Today's Major Market Move: Chinese Shanghai SE B Share Index Drops 8.3% Week to Date

At the time of writing this post, the Chinese stock market has not even completed it's 2nd day of trading for the week and already the Shanghai SE B Share Index is down 8.3%. Most of China's other equity indexes are down as well but not to the same extent as the SE B Share Index. Here's the top 10 declining equity indexes for the week so far:

Click here to go to the live table.

What is particularly disconcerting for investors in Chinese equities is that several Chinese equity indexes have broken down to new lows not seen since 2009, including the benchmark Shanghai SE Composite Index.

Click here to go to the live chart.

While we're on the subject of China, let's take a look at what the Chinese authorities have been doing with the Yuan.

Click here to go to the live chart.

There's been a slight amount of devaluation in 2012 but not enough it appears to rankle the politicians. The number of references to China and the Yuan by the competing campaigns appears to have dropped way off over the last couple of months. We think this next chart is also a big part of why that is:

Click here to go to the live chart.

Today's Major Market Move: Cypriot Stock Market Drops 13.6% This Past Week

Despite the best efforts of central bankers, the European crisis continues to drive markets to lower lows. One of the recent victims is the Cypriot Equity market, which received zero boost from the Draghi statement earlier in the week and as a result touched a new low on Thursday. Here's the chart of the benchmark Cypriot equity index for the past 2 months at 15 minute granularity:

Click here to go to the live chart.

For the entire week the Cypriot stock market was down well over 13%, making it worst performer over that time frame. Greek equities, which tend to track Cyprus' fairly closely, were down a little over half that amount. Here's the bottom 10 performing benchmark equity indexes going back one week:

Click here to go to the live table.

The Cypriot economy has suffered mightily during the global economic crisis, particularly during the second wave that started in November of 2009. Cypriot equities are down over 93% since then, the worst on the planet. Surprisingly, unlike many of its European cohorts, Cyprus has yet to receive a bailout from the EU/IMF/ECB triumvirate (although they were granted a 2.5 billion Euro low-interest loan from Russia). However that fact will soon change as Cypriot authorities are currently in the process of negotiating a troika-supplied bailout. Here's more from gulfnews.com:

Cyprus last month became the fifth country to seek financial support from its Eurozone partners. It needs at least 2.8 billion euros (Dh12.5 billion) to recapitalise its banking sector, which took heavy losses on Greek debt.

The country's 18 billion-euro economy is projected to shrink by 1.5 per cent of gross domestic product this year before returning to marginal growth in 2013.

Credit ratings agency Standard & Poor's estimates Cyprus' bailout needs to amount to as much as 15 billion euros over three years.

Today's Major Market Move: Spain's Stock Market Up Over 6% in Thursday's Session

In Tuesday's post we indicated that we were expecting some type of activity to come out of the ECB in the near future. Today (a mere two days into the future), we received the following announcement from Mario Draghi, head of the ECB (quote courtesy of Bloomberg):

“Within our mandate, the ECB is ready to do whatever it takes to preserve the euro,” Draghi said during a speech in London today. “And believe me, it will be enough.”

Sometimes words speak louder than action. Draghi's statement kicked off a fury of short covering in European equities and the main beneficiary was the Spanish stock market which gained 6.1% on the day. Here's the top 10 performing benchmark equity indexes in today's session:

Click here to go to the live table.

What we find odd is the market reaction to oil and the Euro. Oil was up a disproportionate .5% and the Euro actually strengthened 1.2% against the Dollar. Apparently the thought process being that the stabilizing effect of the ECB printing Euros to soak up PIIGS bonds is going to outweigh the inflationary impacts. If Draghi's statement carries any truth and is more than just bluster, it means that Germany has completely caved. However we would not be surprised that the country with the most detailed plans for leaving the Euro, and very well might be the first one to do so, is also Germany.

Speaking of Germany, there has been a slight rally in the short end of the Bund yield curve that actually started a few days before today's announcement. Here's the current state of German bonds where now only 2 durations have negative yields (oh, and the 3 month is at zero).

Click here to go to the live table.

Today's Major Market Move: Spanish Stock Market Drops Over 30% Year to Date

The economic situation in Europe is the crisis that keeps on giving. Despite multiple bailouts and central bank interventions, conditions continue to deteriorate, the latest example being the Spanish stock market hitting a new swing low on Tuesday. The benchmark Ibex 35 Index is down over 30% for the year and has dropped below the floor set by the bailout at the end of May.

Click here to go to the live chart.

If we expand over view back to before the 2008 crisis, the view isn't much prettier.

Click here to go to the live chart.

With Spanish stocks plumbing new lows, we go on alert for central bank intervention. However lets check on the Euro and oil prices in order to gauge how much room for action the ECB has.

Click here to go to the live chart.

The Euro has been on a steady weakening trend since the end of April, having declined in value by over 9% against the US dollar. And now here's Brent front month contracts:

Brent is well off the highs we saw earlier in the year although it has seen a decent pop over the last month. The cost of gas in real terms for Europeans is less now then it was back in Feb/March so we think the ECB is going to act, more than likely within the next week and a half. The economic environment has entered into the realm of the surreal, with several German Bund denominations in negative territory. The battle for Spain may already be lost but we feel that the ECB is not going to sit by and watch the same thing happen to Italy, who happens to have a debt level 140% larger and a gdp 50% larger when compared to Spain's.

Extend the Standard Day by 6 More Hours...

Or alter our intended posting schedule; those are our 2 options in an attempt to provide a more regular posting rhythm. We began with every day posts but then as the work on the main pikefin.com site grew we found we had to cut back on the blog. We thought we could handle a Mon-Fri posting schedule but that also proved to be too challenging to maintain. So in an attempt to find a schedule that we can stick to, we are going to cut it down once again, this time to every other day. We're hoping this will give us the appropriate workload balance between the blog and expanding the data collection/analytical capabilities of the main site.

Today's Major Market Move: Dean Foods (ticker: DF) Declines 28% Month to Date

After a stellar first half to 2012 in which the stock gained over 50%, Dean Foods (ticker: DF) is finding the 2nd half of the year less palatable. The stock is down over 28% for the month, having given back a large portion of its over the previous 6 months.

Click here to go to the live chart.

The 28% monthly decline makes it the 2nd worst performer in the S&P 500 month to date. Here's the bottom 10:

Click here to go to the live table.

It appears that the cause for DF's plummeting stock price is the same as the one driving Lean Hogs futures lower (which we wrote about for Wednesday's post): higher grain prices. Here's some commentary from an analyst at BMO Capital Markets after he lowered his rating on DF this past Monday:

In a client note, the analyst said that the unusually warm weather and escalating feed costs are pushing raw milk prices higher at a quicker-than-expected pace.

There is also concern that Supervalu Inc.'s decision to be more aggressive to lower prices will see other supermarket operators do the same. Sharma says this makes it more likely that there will be more milk promotions.

The analyst reaffirmed a $16 price target.

Here's a chart of DF alongside Cattle Feeder front month futures contracts for the past 12 months. The correlation isn't tight but as cattle feed prices declined over  the past month, we see how DF sharply reversed its upward trend.

Click here to go to the live chart.

 

Today's Major Market Move: Lean Hogs Futures Drop 15% Month to Date

The above average warm weather this summer has proved to be a double whammy for Lean Hogs Futures Prices. Supply has increased with Farmers slaughtering more of their herds because of higher grain prices while demand has fallen with the higher temps making outdoor grilling less enjoyable. The combined effect has translated into plummeting hog prices, with the front month futures contract dropping over 15% for the month:

Click here to go to the live chart.

And almost 8% since the beginning of 2011:

Click here to go to the live chart.

Here's some more color on the recent action by DailyMarkets.com:

The relentless heat affecting a large portion of the U.S. is starting to take its toll on hog producers, as soaring feed costs and weak pork demand have sent Hog futures prices plummeting. The sell-off is especially severe in the fall and early winter month contracts, as many traders fear that more producers will be forced to liquidate their herds because the high cost of feed makes raising Hogs unprofitable. In addition, record heat has curtailed consumers’ interest in grilling, which has cut the demand for both beef and pork lately. The USDA reported that pork carcass composite prices continue to fall, with values now down over 9% from year ago levels. Cash market traders report packer bids are flat to $1 per hundredweight lower, as most processors are current with supplies and recent weak pork demand has many processors running operations at a loss. Large speculators are currently net-long Lean Hog futures, according to the most recent Commitment of Traders Report, and further price weakness may be in the cards should this long position be liquidated on continuing bearish fundamentals.

If we take a look a the top gainers in the commodity complex for the month of July, we see how grain prices have surged (take a look at the top 6):

Click here to go to the live table.

Today's Major Market Move: Mongolian Equity Market Rises 14.1% in Past Week

The disappointing jobs report in the U.S. on Friday wasn't enough to reverse what was otherwise a strong week for global equity markets. Less than 1/3 of the global equity indexes we track finished the week in the red. Of the gainers, the top performing equity index was the Mongolian MSE Top 20 Index which climbed 14.1%. Here's the top 10:

Click here to go to the live table.

Mongolian stocks went through an extremely volatile first half of 2011. The benchmark MSE Top 20 Index rose over 120% and then gave most of it back, all within the span of 6 months. Since then it stabilized within a fairly narrow channel which it broke out of as a result of this week's move.

Click here to go to the live chart.

The Mongolia has the distinction of possessing the economy that is expected by the IMF to grow the most on the planet during the period 2007-2015 (an astounding 388%).

Click here to go to the live chart.

Today's Major Market Move: Syrian Pound Weakens by 20% Year to Date

It's been a few months since we've last posted about Syria (see Jan 12, 2012 and Dec 10, 2011) and from both a political and economic perspective the situation has remained grim. Syrian leader Bashar al-Assad and his supporters continue to battle the rebels, or as he refers to them "armed terrorist groups", and there are reports of civilians being killed nearly every day. On the economic front, the Syrian Pound recently experienced another "devaluation event" and remains on the same weakening trend that started back in September.

Click here to go to the live chart.

The most recent devaluation event occurred back on May 8th and has been the most severe so far, indicating that the situation is deteriorating at an increasing rate. Along with good ol' fashioned brute force, the government is also attempting to suppress the rebellion by bribing them with subsidies on energy and food. From Reuters via the Republic: 

Plans to gradually remove government subsidies on items such as petrol and electricity, announced before the uprising began in a bid to ease pressure on government finances, are now being reversed.

"We have reduced prices in our outlets between 15 to 25 percent in line with our policy of supplying basic items especially foodstuffs," said Ahmad Ismail al-Kishek, manager of a state-owned supermarket in Reef al-Sham area, a rural area on the outskirts of the capital.

Subsidies will account for at least 30 percent of the record $27 billion the government plans to spend this year, according to its 2012 budget.

Economists and bankers say the government is drawing on its foreign reserves and printing money to finance a budget deficit, which is officially projected to rise sharply to around $6.7 billion this year, due to falling tax and customs revenues and the cost of subsidizing energy.

Inflation now stands at around 30 percent, economists say.

The problem with the current approach is that the funding of the subsidies by drawing down foreign reserves and money printing reduces the purchasing power of consumers. This in turn increases the need for subsidies and round and round we go.

Today's Major Market Move: Japanese 5 Year Credit Default Swap Declines 35% Year to Date

Sovereign default risk has dropped nearly universally in 2012, with 23 out of 25 sovereign 5 year credit default swaps dropping in price. The largest drop has occurred with the Japanese 5 year which is down almost 35%. Here's the top 10:

Click here to go to the live table.

The price on the 5 year CDS began to drop in earnest back in January when the new Japanese Prime Minister announced a proposal to double the sales tax to deal with the expanding debt burden.

Click here to go to the live chart.

This was from Channel News Asia back in January when the proposal was first announced:

TOKYO : Japan's prime minister told parliament on Tuesday he will move to double sales taxes, warning that the future of the world's third-largest economy depends on turning the rising tide of public debt.

Yoshihiko Noda has staked his premiership on the issue and in his policy speech opening the new session of the Diet said he would submit legislation by the end of March that will ramp up the cost of everything from rice to Rolexes.

However, underlining the huge task ahead, the Bank of Japan also on Tuesday lowered its growth forecasts for the economy, predicting a contraction in the year to March 31, and slower growth than first tipped in fiscal 2012.

Less than five months into the job, Noda is trying to sell the deeply unpopular tax rise to a sceptical public, and avoid becoming the sixth prime minister in as many years to disappear beneath the waves of Japan's factional politics.

The tax bill recently cleared another hurdle when it passed the lower house last week. This is the latest news from Bloomberg Businessweek:

Noda’s bill, which passed the lower house of parliament last week, calls for increasing the 5 percent tax to 8 percent in April 2014 and to 10 percent in October 2015. He has said that raising the levy is necessary to contain the country’s debt and welfare expense. The International Monetary Fund and the Organization for Economic Cooperation and Development have both urged Japan to be more aggressive in reforming its finances.

An aging population and two decades of low growth have left Japan with a debt pile projected to exceed 1 quadrillion yen next year, the biggest in the world.

The Japanese economy continues to remain between a rock and a hard place. The debt problem cannot be ignored forever but dealing with it will stunt already anemic growth. GDP growth prior to the proposal was already projected to be slightly above flat for the next 3 years and equities continue to wallow in a quagmire.

Click here to go to the live chart.

Today's Major Market Move: Ukrainian Equities Index Up 18.3% Month to Date

We are only two days into July but the Ukrainian Equities Index has already managed to gain 18.3% so far for the month. It is the best performing index in July with the Mongolian MSE Top 20 Index in second with a 9.3% gain. Here's the top 10:

Click here to go to the live table.

We track two Ukrainian indexes, the previously mentioned Ukrainian Equities Index and the PFTS index. We utilize the PFTS as the benchmark but both indexes track very closely to each other over longer time frames.

Click here to go to the live chart.

We haven't been able to figure out why the recent divergence has occurred in July with the UX (Ukrainian Equities Index) up over 18% and the PFTS only up 5% but the above chart would suggest that a long PFTS / short UX strategy would have some success. As for events that might be fueling the recent rally, here are some possibilities: 1) the announcement last week by the ECB that it will take extra steps to shore up European banks 2) the announcement yesterday that China will provide a $3 billion loan for agricultural projects  and (this one might be a stretch) 3) the successful completion of the Euro 2012 soccer tournament that was jointly hosted by the Ukraine and Poland.

Going over to the Ukrainian currency, the Hryvnia has been essentially flat against the dollar in 2012, with the USDUAH cross hovering around the 8.05 level.

Click here to go to the live chart.

Going forward, GDP growth will be muted as Ukraine continues to recover from the 2009-2010 recession and equities have a long ways to go to return to pre-2008 levels.

Click here to go to the live chart.

Today's Major Market Move: Yield on German 3 Month Bond Drops to Zero

After Friday's action in stocks and commodities on the news of expanded intervention by the ECB, investors should not be blamed for entertaining the thought that progress had been made on a solution to the European crisis. Well no more than one trading day later in what cannot be perceived as a positive sign, we see the yield on the German 3 month bond drop all the way down to zero. Here are the yields on the short end of the German curve:

Click here to go to the table on Bloomberg.

We are not 100% certain of the accuracy of the 3 month print but so far we haven't seen anything which would cause us to doubt the data. At the beginning of June we saw the yield on the German 2 year briefly go negative so which is another recent incident of extreme behavior in the German bond market. Another sign that the data appears to be accurate is that yields fell across the German curve today.

Click here to go to the live table.

Germany equities were up in today's session with the benchmark DAX gaining 1.2% and so we see yet again differing opinions between stock and bond investors on the current state of things. In another example of a schizophrenic market, Greek equities gained slightly while the Cypriot stock market, which usually maintains a high level of correlation with Greece, had a big down day sliding 4.8%. Over in commodities, Brent was up half a percent with WTI dropping close to a percent. Today's behavior seems indicative of a market still attempting to digest the announcement from Friday.