A See-Saw Day In Almost Every Market Although Crude, China Suffered Most

For a variety of factors, westerners tend to view China’s rise to the top as inevitable. However, this certainly isn’t so when looking at the world’s supposedly second-largest economy. Today saw the Shanghai and CSI indexes plunge more than 6% each.

For the week, both key indexes retreated more than 9 percent, marking their biggest weekly falls in seven years, according to Reuters. The slide was sparked by fresh tightening moves on margin lending by the China Securities Regulatory Commission (CSRC), and an avalanche of IPOs that posed a huge threat to market liquidity. Mainland China real estate conglomerates and big banks suffered the most – portents of things to come?

Meanwhile, good old boring Japan’s Nikkei was up nearly a percent. Hong Kong also rose despite unsettling election news. There is probably a showdown looming between Hong Kong and the mainland authorities.

Yet there was no rush into havens, which otherwise might have been expected today. Not only was there the China roller coaster down; there is the highly volatile nature of the Greek debt problem.

While all countries welcome steady (really bland) news from the U.S. Federal Reserve, it is especially welcome in Asia and the Pacific Rim. A flick of the Fed’s wrists could upset the economies of dozens of countries in that region.

Greece seems to be a financial conflict with a life of its own. While others may not worry and consider the net result to be baked into markets, we’re much less sure. On top of that, the UK, which is part of the trade union – though not the monetary system of Europe, is coming close to severing its trading ties to mainland Europe. We consider this to be an enormous mistake for the UK. Enormous.

West Texas Intermediate and Brent North Sea crude tumbled about 1.25% each today. A steadying of rig counts, oversupply, low demand and a looming European slowdown (if Greece is tossed out of the union) all sat on any upward movement that oil might be seeking.

A note on Greece – they should be shown the door. They have not played the game fairly but look to the rest of Europe – the richest part of Europe – as a mother’s breast to be suckled. They are in denial of their own profligacy. Maybe it is time for them to stand on their own.

Here is what Bloomberg had to say about Greece today. We need to be reminded of how Greece joined the EU:

“In case anyone forgot: Greece never should have been in the euro zone in the first place. Based on the formal entry requirements, it never met the membership standards. With a little help from the Wall Street magicians it lied and cheated its way in, disguising its debt levels and fiscal health. As Der Spiegel wrote five years ago, ‘Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules.’ Greece should have been given the treatment a teenage drinker would get after being discovered in a bar: tossed out and not allowed in until meeting the entry qualifications.”

Bond yields in the U.S. and Europe declined today on the Greek news and on the Fed’s news release after the FOMC’s June meeting. Wall Street and the DAX (German) exchange seemed to tread water, possibly waiting for a second round of analysis next week before assuming firmer directions. There was also some mild profit taking.

Currency trading also seemed directionless. The euro was down marginally against the greenback as was the Brit pound. They yen was up against the dollar by 0.25.

The net result of today’s overall market activity was a little up, a little down, a little left, a little right. That is, unless you got caught with your pants down in Shanghai.

Wishing you as always, good trading,