Today's Headlines

Bloomberg:

• China's 29 Minutes of Chaos: Stunned Brokers and a Race to Sell. (video) Even by the rough-and-tumble standards of China’s stock market, it was a chaotic 29 minutes. With share prices going into free fall almost as soon as local exchanges opened, market gurus at Huaxi Securities Co. were at a loss to explain why. One manager of $46 million in Shanghai liquidated all his holdings. Other investors, including a top-performing hedge fund, tried in vain to cash out as circuit breakers brought trading to an abrupt halt. By 9:59 a.m. local time it was all over -- except that it wasn’t. Next came a torrent of calls from angry clients upset by the carnage in a week that’s seen two abbreviated trading sessions and a 12 percent tumble in the benchmark CSI 300 Index. And it’s only January 7th. "We are dealing with a flood of angry phone calls from clients complaining about the market plunge and the circuit breaker," said Wei Wei, an analyst at Huaxi Securities in Shanghai. "We are also feeling at a loss and confused today as we didn’t quite figure out what was going on in the market."

• China renews curb on investors’ stock sales to ease panic. Chinese regulators have renewed restrictions on the amount of stock major corporate shareholders can sell as authorities move to allay panic among equity investors. Starting Jan 9, major investors are permitted to sell no more than 1% of a company’s shares on the open market in three months, the China Securities Regulatory Commission said in a statement on Thursday. The rule doesn’t apply to transactions such as block trades and transfer agreements, and replaces an existing six-month ban on any secondary market sales that was due to expire Friday, it said.

• Is China Relying on Too Much Debt for Growth? (video)

• China's Defense of the Yuan Is Growing More Costly: Chart. (video) China is burning through cash as it battles to support the yuan. The nation’s foreign currency reserves tumbled by a record $108 billion in December as the central bank sold dollars to stem a slide in the currency. That was about four times greater than analysts predicted in a Bloomberg survey, and reduced the stockpile to the lowest level in three years. Despite the intervention, the yuan’s descent has steepened, with the currency falling to a five-year low on Thursday.

• China Reserves Post First Yearly Drop Since 1992 Amid Yuan Slide. China’s foreign reserves shrank last year for the first time since 1992, ending a 22-year ascent that began under former top leader Deng Xiaoping and accelerated with presidents Jiang Zemin and Hu Jintao. The currency hoard plunged by $513 billion in 2015 to $3.33 trillion as of Dec. 31, the People’s Bank of China said Thursday. It was dragged down down by factors including central bank intervention to prop up the yuan after an August devaluation roiled global markets and capital flight from the world’s second-largest economy, analysts said.

• If Options Traders Are Right, the Yuan's Slump Is Far From Over. The options market is signaling that the yuan’s slide to a five-year low has plenty of room to run. Contract prices on Wednesday indicated a 79 percent probability that the currency will weaken and 33 percent odds that it will drop beyond 7 per dollar, a rate last seen in 2008, according to Bloomberg calculations. That’s up from 15 percent at the start of December and comes as the central bank shows signs of reining in its support for the exchange rate in the face of rising intervention costs and sliding exports. The yuan dropped 0.6 percent in onshore trading at 4:07 p.m. local time after the central bank cut its reference rate.

• Hedge Funds in China Facing Forced Sales as Panic Spreads. Hedge funds in China are facing forced sales of stock holdings as the market plunge triggers a mandatory liquidation of assets. The manager of a Chinese hedge fund that returned a surprising 86 percent during last year’s stock rout, Xinhong Investment, plans to sell all its stock holdings on Friday, Chairman Lu Weidong said in an interview. Hedge funds in China generally have agreements with investors spelling out mandatory liquidation levels if their holdings drop below a certain value, and as many as 30 percent of Chinese hedge funds may have reached those levels or are approaching them, Lu said. “The selling pressure is huge,” Lu, whose firm oversees less than $3 million in assets, said on Thursday from his base in Dongguan in southern China. “They absolutely want to run.”

• VW, BMW Shares Tumble as China's Woes Put Growth Under Threat. Shares in Volkswagen AG, BMW AG and Daimler AG tumbled as China’s woes put growth plans at risk. The German carmakers were among the biggest losers in the European market, leading the Euro Stoxx autos and parts index to its lowest level since October 2015. Volkswagen, already reeling from the emissions-cheating scandal, fell 4.9 percent. BMW shares dropped 5 percent, and Daimler, the parent of Mercedes-Benz, slid 4.8 percent. “The massive devaluation of the Chinese currency is currently seen as the single biggest threat to the global economy and the reason for panic selling,” Arndt Ellinghorst, a London-based analyst with Evercore ISI, said in a report. He estimates that a 20 percent drop in the yuan’s value will equate to a loss of about 5.5 billion euros ($6 billion) in the combined profit of the German automakers.

• ADXY Below 1998 Trendline Points to More Downside Risk: Analysis. (video) It's not just the yuan. 

• Brazil Industry Drop Signals Recession Deepened at Year-End. Brazil’s industrial production fell more than all analyst forecasts in November, underscoring the challenge that policy makers face in pulling Latin America’s largest economy out of its worst slump in decades. Output in November decreased 2.4 percent from the previous month after a revised 0.6 percent decline in October, the national statistics agency said Thursday. The biggest slip since December 2013 was more than twice than the median 1 percent drop in a Bloomberg survey of analysts. From a year earlier, industrial production fell 12.4 percent, and hasn’t registered year-on-year growth since the first half of 2014. “This adds to evidence that the recession deepened in the fourth quarter,” said Edward Glossop, emerging market economist at Capital Economics.

• George Soros Sees Crisis in Global Markets That Echoes 2008. (video) Global markets are facing a crisis and investors need to be very cautious, billionaire George Soros told an economic forum in Sri Lanka on Thursday. China is struggling to find a new growth model and its currency devaluation is transferring problems to the rest of the world, Soros said in Colombo. A return to positive interest rates is a challenge for the developing world, he said, adding that the current environment has similarities to 2008. Global currency, stock and commodity markets are under fire in the first week of the new year, with a sinking yuan adding to concern about the strength of China’s economy as it shifts away from investment and manufacturing toward consumption and services. Almost $2.5 trillion was wiped from the value of global equities this year through Wednesday, and losses deepened in Asia on Thursday as a plunge in Chinese equities halted trade for the rest of the day. “China has a major adjustment problem,” Soros said. “I would say it amounts to a crisis. When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008.”

• Brazil Real Drops as Commodities, China Turmoil Spark Selloff. The real dropped as China weakened the yuan reference rate for an eighth straight day, fueling concern that the slowdown in Brazil’s top export market is deeper than official data suggest and dimming prospects for trade. The move spurred a selloff in Chinese equities and forced a trading halt for the second time this week. China is the biggest buyer of the commodities many developing nations rely on to fuel growth, and Brazil is its second-largest supplier of goods from developing nations. The S&P GSCI Index of raw materials declined 0.2 percent to an 11-year low. The real dropped 0.5 percent to 4.0484 per dollar at 2:51 p.m. in Sao Paulo.

• Junk-Bond Risk Gauge Jumps as China Meltdown Adds to Energy Rout. Junk-bond investors coming off their first losing year since 2008 are in the crosshairs again, as a stock-market meltdown in China and a plunge in oil prices cloud the outlook for debt sold by the least credit-worthy companies. The risk premium on the Markit CDX North American High Yield Index, a credit-default swaps benchmark tied to the debt of 100 speculative-grade companies, surged as much as 21 basis points to 516 basis points, rising toward the highest mark in three years. The average borrowing costs for the riskiest portion of the high-yield market surged to 18.5 percent, Bank of America Merrill Lynch index data show, a level not seen since 2009.

• Emerging Stocks Slump as China Turmoil Prompts Broad Selloff. Emerging-marketstocks sank to the lowest since 2009 as China’s move to further weaken the yuan’s reference rate sparked a selloff in mainland stocks that spread throughout developing nations. The CSI 300 Index of companies listed in Shanghai and Shenzhen plunged more than 7 percent before exchanges were halted by circuit breakers in the first half-hour of trading. South Africa’s rand weakened to a record low against the dollar. The Ibovespa tumbled for a second day as a plunge in Brazilian industrial production added to concern that demand for the nation’s exports will weaken further as China’s economy slows. The MSCI Emerging Markets Index fell 2.5 percent to 740.12 at 11:22 a.m. in New York. Its 14-day relative-strength index fell to 22.9, below the level of 30 that some analysts see as a signal a market is set to rebound. The developing stock measure has tumbled 6.7 percent this week, compared with a 4.5 percent drop in the MSCI World Index.

• European Stocks Pummeled on China Woes as DAX Falls Below 10,000. (video) European stocks fell for the third time in four days, mirroring declines that shook global equities in August, as they extended the worst start to a year since 2000 amid a China-fueled selloff in mining and energy shares. Europe’s equities have tumbled 5.3 percent in the first four days of the year, and companies with the most sales in the world’s second-biggest economy are bearing the brunt. Anglo American Plc and Glencore Plc slid 8.3 percent or more today, pushing a gauge of miners to its lowest level since 2009. Carmakers fell to to the lowest since October. Stocks around the world are in retreat as an eighth day of cuts in the yuan’s reference rate exacerbated concern that growth in China is slowing more than previously forecast. The declines are a setback for European equity bulls who had speculated that central-bank stimulus and a slowly improving economy would insulate the region from stress in Asia and North America. “The Chinese economic outlook is getting bleaker,” said Daniel Weston, chief investment officer of Aimed Capital in Munich. “Chinese demand for European exports is weakening. In August, the Chinese said it would be a ‘one off’ devaluation, but now the market knows it is much more than that.” The Stoxx Europe 600 Index fell 2.2 percent at the close of trading. It pared losses of as much as 3.6 percent.

• Crude Oil Is Having Its Worst-Ever Start to the Year: Chart. (video)

• Oil Falls to Lowest Since 2003 as Yuan Drop Shows China Turmoil. Oil plunged to a 12-year low in New York on speculation slower economic growth in China will curb fuel demand, worsening a worldwide oversupply. West Texas Intermediate oil for February delivery fell as much as $1.87, or 5.5 percent, to $32.10 a barrel, the lowest in intraday trade since December 2003. China’s central bank reduced the onshore yuan’s fixing to the lowest since March 2011, triggering a selloff that led to the closure of Chinese stock exchanges.

• Deepening Metals Rout Sends Copper Below $2 for First Time Since '09. Copper futures fell below $2 a pound for the first time in more than six years as a slump across industrial metals deepened on concern that China’s economic slowdown is worsening. The retreat in prices helped send a gauge of world mining companies to the lowest since 2004 on Thursday. The Bloomberg Industrial Metals Subindex tumbled 27 percent in 2015, the worst loss since the global recession of 2008. Weak Chinese economic reports this week triggered turmoil across global markets and billionaire George Soros warned of a crisis.

• Anglo Leads Mining Collapse as China Woes Driving Vicious Spiral. Anglo American Plc led a slump in mining stocks to the lowest in more than a decade as market turmoil in China, the biggest consumer of metals, ignites a vicious spiral of tumbling equities and collapsing commodity prices around the world. The 80-member Bloomberg World Mining Index sank as much as 4.1 percent on Thursday, with Anglo sliding 12 percent at one point to a record low and Glencore Plc down as much as 7.9 percent in London trading. The Bloomberg Commodity Index, a gauge of returns on raw materials, dropped to its lowest level since 1999 as industrial metals and oil declined.

• Fed's Lacker Urges Higher Rates as Inflation Heads Back to Goal. Federal Reserve Bank of Richmond President Jeffrey Lacker expressed confidence that inflation will return to the central bank’s target after oil prices and the U.S. dollar stabilize and called for a continued tightening in monetary policy. “While there is uncertainty about the pace at which monetary policy rates will rise, the case for an upward adjustment in rates should be clear,” Lacker said in the text of a speech Thursday in Raleigh, North Carolina.

• Charts to Make You Go: 'ARGGHHHH'. (graph) A painful paradigm shift. Matt King has a smorgasbord of ugly charts to share. In an aptly-timed note, the Citigroup strategist suggests markets are "dangerously close to a paradigm shift" that would entail the end of  liquidity-fueled markets and a "return to fundamentals." The only problem is "those fundamentals are themselves following markets." Scared yet? Here's a quick sampling.

• The 'Average' Stock Is Already in a Bear Market. (video) For most companies, the bear market is already a reality.