Bloomberg:
- After Quick 8.5% Crash, Confusion Reigns in Chinese Stocks. (video) It’s days like Monday that reassure Tony Hann he was right to avoid stocks in mainland China. The severity of an 8.5 percent drop in the Shanghai Composite Index is bad enough, but what irks him the most is not knowing why it tumbled so much. In a market where unprecedented intervention has made government money one of the biggest drivers of share prices, authorities aren’t transparent enough for investors to make informed decisions, said Hann, the head of emerging markets at Blackfriars Asset Management Ltd. Foreign investors have unloaded about $7.6 billion of Shanghai shares through the city’s Hong Kong exchange link since July 6. Monday’s plunge was all the more surprising because it followed a government rescue package that had helped drive a 16 percent rally since July 8.
- China Stocks' Worst Day Since 2007. (video)
- BofA: Get Ready for 'Relentless Selling' Pressure in Chinese Stocks. China's equities are more levered than you think. Information about the margin loans provided by brokers and banks is published by the China Securities Finance Corp. on a daily basis, but that understates the full extent of the leverage. According to Bank of America, leveraged bets on Chinese stocks are more than double what you might expect:
- China's Labor Arbitrage May Now Be Turning With a Vengeance. The Mexican peso is getting crushed by the Chinese renminbi. There is increasing potential that additional production activity could be relocated from more expensive Chinese producers to more competitive ones in Mexico, and also to S. Korea, Brazil, India and, if the weakness in the CAD persists, Canada.
- Italy Luxury Stocks Targeted by Short Sellers on Asia Doubt. Traders who bet on declining stock prices are targeting Italian luxury-goods companies, a sign that some investors expect disappointing earnings next month. About 25 percent of the shares of Brunello Cucinelli SpA, a maker of 2,010-euro ($2,223) cashmere sweaters, have been sold short, the most of any Italian company, according to data compiled by Markit Ltd. Shoemakers Salvatore Ferragamo SpA and Tod’s SpA rank sixth and seventh, at 19 percent and 18 percent, respectively. The “short interest” in luxury stocks globally averages about 1.3 percent. The pessimism is linked to Asia, where spending on luxury goods is moderating, and the Italian stocks’ above-average valuations after a surge in share prices, said Deborah Aitken, a Bloomberg Intelligence analyst in London.
- Surreptitious Greek Exit Not So Secret After Varoufakis Slip. With a plan to secretly append a new bank account to each citizen or company’s tax number, Greek officials wargamed the creation of a parallel system, according to the former finance minister. Varoufakis’ resignation, 10 days before he made the comments on a call with investors on July 16, leaves open the question of whether the contingency plans have been torn up or just shelved.
- Why Traders Love to Short the Mexican Peso. The Mexican peso’s virtue as the most-traded currency in emerging markets is also its biggest curse. The peso’s $135 billion in daily trading makes the market so much deeper than for other developing countries that investors use the currency as a general proxy for risk. Bought a Brazilian corporate bond? Sell pesos to hedge any losses. Stuck with a load of Treasuries? Buy pesos to blunt the pain if a risk-on environment sparks a rout. Correlations are high enough that the hedges often work, according to JPMorgan Chase & Co.
- Oil in Bear Market Sinks Petrobras as Ibovespa Extends Selloff. The slide of crude into a bear market sank Petroleo Brasileiro SA, sending the Ibovespa to the longest rout since February 2013. Petrobras, the oil producer at the center of Brazil’s largest corruption scandal, extended a seven-day plunge to 18 percent. The company has said that its investments in offshore production are economically viable with the commodity above $45. Crude fell more than 20 percent from its June high to $47.54 a barrel as a rebound in U.S. drilling signaled that producers may keep adding supplies to a global glut. “The scenario for Petrobras is getting even more complicated,” Celson Placido, an economist at brokerage XP Investimentos, said by phone from Sao Paulo. “The plunge in crude implies lower profits from its investments, and may also be negative for the company’s asset negotiations.”
- Ruble Sinks With Oil as Bets for Rate-Cut Pause Hit Russia Bonds. The ruble fell to a four-month low as Brent crude extended losses in a bear market, boosting wagers for Russia’s central bank to limit interest-rate cuts this week to avoid accelerating the selloff. As the currency weakened as much as 2.4 percent against the dollar, forward-rate agreements showed traders trimming bets for policy easing to the lowest since December.
- Europe Shares Post Biggest Five-Day Drop This Year on China Rout. European stocks posted their biggest five-day drop this year amid investor concern over China’s economy as shares tumbled in Shanghai and data disappointed. Daimler AG and BMW AG, which are both sensitive to growth in the world’s second largest economy, fell at least 2.6 percent, as auto-related companies slid to the joint-worst performance on the Stoxx Europe 600 Index. UBS Group AG lost 2.3 percent after results showed its wealth management unit grew by the smallest amount in more than four years in the second quarter. A measure of banks contributed the most to the Stoxx 600’s drop, as all industry groups retreated. The Stoxx 600 retreated 2.2 percent to 385.91 at the close of trading, for a 5.1 percent five-day decline. Italy’s FTSE MIB Index and France’s CAC 40 Index led western-European markets lower, falling at least 2.6 percent.
- Copper Drops to Lowest in Six Years Amid Chinese Slowdown. Copper slid to the lowest in six years as the biggest selloff in Chinese equities since 2007 added to concerns about the economy. The Shanghai Composite Index plunged 8.5 percent. China’s industrial profits fell in June, and data on Friday showed a private gauge of manufacturing unexpectedly declined in July to the lowest level in 15 months, boosting speculation that demand is slowing in the country. China accounts for about 40 percent of the world’s copper consumption. “A rout resumption in Chinese equities prompts more scattered selling in most metals seen this morning,” Michael Turek, the head of base metals at BGC Partners Inc. in New York, said in an e-mail. “They just can’t catch a break or a breath, that is despite all the efforts to stabilize the Chinese markets up until now.” Copper for delivery in three months lost 1.1 percent to $5,203 a metric ton ($2.36 a pound) at 2:56 p.m. on the London Metal Exchange, earlier dropping to $5,164 a ton, the lowest since July 2009.
- S&P 500 Propped Up by Just 2 Sectors Shows Bull Market Aging. U.S. equities are being pushed along by the fewest stocks in more than 15 years, a sign of fatigue in a bull market that already rivals anything since World War II in duration. More than 100 percent of this year’s increase in the Standard & Poor’s 500 Index is attributable to two sectors, health-care and retail. That’s the tightest clustering for an advancing year since at least 2000, data compiled by Bloomberg show. Breadth has fallen apart in a rally that is now the third longest since 1940, leaving investors exposed after three years without a 10 percent correction. Adding to concerns: the two industries shouldering this year’s advance trade at more than 22 times annual earnings -- a 20 percent premium to everything else.
- The Fed Is Closer to Hitting Its Inflation Target Than People Think. Signs of wage growth mean the central bank is moving closer to an interest rate hike in September. This week’s meeting of the Federal Open Market Committee is really about September. Fed officials aren’t ready to raise rates on Wednesday, and they know it going into the meeting. It’s a foregone conclusion. September’s meeting, however, is not. Thus, this week’s meeting is really about gauging the likelihood of a September liftoff. And that likelihood will depend in large part on the Fed’s confidence in hitting its inflation target—which Fed officials may feel is much closer than many people think.
ZeroHedge:
Telegraph:
- ECB warned to pump more money to save eurozone as Varoufakis denies hacking into Greek tax system. IMF risks angering Germany by calling on policymakers to "deploy full arsenal of available instruments" following Greece's explosive parallel currency plans.