Posts from Wednesday Aug 1 2012

The Closer


US stocks brushed off algos gone wild (see below) only to slump in dejection after the Fed opted not to deliver immediate easing. The S&P 500 fell 0.29 per cent to close at 1,375.32. The DJIA shed 32.55 points to close down 0.25 per cent (Reuters). Read more

The Fed, pacing


The biggest change is in the very first paragraph. In June the Fed had written that the economy “has been expanding moderately”. Now economic activity has “decelerated somewhat over the first half of this year.” Read more

Knight, and algo fear [updated]

Shares in Knight Capital Group, market maker in US stocks par excellence, were down as much as 26 per cent at pixel time.

 Read more

US Markets Live transcript 1 Aug 2012

Live markets commentary from 

Nothing’s gonna stop the ECB now

We built this euro system two-geh-tha!! [Ahem, ‘cuse us…]

David Mackie over at JP Morgan has been looking at the ECB’s options this week. What he concludes is that further ECB balance sheet expansion may now be inevitable, and much of the expansion will take place via the ECB funding the ESM, by buying its debt directly. Read more

US Markets Live is pretending the Olympics aren’t happening

Paul and Bryce in London are on hiatus during the Olympics, but Joseph and Cardiff fight on from New York. Come on, it’s FOMC day. How could we not. We’ll be starting today at the usual time (10am EST, 3pm BST) and at the usual place.

Expect lots of chatter about global PMIs, the onslaught of US macro data, European bank and carmaker earnings, previews of the Fed and ECB meetings, and anything else that comes across the tape. See you there!

UK GDP revision du jour

If you thought Moody’s and the IMF’s cuts were bad check out Morgan Stanley:

We make substantial downward revisions to our UK GDP growth forecasts from 0.5% and 1.8% GDP in 2012 and 2013, respectively, to -0.5% and 1.0%. In terms of GDP growth, our new central case is now very similar to our previous bear case… Read more

China’s two-way liquidity risk: shadow banking

Meanwhile, in the domestic banking scene… [See part 1 on capital outflows here.]

China’s financial system stability is increasingly intertwined with its shadow banking system — which is big, according to various tallies. Bank of America Merrill Lynch says it accounts for a quarter of all bank loans, with the biggest segments being wealth management products or WMPs (8 per cent) and trust companies (8.9 per cent). Fitch Ratings says that WMPs now account for about 16 per cent of all commercial bank deposits; KPMG says trust companies will overtake insurance to become the second-biggest component of the financial sector. Read more

China’s two-way liquidity risk: capital outflows

Izzy wrote in May how China’s Rmb exodus is a huge (and still little-explored) story for the world economy, and it’s one that won’t be going away as China recorded a net capital account deficit in Q2. We’re wondering now how this might collide with risks to domestic liquidity — specifically, whether a combination of Rmb exodus and local banking problems might affect the People’s Bank of China’s ability to maintain financial stability?

A very brief recap on the Chinese foreign reserves-domestic liquidity nexus: Read more

The (early) Lunch Wrap

Good morning, New York…


China’s Q2 bottoming-out proves elusive

On the face of it, the July China PMIs are confusing. The HSBC final PMI for July was 49.3, a significant increase on its June reading of 48.2. The official Chinese PMI of 50.1 was down a little from June’s 50.2.

So.. one says that manufacturing growth is decelerating more slowly than before; the other says that manufacturing growth is accelerating more slowly than before. Read more

The slow rise of the FX minnows

What do you do when your normal, wide avenues are blocked off or are just a bit smelly? You look for the nicest, smaller roads to barrel down. Or, until they widen out, you might just trickle down them where possible.

(This metaphor allows for paths to widen as more people pile down them, btw.) Read more

The sound of falling Chinese USD reserves…

Could it be true? Did China’s USD FX reserves really fall in the second quarter?

Certainly seems so. Here are the details via ChinaScope on Wednesday: Read more

Further reading

Elsewhere on Wednesday,

What to make of China’s conflicting PMI numbers. Read more

The 6am Cut London

China’s manufacturing growth foundered slightly in July, confounding expectations for a recovery as the government has stepped up support measures. The official July manufacturing PMI was 50.1, down from 50.2 in June. The HSBC PMI was 49.3, showing deceleration was slowing since June when the privately-compiled index was 48.2  (Financial Times).

South Korea’s exports were 9% lower in July than a year earlier and inflation fell to a 12-year low. The decline was attributed to slowing demand from key markets of China, Europe and the US; although a strong performance in July 2011 also contributed to the sharp fall. The unexpectedly big fall in consumer inflation to 1.2% year-on-year led to higher expectations of more monetary easing (Financial Times). Read more