Chinese stocks tumbled again in morning trading on Wednesday, as investors rushed to sell what they still could. The renewed plunge followed another wave of share suspensions overnight, which have now halted trading in more than 50 per cent all listed companies on the two main Chinese exchanges. Meanwhile the biggest listed companies in China have become the key line of defence for policy makers in Beijing as they struggle to contain a rapid downward spiral in the equity market. Beijing has stepped in to buy some stocks as a way of supporting broader equity indices, either directly or through purchases of exchange traded funds that track only large stocks. PetroChina, which has the heaviest weighting of any Chinese company in the Shanghai index, has risen 29 per cent over the past five days, even as its Hong Kong-listed shares have fallen. (FT)
Greece has rejected a compromise with international creditors in the referendum held on Sunday, raising serious doubts about whether it will remain inside the eurozone. The No camp won 61.3 per cent of the vote and was victorious in every region of the country, a remarkable political exploit by Greek Prime Minister Alexis Tsipras. However, the result is likely to plunge the country into deeper economic turmoilas it tries to prevent the collapse of a financial system that is rapidly running out of cash. The next key date in the crisis is now July 20, when Greece needs to repay EUR3.5bn on a bond held by the ECB. (FT) In the news
UK chancellor George Osborne has announced new budgetary rules that aim to eliminate the current structural deficit within three years and ensure public sector net debt is falling as a share of national income by 2016-17. Key to the new vision is a budget surplus by 2017-18. But as the FT’s Martin Wolf warns on Friday: …the focus on public debt alone is mistaken. Crucially, it ignores the asset side of the balance sheet altogether. Moreover, other things being equal, the bigger the fiscal surplus, the lower interest rates would be. If that encouraged a run-up of private debt, the economy might end up yet more unstable. Alas, the Office for Budget Responsibility already forecasts a big jump in household debt.
OK, we’ll bite. The Telegraph’s Jeremy Warner has a column with a headline which tends towards alarmist: Negative interest rates put world on course for biggest mass default in history The text actually says nothing of the sort. Jeremy notes the extent of widespread negative yields for sovereign debt in Europe, and rehearses how this came to be in terms of secular stagnation and a lack of demand. Where some might find fault is the final line: Both Keynsian and monetary economics seem to be in some kind of end game. What comes next is anyone’s guess.
You can sign up to receive the email here. Patience is out and the US Federal Reserve is free to raise interest rates. In one of the most hotly anticipated Fed meetings of the past year, the central bank ditched its pledges to be patient before increasing interest rates and is now free to raise them as early as June. (FT)
UK banks that pay out excessive bonuses will be hit with heavy capital penalties rather than a windfall tax, officials said on Monday, in an attempt to allay City fears that Labour is planning a big pre-election cash grab. City banks have been rife with speculation that Alistair Darling, chancellor, could impose a windfall tax in this autumn’s pre-Budget report as a way of punishing banks for what is expected to be a bumper New Year bonus season.