do the same. There is no such thing as free money.

by steven | 9th Jul 15, 3:16pm 1436411815

Of course they do or should, as individual politicians. However do ppl who were too young to vote back then have responsibility? If the pollies lied or hid the issues from voters, do the voters?

by xingmowang | 9th Jul 15, 10:02am 1436392924

Apart from the sheer size of the Chinese share market nowadays, I tend not to worry about its performance.

Its connection and integration with the Chinese economy and capital market is next to none.

The share market, in essence and summarized nicely by scholars in China, is a gigantic casino but without proper casino rules, i.e., the house can see both its and your cards, but you cannot.

by frazz | 9th Jul 15, 10:14am 1436393643

Yes, no need to worry at all, the two are not connected?

"The problem for China, as we've pointed out on several occasions this week, is that Beijing has lost all control of the narrative, which puts the Politburo in unfamiliar territory. Rhetoric intended to calm the millions of newly-minted day traders who flooded into the market in Q1 and the beginning of Q2 has largely failed to stop the rush to the exits. China's highly leveraged retail masses are now ready to sell every rip in an effort to break even, a mentality that contrasts markedly with the BTFD bonanza that prevailed on Chinese exchanges right up until June.

"Now, each new policy maneuver only serves to make Beijing appear more desperate, which in turn inflicts further damage on investors' fragile psyche, leading to still more selling and still more margin calls in a vicious cycle that has by no means run its course considering the hundreds of billions in margin debt investors have accumulated through backdoor channels such as umbrealla trusts and structured funds."
http://www.zerohedge.com/news/2015-07-08/chinese-media-blames-soros-hos…

by cowboy | 9th Jul 15, 1:14pm 1436404489

No they aren't really connected for important things, as the Chinese government activiely oversees things. The whole sharemarket could be wiped out, but the government will just point the pins back up.
It's weird by our terms, if you win you get to keep your winnings (but they can be asked to returned at any time), if you lose that's sad but you're no worse off than everyone else, and if it all turns into a mess then they just reset the game. They understand that as long as the basic needs are looked after the rest doesn't really matter.
The extra money is just for extras,. nicer health care, better retirement. That's why bribery (gifts) isn't such a big issue - it gives "nicer" rewards but ideologically no-one is worse off. Doesn't quite work out that simple, but life is seldom simple or expected ,so you just deal with the bad as it comes and exult the good.

by frazz | 9th Jul 15, 1:33pm 1436405607

I assume you have spent time in China Cowboy with such views?

by @tony | 9th Jul 15, 10:16am 1436393797

Debt has been cancelled throughout history....
http://cadtm.org/The-Long-Tradition-of-Debt
Who is the more foolish; the ones that gave to much debt or those that took it.
"Wipe the slate clean"... is, literally, what happened.

by waymad | 9th Jul 15, 10:40am 1436395216

Interesting little snippet about the deepening ties between Russia and Greece....http://www.thedailybeast.com/articles/2015/07/08/is-putin-playing-puppe…

As I noted a couple of days ago, there's a nice coincidence looming:
- Russia has yuan convertibility with China
- China has the New Silk Road project trundling along http://atimes.com/2015/05/kazakhstan-breaks-ground-on-chinas-new-silk-r…
- China will need recipients for the flood of laser-printed yuan unleashed by QE

Who better than a poor but strategic country, now officially spurned by the EU, NATO and the West, on the grounds (true, admittedly) that they were too addicted to OPM? Spengler concurs...http://atimes.com/2015/07/debt-financed-consumption-caused-the-greek-cr… and notes that Greece could become 'a distant satrapy of China'

Francesco Sisci, a long-time Sinophile, also downplays China's internal woes and points to an Eastern tinge to Greece's redemption: http://atimes.com/2015/07/on-greece-china-the-euro-and-the-fate-of-euro…
Interesting times...

by Basel Brush III | 9th Jul 15, 11:28am 1436398086

If they are able to gamble like that at home just watch out for the same attitude they may have with the Auckland residential market.
We saw it all before in the late 90s when there were properties available on a first cash offer basis in parts of Auckland.

by Thomas | 9th Jul 15, 2:10pm 1436407827

Russia is a parasitic opportunist.

by bender | 9th Jul 15, 3:19pm 1436411989

3 pm breaking news on Radio NZ:
Treasury recommends closing down Kiwirail !!! Those bean counters must all be climate change deniers, neocon ideologues, and beholden to the polluting, road destroying, automobile smashing truckers. Just another of their hare brained schemes. I suggest Treasury be shut down instead and replaced by rational, critical thinking, nonideologic bookkeepers.

by steven | 9th Jul 15, 3:28pm 1436412504

I have been saying Treasury needs to go for years...this is just one more example.

by steven | 9th Jul 15, 3:28pm 1436412505

I have been saying Treasury needs to go for years...this is just one more example.

by bender | 9th Jul 15, 7:08pm 1436425681

Furthermore:
'The Treasury shot down a bid to save kiwis, saying a project to protect the country's national symbol was "not aligned with overall Government priorities".'

These people need to be gone ASAP. They are out of step and out of control in an ideological dream world.

by Colin Riden | 9th Jul 15, 8:55pm 1436432134

Your suggestion won't happen - Treasury is the key component in Bill's propaganda Ministry.

by bender | 9th Jul 15, 8:56pm 1436432208

Then Bill can join them on the way out. once it's revealed who stole Brash's emails. Oh wait, it's only those who dare question JK and the cabal who get investigated by our "independent" police.

by sharetrader | 9th Jul 15, 8:41pm 1436431295

the latest brain strain from treasury is close down kiwirail. while I admit kiwirail is a dud I shudder to think how many trucks would be on our roads if they weren't arround