Chinese stock market suffers biggest fall since 2008 – as it happened
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Version 0 of 1. 5.48pm GMT17:48 European markets move higher on ECB hopes Despite the slump on the Chinese stock market - driven by efforts to clamp down on the margin trading which has driven share sharply higher - European investors were in a positive mood ahead of the European Central Bank meeting on Thursday. There is some concern as the Greeks go to the polls next week, but for the moment the prospect of some form of quantitative easing from the ECB is pushing markets higher. Banks in particular were in demand, as the FTSEurofirst hit a seven year high. The final scores showed: Wall Street was closed for Martin Luther King Day. Elsewhere oil was on the slide again, with Brent crude down 2.3% at $49 a barrel. On that note, it’s time to close up for the evening. Thanks for all your comments and we’ll be back again tomorrow. 5.41pm GMT17:41 The European Central Bank will announce a €600bn sovereign bond buying programme on Thursday, according to a poll of money market traders by Reuters: Eighteen of 20 in Monday’s poll said the bank would announce QE on Thursday. Calls for such a step have escalated after inflation turned negative in December. But 14 of 18 traders said such bond buying would not be enough to bring inflation back up to the central bank’s target 2% ceiling. “Will it be enough to raise inflation? That is questionable, probably not. The problem is whether throwing extra money is the solution. What is lacking is final demand in the area,” said a euro money market trader. A separate Reuters poll of economists gave a near-certain 90% chance the ECB would embark on full-blown QE. 5.19pm GMT17:19 Denmark is unlikely to abandon its currency peg with the euro, despite such a move by the Swiss National Bank last week. That is the view of Capital Economics, following the news that Denmark’s central bank has cut interest rates further into negative territory to try and halt gains made by the crown against the euro. Capital Economics’ Andrew Kenningham said: The decision by the Danish central bank to cut interest rates deeper into negative territory on Monday follows speculation that the Danish krone might be the next to break its link to the euro, having come under upward pressure in recent weeks. With the ECB apparently close to pulling the trigger on a full-blown QE programme, there may still be substantial inflows to Denmark. What’s more, Denmark ran a current account surplus of around 7% of GDP last year. However, there are two key reasons why we think the risk of the Danish central bank capitulating and letting the krone appreciate is very remote. First, the Danish currency peg has been in place for over thirty years, whereas the Swiss ceiling was introduced only 3½ years ago. Accordingly, the Danish authorities have a lot more at stake. We suspect that the Danish central bank is far more strongly committed to its peg than the SNB turned out to be to its currency ceiling. Second, the Danish central bank’s balance sheet has not ballooned over the past few years in the way that the SNB’s balance sheet has. This is partly because the Danish krone is not perceived to be as much of a safe haven currency as the Swiss franc. While the SNB’s motives for abandoning its currency ceiling are not entirely clear, its bloated balance sheet, and correspondingly large monetary base, seems to have been a key concern. To be clear, we do expect the krone to come under further upward pressure soon. But the authorities are likely to respond with further currency intervention, and perhaps further rate cuts, rather than by abandoning the currency regime. 3.41pm GMT15:41 The plunge in oil prices, sanctions following the situation in Ukraine and eurozone weakness mean Russia’s economy will shrink by 4.8% this year. This is the forecast of the European Bank for Reconstruction and Development, and is far more severe than the 2.9% decline predicted last week by the World Bank. EBRD economist Hans Peter Lankes said (courtesy Reuters): Even this forecast is subject to considerable risks. Further significant drops in the oil price would intensify liquidity and financial sector pressures in the Russian economy, with significant spill-over effects for Eastern Europe, the Caucasus and Central Asia. 3.34pm GMT15:34 The Danish move has prompted questions about the cap with the euro: Denmark says has no plans to drop $EURDKK peg - yeah - SNB said something similar last week @lemasabachthani I'm sure given recent events he'll excuse us all if we take these statements with a large grain of salt. Updated at 3.35pm GMT 3.31pm GMT15:31 Speaking of the ECB and this week’s meeting: GM. Neither dove nor hawk within @ECB will welcome #France President #Hollande forecasting their policy decision @WSJ http://t.co/XjXhiMUwAb 3.24pm GMT15:24 Denmark cuts deposit rate Ahead of the ECB meeting and following last week’s shock move by the Swiss National Bank to remove the currency peg against the euro comes news that Danish central bank has cut its deposit rate by 0.15 percentage points to minus 0.2%. The move comes after the Danish crown - which is pegged against the euro - gained ground against the single currency, hitting a two and a half year high earlier. After the news the crown fell back while the Danish stock market has risen 2.5% to a new record. Meanwhile the Swiss franc has slipped back against the euro in the wake of the Danish move. Europe's internal FX and negative interest rate war escalates, as Denmark cuts deposit rate even further below zero. It's like those amusing times when the PBOC gatecrashed BOE/ECB day. Updated at 3.29pm GMT 3.09pm GMT15:09 More speculation ahead of the European Central Bank meeting on Thursday, widely expected to authorise some form of quantitative easing to boost the eurozone economy, weaken the euro further and combat the prospect of deflation. However Germany’s Bundesbank has always been reluctant to turn on the money taps, and could be attempting to curtail what the ECB announces, Reuters is reporting: Germany’s Bundesbank is mounting a last-ditch drive to limit money-printing by the ECB, hoping either to soften the blueprint or delay decisions on key parts beyond this week, people familiar with the debate say. With markets primed for a European Central Bank announcement on Thursday, Germany’s central bank is worried that a programme to buy government bonds would leave it on the hook for any losses. No final decision on the plan has been made and the Bundesbank is still seeking safeguards, including a likely move to make national central banks rather than the ECB bear much of the risk for buying the bonds of eurozone member states. The size of the programme to buy bonds, known as quantitative easing, and a possible delay to its launch are also part of the debate. “What exactly comes and in what dosage, that’s where the real action is at the moment,” said one person familiar with Bundesbank thinking. “It could be that the decision is taken with details to follow.” Although the Bundesbank’s position within the ECB carries huge weight because Germany is the bloc’s biggest economy, its allies are few in number on the 25-strong Governing Council. The ECB’s Executive Board, the six-person team that is at the core of decision-making, will meet on Tuesday to prepare recommendations to the wider group including central bankers from Athens to Rome, who gather from Wednesday. By postponing the announcement of elements of the plan, ECB President Mario Draghi could avoid a clash - at least for now - with Bundesbank chief Jens Weidmann and his supporters, but at the risk of a dangerous market backlash. Investors are already jittery after the Swiss central bank’s surprise move last week to scrap a cap on the franc. The ECB declined to comment. 2.41pm GMT14:41 More on China: BREAKING: CHINA STOCK MARKET REGULATOR URGED INVESTORS TO STAY CALM, NOT TO 'OVER-READ' REGULATOR POLICY AFTER MARKET CRASH NEARLY 8% TODAY 1.59pm GMT13:59 Lunchtime summary: Chinese crackdown and eurozone QE A quick recap. China’s stock market has tumbled by almost 8%, the biggest fall since the height of the financial crisis, following a clampdown on risky trading practices. #China | SHCOMP closed -7.7% at 3116 ...aka biggest decline since Jun'07 pic.twitter.com/8igVSmxNyl Chinese regulators imposed margin trading curbs on several major brokerages, preventing them from lending money to retail investors to buy shares with. Analysts say it shows they are tightening up after seeing shares jump by 50% in the last year. But in Europe, shares have hit new seven-year highs on anticipation that the European Central Bank will announce new stimulus measures on Thursday. QE-inspired optimism is swilling through the markets, as Alastair McCaig of IG explains: This is the week equity markets believe the European Central Bank will announce its own version of quantitative easing as the first couple of hours have seen European equity markets hit multi-year highs. Certainly the markets’ reaction to disappointing economic data in the last couple of weeks has shown they believe ‘bad news is good’, and as the picture gets a little worse its brings the ECB a step closer to implementing QE. French president Francois Hollande has raised the stakes, declaring: On Thursday, the ECB will take the decision to buy sovereign debt, which will provide significant liquidity to the European economy and create a movement that is favourable to growth. The euro, though, has strengthened a little – up half a cent to €1.1614. That suggests some traders may be anticipating that the ECB doesn’t meet expectations. The Swiss franc has also been volatile again, as investors count the cost of the removal of its peg against the euro. Stephen Lewis of ADM Investor Services point out that traders had become used to central banks sparing them from big losses: At the root of the dissatisfaction with the SNB’s action may be the fact that some market participants have suffered enormous losses. This was not supposed to happen in the post-crisis world, or indeed at any time since the rather shocking bond market sell-off of 1994. Since then, market participants have come to rely on central banks to intervene in investors’ interests whenever market conditions become difficult. Something that will be on the agenda at Davos this week, I imagine. As will inequality, with Oxfam flagging up that the richest continue to grab a greater share of global wealth: Unless things change, by 2016 wealth of the top 1% will exceed that of the rest of the world http://t.co/o1EwiTc6xR pic.twitter.com/B9osgHR4Ee Here’s our story: New Oxfam report says half of global wealth held by the 1% I’m off to pack for Davos, so Nick Fletcher has the controls.... GW 1.26pm GMT13:26 Juho Romakkaniemi, chief of staff to European commissioner Jyrki Katainen, tweets that Europe faces some crucial days: Very important week for the European economy: #ECB 's governing council, #WEF in Davos and Greek elections. #Commission delivered its part. 12.28pm GMT12:28 Speaking of eurozone QE...analyst Lorcan Roche Kelly argues that that it may make a lot of sense for national central banks to start buying their own sovereign’s debt (one option the ECB could choose). Here’s his blogpost. Every time I want to say something about the #ECB, @LorcanRK does it better https://t.co/nw99kI8LaX 12.03pm GMT12:03 Hollande: ECB will launch sovereign QE on Thursday French president Francois Hollande has apparently declared that the European Central Bank will announce a big new stimulus package on Thursday. In a surprising intervention, Hollande told business leaders at the Élysée Palace that: On Thursday, the ECB will take the decision to buy sovereign debt, which will provide significant liquidity to the European economy and create a movement that is favourable to growth. (hat-tip to the Wall Street Journal for the quote) French President François Hollande says the ECB will announce quantitative easing plans Thurs http://t.co/WNBOD9USQd pic.twitter.com/UVwEHYHcOF Updated at 12.03pm GMT 11.49am GMT11:49 Fact of the day: There are at least 30,000 unemployed Britons across Europe claiming welfare benefits, including over 11,000 in Ireland and 6,000 in Germany. That’s according to a new report from Guardian colleagues Alberto Nardelli, Ian Traynor and Leila Haddou. It shows that unemployed Britons in Europe are drawing much more in benefits and allowances in the wealthier EU countries than their nationals are claiming in the UK. In Finland, Sweden, Denmark, Belgium, Luxembourg, Germany, Austria, France and Ireland the number of Britons banking unemployment cheques is almost three times as high as the nationals of those countries receiving parallel UK benefits – 23,011 Britons to 8,720 nationals of those nine countries in the UK. The findings highlight a more nuanced and complex picture across Europe than the simplistic version painted by anti-immigration and anti-EU campaigners led by Ukip and elements in the Conservative party. Here’s the full report: Revealed: thousands of Britons on benefits across EU And we’ve also been looking for the only Brit claiming unemployment benefit in Poland, without success.... 11.20am GMT11:20 The Bundesbank is to cut its inflation forecast for 2015, following the slide in the oil price. It is also more upbeat about Germany’s growth prospects. That’s two highlights from its latest monthly report, just released: On inflation, it says: “If the oil price stays at the current level, then the consumer prices in Germany will rise only a little in the current year”. 10.53am GMT10:53 Stephen Murray, energy expert at MoneySuperMarket, isn’t too impressed by British Gas’s promise of a 5% price cut in late February. “A cut in energy prices is always welcome however, just like we saw with E.ON, this decrease is small in comparison to the whopping 20 per cent drop in the price of wholesale gas over the last 12 months. Furthermore, British Gas customers will have to wait a whole month before they see any reduction in their bills at a time when energy use is at its peak. British Gas is the second utility firm to act, after E.ON. That leaves four (SSE, Scottish Power, nPower and EDF) who haven’t reacted to tumbling wholesale prices “The ball is firmly in the court of the remainder of the big six who are yet to make the next move and honour the energy savings that really should have been passed on to customers months ago.” 10.41am GMT10:41 The slump in energy prices has prompted British Gas to cut prices by 5%. Not until the end of February, though, which won’t help people turning their thermostats up to cope with the current wintery blast. Hilary Osborne has the story: British Gas to cut prices by 5% – but customers must wait another month 10.37am GMT10:37 Fidelity: China has got serious about reining in risk Back to the slump in the Chinese stock market today. As explained earlier, regulators banned three large brokerage firms from opening new margin trading accounts (which allow retail investors to buy shares with borrowed money) for three months. Other brokerage firms were given warnings, showing that the authorities are keen to rein in excessive speculation after watching shares jump 50% in the last year. Fidelity Worldwide Investment says authorities are “serious about controlling risk and leverage in the system”. Jing Ning, portfolio manager, explains: “This fall is not a surprise given how fast the A-share market has rallied, yet not that much has changed fundamentally over that time. Given the retail nature of the A-share market and the resulting wild swings in sentiment, this news has had a large impact on that sentiment. Ning argues that the market should recover over time, though: There will be underlying demand for A-shares as the market opens up (for example through the Shanghai – Hong Kong Stock Connect). These companies offer attractive growth opportunities and there are many companies which trade at attractive valuations which are not recognised by the market.” Updated at 11.39am GMT 9.52am GMT09:52 Germany repatriated 120 tonnes of its gold back to the Bundesbank’s vaults last year. The German central bank has just revealed that it “stepped up” its bullion transfers during 2014, bringing 35 tonnes of its gold from Paris and another 85 tonnes from New York. This is part of a scheme announced in 2013 to bring 674 tonnes, or half Germany’s total stocks, back to Frankfurt by the end of the decade. Carl-Ludwig Thiele, Member of the Executive Board of the Deutsche Bundesbank, says: “Implementation of our new gold storage plan is proceeding smoothly. Operations are running very much according to schedule.” Press release: Bundesbank successfully continues transfers of gold http://t.co/kJut0jfNc2 The gold transfers were launched after a German federal court ruled that officials should audit gold reserves held overseas; something the US Federal Reserve had been reluctant to allow.... 9.28am GMT09:28 If you want to really understand the implications of Switzerland dropping its euro peg, then check out this piece by economics professor Brad DeLong: Sokrates and Friends in Davos, or, the SNB and the Berne Whale: The Honest Broker If you only read one Socratic dialogue about why Switzerland *really* got rid of its currency peg, make it this one http://t.co/02KQ19zfYC 9.25am GMT09:25 The Swiss franc has been rather volatile this morning, as the Swiss National Bank’s seismic decision to end its peg against the euro last week ripples through the markets. It’s currently slightly weaker against the single currency, with one franc worth €0.9944, from €1.0092 last night. But that’s still much stronger than the €0.83 which it was pegged at for three years. Its 6AM and the 1min range in $EURCHF is 100 pips. Welcome to the new volatility Good morning traders! $EURCHF interbank spread fluctuating around 18 pips and $USDCHF around 25. Updated at 9.26am GMT 9.13am GMT09:13 European shares hit seven-year highs Although the tumbling Shanghai share prices has alarmed Chinese investors, it hasn’t caused wider ripples through the markets. Indeed, European stocks have hit their highest level since 2007, with Germany’s DAX gaining 0.3% to a new record high. The FTSE 100 is up 0.4%, or 25 points, at 6575. Money is also flowing into eurozone government debt, driven by speculation that the European Central Bank will launch a big sovereign bond-buying programme on Thursday. Spanish, Italian and Portuguese government bond yields all down this morning. Markets not yet phased by #ECB QE national rumours 9.00am GMT09:00 8.51am GMT08:51 Stan Shamu of IG argues that Chinese regulators should be applauded: While this is putting a dent in equities in the near term, the intentions seem good as officials continue to reign in reforms and curb excessive speculation. 8.36am GMT08:36 Hao Hong, an analyst at BOCOM International, says China’s clampdown on margin lending came as “a nasty surprise” to investors. And that means today’s selloff could continue: “With less incremental liquidity flow into stocks and dampened sentiment, the market will correct in the near term, and the move can be violent.” 8.21am GMT08:21 Charts: China's stocks slide A swathe of Chinese stocks fell by the maximum amount allowed, during today’s rout: While this chart shows how shares had surged in the last few months, helped by speculative activities such as margin trading: 8.08am GMT08:08 Chinese stock market hit by clampdown on speculation China’s stock market has suffered its biggest one-day fall in over six years this morning, after regulators clamped down on risky investing practices. The Shanghai index tumbled by 7.7% to 3,355 points, the biggest one-day fall since June 2008. Several bank shares slumped by 10%, the maximum allowed. The sharp selloff was triggered by a crackdown on margin trading; where investors borrow money from their stock broker and use it to buy shares. The resulting leverage can give them big returns, but is also extremely risky. The China Securities Regulatory Commission announced on Friday that three large brokers – Citic Securities, Haitong Securities and Guotai Junan Securities — had been banned from opening new margin trading accounts for three months. The three firms had all broken regulations by allowing customers to roll over margin-trading contracts. Shares in Citic and Haitong both tumbled by 10% in early trading today. The Shanghai index had surged in recent months, up around 40% since November, triggering the CSRC to act. As Hao Hong, a strategist at Bocom International Holdings Co. in Hong Kong, explained to Bloomberg: “Regulators are concerned that shares have run too hard, too fast”. “They want a measured increase in the stock market. After all, margin financing is one of the reasons for people to be bullish on brokerage stocks, and these stocks have run particularly hard.” More reaction to follow... Updated at 8.59am GMT 8.02am GMT08:02 The agenda: Eurozone QE looms Good morning, and welcome to our rolling coverage of the financial markets, the world economy, business and finance. It’s the start of a busy week. Investors are poised for Thursday’s European Central Bank meeting, where Mario Draghi might finally announce a sovereign bond-buying programme. Anticipation of a big QE package has driven government bond yields to record highs, even though it’s not a done deal yet. The ECB could yet announce a programme that’s too small to stimulate inflation, leaving the markets disappointed. There’s also a theory that it will force national central banks across the eurozone to stand behind their own sovereign bonds, to address German concerns that QE could expose taxpayers to huge losses. Rumour has it that EU QE, if & when introduced will be done on a national bank basis. It is thought Draghi wanted much more broad based QE. As Ian Williams of Peel Hunt explains: The moment of truth arrives on Thursday with the long-awaited January ECB meeting. The legal obstacles to implementation of a programme of sovereign bond purchases appear to have been cleared, so investors will expect Mr Draghi to confirm a detailed and decisive plan to head off further deflationary forces. The degree to which risk is allocated to national central banks may still cause some disagreement. Even a delivery of what the market wants may not fix the danger of dwindling inflation expectations, and political uncertainty in the region will continue to rumble along. For political uncertainty, read Greece. There’s just six days to go until the country heads to the polls for a general election, with the left-wing Syriza party holding a steady lead. Investors are also still digesting last Thursday’s shock decision by the Swiss central bank to stop pegging the Swiss franc to the euro. There’s not much in the economic calendar. Germany’s Bundesbank is due to release its latest monthly report this morning, and we also get eurozone current account data at 10am GMT. The US markets, though, will be closed for Martin Luther King day. We’ll be tracking all the main events through the day.... |