REALITY INTERVENTION ANALYSIS: EVERY MAJOR MARKET DOWN YESTERDAY & OVERNIGHT, COMMODITIES IN SLUMP, CHINA’S GLOBAL MARKET SHARE HALVES

wakeupskitchIf there is one thing people should get from the markets now, it’s out

In the midst of lots of twitterbollocks about David Cameron’s bestial blow job and Brussels diktats about how many economic refugee migrant opportunist heroes we may all have to take, the steady drift downwards of all the main stock markets yesterday may well have escaped your attention.

If so, here’s the bulletpoint summary.

  • All the US indexes were down an average of 1.3%
  • In Japan, the figure was almost exactly 2%
  • In the UK, they fell by the same 2%
  • Across Europe, the dip was 3.4%
  • In Germany, the number was 2.8%
  • In France, it was 3.1%
  • In Russia, the fall was 2.2%
  • In Brazil, 3.4%
  • India finished 1.8% down
  • Oil prices dropped an average of 1.7%
  • In the 1st half of 2015, timber prices slumped 7.3%

Bearing in mind the 16k & 6k & 3k psychological levels in the US, UK, and China, the US is still at just above 16300, the UK number has slipped to 5935, and China is at 3180. But we must remember that all three of them are being heavily supported by combinations of QE, Zirp and (in China) draconian limits on selling plus huge PBOC buying.

So how is Asia looking this morning? The answer is, red-faced; this is the story so far in China:

chinamkts23915Notable are the drops in the Hang Seng and Red Chips. Also the usual SSE comp and B afternoon PBOC buying spree helped by a little by too much rice wine at lunch.

A few hours behind, all four Indian markets are in the red, although early plummeting is seeing some recovery there.

In Japan, its also clear as black and white and red all over:

japmkts23915The Nikkei and all Toppix in bad shape, averaging around the 2% we saw in the West yesterday. Meanwhile, in Australia (where they seem to have ignored almost every signal of late) there’s been a heart transplant from bull to bear;

ozmkts23915The ASX miner is especially significant, as Australia is overwhelmingly dependent on China as the buyer of pretty much everything they dig up. Also, the Aussie analysts may perchance have spotted this rather telling chart from the UN’s World Development Indicators:gdpsharecomp2015This tells us that from its peak of 6.4% share of all household consumables globally, by early summer 2015 China had slumped to 3.3%. Why some commentators see China as ‘past the worst and we shouldn’t worry’ continues to be beyond me. And since the audit above came to an end, things have worsened, not improved: the Caixin/Markit purchasing managers’ index (PMI) fell to 47 in September, below forecasts of 47.5. That makes three consecutive months of contraction. Yesterday, the Asian Development Bank lowered its growth forecast for China again.

The thing people need to wake up to here is that it’s not just Chinese volume going down in a global recession: Chinese products are losing share of market. The two factors in play here are first and most important, Beijing being undercut on price by other emerging Asian tigers; and second, the serious quality problem that surrounds almost all Chinese goods. The best medium-term way to avoid the growth buffer for China is to upgrade quality, improve innovation, and increase margins….easy to say, but hard to do when the politburo quite clearly understands neither financial markets nor market segmentation.

In three years flat, China has done what the US has been doing since 2003: produce false confidence from financialised growth. All around the world now, that scam is being found out bigtime. The charge on this one is being led by commodities: a survey of 13 investment banks by The Wall Street Journal showed their average expectations for Brent crude to be off by $9 to $58.70 a barrel compared with last month. For West Texas Intermediate, the U.S. oil marker, the average forecast is for $54.40 a barrel, also down $9 from August. Just to remind all of us how catastrophic the oil price collapse has been, this is the graph that counts:oil23915

From a peak of $105 in June 2014, the price has more than halved, and the most optimistic of forecasters interviewed by the WSJ did not see it rising above $60 in 2016.

Now fine, some of this is OPEC’s price war with the US fracking industry (which, while based on greed, is doing us all a favour ecologically) but as time goes on, more and more of the volume is simply falling demand. China’s consumption of oil by-product plastic is astronomical: to suggest in the context of Chinese’s share of consumer goods halving that the drop is largely manipulation seems to me a nonsense.

Looked at another, equally gloomy way, I’m not aware of any geopolitical war going on in the timber business. But this is what it’s done since August 2014:

timber23915A rally in the early summer of 2015 has been reversed. No market is mutually exclusive from another: builders see disappointing data and put off speculative materials purchases. This is called the Free Market system. Allegedly. The third key commodity to watch is copper. This shows more clearly how the ‘growth’ of the last five years has been a financialisation con:

copper18915In a western Anglo-Saxon world that allegedly saw 20% ‘nominal’ growth from 2010-15, copper (the most industrially ubiquitous solid material on the plant) slumped from $4.5 to $2.5 a lb. Stick that one up a blind neoliberal’s nose, see how he reacts. Hours of fun for all the family.

Here is one very simple fact I posted last week: ‘Spookily enough, both the UK and US are showing nominal growth in the seven years since 2008 at 20%….the exact amount of assets (ie, junk) purchased over that time. But during that same period, wage levels have been eroded in real terms by circa 9%….hence the lack of any of the recovery symptoms one would expect to see: people are worse off, and growth is little more than stimulation’.

The biggest confidence trick of all about QE is that central banks include it in their calculations of economic activity. The spend of asset buying is 20% of GDP, and GDP growth is 20%. Well I never. That’s not an exact mathematical comparison, but it is a telling correlation.

Neoliberal Global Greed Monopolism is a flawed rationalisation in which the gap between economic reality and financial hubris is getting wider every month. Another correction is on the way. After that there’ll be another one. And then another one.

Related in a recent Slogpost: The steady slide down the slippery slope

52 thoughts on “REALITY INTERVENTION ANALYSIS: EVERY MAJOR MARKET DOWN YESTERDAY & OVERNIGHT, COMMODITIES IN SLUMP, CHINA’S GLOBAL MARKET SHARE HALVES

  1. We know China is not doing well.

    Why is China not doing well?
    Lack of demand for its exports from the West.

    So this is a reflection of the global economy.

    Why is demand for its exports low?
    Banker’s have achieved excellent market penetration with their product, debt.

    Debt – jam today, penury tomorrow.
    Debt has a long sting in its tail.

    But surely interest payments just circulate within the economy?

    a) Those with excess capital invest it and collect interest, dividends and rent.
    b) Those with insufficient capital borrow money and pay interest and rent.

    The debt sits with those least able to afford it and the payments go to those that can consume no more and just spend their money inflating asset bubbles.

    Adios, global economy.

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  2. Tip for China – If you want to boost domestic consumption then you need a reasonable welfare state so people don’t always have to save for a rainy day.

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  3. China’s falling share of the market probably just reflects the purchasing power of the 1% and the 99%.

    Chinese goods are not aimed at the luxury market that is doing well.

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  4. The timeline for the collapsing global economy.

    Japanese banks had been on a maniacal lending spree into real estate and the bubble popped in 1989. Rather than own up to losses and admit their bankers were fools, they covered up the problems with loose monetary policy.

    Japan then had the rest of the world to trade with that was still doing well but it never really recovered.

    US banks went on a maniacal lending spree into real estate and the bubble popped in 2008. Rather than own up to losses and admit their bankers were fools, they covered up the problems with loose monetary policy.

    US banks used complex financial instruments to spread this problem throughout the West.

    “It’s nearly $14 trillion pyramid of super leveraged toxic assets was built on the back of $1.4 trillion of US sub-prime loans, and dispersed throughout the world” (pg 404, “All the Presidents Bankers”, Nomi Prins).

    Rather than own up to losses and admit their bankers were fools, the UK and Euro-zone covered up the problems with loose monetary policy.

    Japan, the UK, the US and the Euro-zone had the BRICS nations to trade with that were still doing well but they never really recovered.

    The BRICS nations are now heading for recession.

    Doesn’t look good does it.

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  5. If China needs an economic boost, why not import the highly mobile “Syrian refugees” into the dozens of mega-cities China has already built but are lying completely empty?

    Not all “Syrian Refugees” are poor, many of them seem comfortably well off and think of all the Chinese stuff they’d need to buy to kit out their brand new Chinese high rise luxury apartments in Chinese mega-cities No 1 thru 15.

    The Arab world is marching towards a Europe who can’t house them when China has millions of ready build, ready to go apartments which are empty and China needs a leap in domestic consumption to help ease its slump.

    Wouldn’t a partnership between “Syrian Refugees” and a China that can accommodate them and needs their consumption be more beneficial to everyone than the current fudged EU effort?

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  6. There seems to be a lot of misses in the world currently – mistrial + misguidance + misselling + misfiring + mistrust + misogamy = misanthropy. Mis as prefix = wrong or incorrect. Just saying…. although this may be a misnomer

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  7. One issue I see is, what ever happens to economies/sovereigns, Washington will still be calling the shots, and that means that this will just repeat itself again in the future, which is what has happened in the past hasn’t it? We are just re-living the same old nonsense, all because there is a nation who must at all costs, have its own way on all matters. Bit like Groundhog Day but, for real.

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  8. The commodities that real products are made from are no longer in demand.

    This tells you everything you need to know about the global economy.

    QE and low interest rates may have kept markets up, but the real economy is collapsing.

    Maintaining the penthouse suite while the foundations are crumbling.

    Central Banks policies just aren’t working.

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  9. Central banks may print money out of the ether forever.They are not creating wealth, just wasting good woodland. and undermining the true market valuation of real goods.
    One 3-legged stool is of more value than all those billions of worthless paper which is not anchored to the productive value of real goods.

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  10. JW , Joe Public in most European countries doesn’t hold any stocks . That’s why QE interests almost no-one outside of the financial sphere . Cheaper petrol on the other hand is good for us all .

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  11. Batman,

    US banks went on a maniacal lending spree into real estate and the bubble popped in 2008. Rather than own up to losses and admit their bankers were fools, they covered up the problems with loose monetary policy.

    What did the Germans do in the face of their crumbling real estate in the former DDR (Central Germany)? They didn’t do a US and look the other way whilst their banks mis-sold mortages. The Germans said “we’ll do up your house for free, given a few contractual details.” – which is what they did. And if you know anything about house renovation, you’ll know that it’s a good investment because the labour and materials are usually a lot less than the going value of the renovated property. Plus of course, all those people pay taxes (think of your last comment!) AND there’s the sales tax too.

    Only after five years or so, the German government said to the house owner “you now have to pay the full market value of your home”.

    OUCH!!

    But think again! This is a building that is WORTH that amount of money… what’s more, the locality has probably come up in the world too, and what with the economy having been primed with all that building work, you’ll probably have a job too.

    Which means that the banks could lend money on that house, knowing it was a good loan (ahem!).

    The only problem was that the American banks had defrauded their public – and defrauded banks in Europe – all of which meant an economic crash… hence Germany’s bad banks. What with the ensuing reduction in house values, many mortgages went under with them.

    So much for a sensible economy, huh? But then… Germany doesn’t have a government deficit, does it?

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  12. Guv, that “mis” you speak of is usually the US or UK government pulling another regulation out from their law books. It allows big institutions to do as they please, which usually means defrauding people rather than employing them…

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  13. That’s not entirely true KFC 1404 each time it has happened those in power have been weakened & the last time they fled to the US,this time China ,Russia,India even Germany (EU) & Saudis will take the opportunity to assert power in their regions for all the might of the US it can not wage or enforce their will on other nations & if they actually co-operate in new trading agreements,new currencies,standards, economic models,the very things the US could have negotiated from a strong position has been thrown away in the effort to impose & protect their interest.
    Has it always had to be once they chose that path!

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  14. Kfc beat you to it I’m afraid. We all know Call me D(epr)ave(d) is a pig in a poke, hardly surprising he poked a pig.. Porking and trotting out porkies are all he’s good for; the sooner we give him the chop, the better.

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  15. These are Syrian refugees who DON’T want to go to Denmark because their payments to asylum seekers are so poor. Can you imagine them wanting to go to China???

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  16. A reflection of China’s contraction JW is the West not purchasing so much, think that is fairly obvious.

    But all those goodies were to keep us sweet remember? Just watch the once content sheep turn rabid …

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  17. I agree with all of batman11’s comments. They are direct, to the point and accurate, even if the overall message re the global economy, is stark.
    The further realisation is that global growth, of the kind we have experienced this last century, is slipping away into the abyss of history never to return. This realisation rarely appears in the minds of economists who think that ($), and (£) are the measure to calibrate economic activity. The simply cannot grasp that economic activity has always been calibrated in energy,.. (work done), (foot-lbs), (Newton metres), (joules), (calories), (BTU’s). A fiat $ or £, even in the form of debt, is merely a token ; a token representing a claim on some future activity product or service. It takes energy to provide that product or service. It’s a depressing thought that as the world economy hits the cliff face of reality, there will be economists who will still believe it’s because we didn’t print enough or borrow enough.

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  18. ‘Stocks Gain as Europe Optimism Saves Markets From China Gloom’
    Optimism that the European recovery is taking hold is winning out over fresh signs of weakness in China, giving a boost to commodities and equities from the euro area to America.
    The Stoxx Europe 600 is holding to a rebound from its biggest loss in four weeks after data suggested growth in the region is not slowing. European Central Bank President Mario Draghi said policy makers stand ready to act if risks to the macroeconomic environment worsen. The Bloomberg Commodity Index rose as oil and copper gained, while U.S. stocks fluctuated.

    http://www.bloomberg.com/news/articles/2015-09-22/asia-futures-point-to-more-stock-losses-before-china-factory-pmi

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  19. But Germany has a corrupt corporate sector (VW) and a rotten banking system (especially Deutche Bank). DB is number two in the world in derivatives thanks to its useless subsidiary Wankers Trust. The chickens could well be coming home to roost there first as they crash develops. It has absolutely the worst chart of any major bank in the world.

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  20. And the Chinese elite absolutely HATES Muslims. I know I have spent time witth the elite and choked at what they said about the Xighurs.

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  21. No,

    That’s what makes it beautiful. China, like the Gulf States would never agree and these poor oppressed Syrian”Refugees” would never agree to go.

    Time these fake asylum shoppers were exposed to the world in terms the rose tinted liberals understand.

    Who doesn’t like Chinese food? They do pork 387 different ways!

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  22. OAH, “DB is number two in the world in derivatives” – indeed so, and guess where they’re held. In super-regulated stiff-fine… the city that makes banks quiver at the knees… London.

    I know VW are corrupt, just as the mainstream newspapers say. It’s not as if Chrysler ever got into trouble, or Ford for that matter, because they are nice, aren’t they.

    A little like HSBC, really. Such a nice bank, so British and so upstanding. Makes the Germans look like the villains they are, what with all their strict financial regulations that force banks to lend money rather than enjoy themselves at the casino. Sorry, that should read “stockmarkets”. The Germans are villains to the mainstream media because they don’t let the nice corporations run amok, they’d rather the NSA didn’t snoop, and they’d rather the US played fair.

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  23. The EPA that fined VW is looking like it is corrupt*, corruption IS the model!
    *http://www.zerohedge.com/news/2015-08-12/did-epa-intentionally-poison-animas-river-secure-superfund-money

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  24. Is it just me or is anyone else getting a sense that the elites seem to be acting with a degree of desperation or urgency in the last few weeks. I can’t quite put my finger on it quite or even form a cogent description of the feeling, but to me there is an notion that there is a dance at the top of the tree as if they were trying to get each other lined up to be pushed down to the plebs.

    Or maybe I should go back on the gin?

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  25. I know that VW is the bad boy right now; but if corruption is the model, and corporations want corruption…

    … is it any surprise that Germany is in the firing line??

    If you have ever registered in Germany, filed a tax form or dealt with their bureaucracy, you will find that whilst it is complex, it works. Not only that, but the people who work in the bureaucracy are more than ready to help (they also have the time to, which helps). Send a letter to the German tax authorites, they are required by law to reply within two weeks; send a letter to the Inland Revenue and you’ll be lucky to hear of it or its whereabouts ever again (except if it’s to do with your having to pay them, of course… corruption is of its nature, one sided).

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  26. This great media emphasis on stock market volatility is for the most part nonsense. Volatility is that it’s only a risk if it causes the investor to lose their marbles in favour of investing based on emotional states like fear or greed. Otherwise volatility creates opportunities for the patient (read – DECADES not days) investor – to buy into some wonderful companies at bargain bin prices.

    If inevitable downturns are going to make you miserable – you might be wise to utilize more conservative patterns of investment and saving all your life. But having a long-term strategy such as investing passively in a low cost index fund, I think gives Joe Average enormous advantages: he is sitting back and drip-feeding his fund each month without having to lift a finger, he’s not paying any bonuses or fees to stockbrokers, and he does not have to listen to any nonsense from know-nothing smartarses in cheap suits.

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  27. In no particular order:-

    Peak oil,

    Peak complexity,

    Peak consumerism,

    Peak government,

    Peak insurance,

    Peak credit,

    Peak debt,

    Peak hubris,

    Peak (add your own here,,)

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  28. “stock market volatility” – what can one expect of a market that is on the one hand pushed about by printed money and on the other hand, used by the banks to make a living. That the banks make up most of Britain’s economy now, implies that steadier businesses (such as still exist in Europe) are much less apparent, and so can no longer offer that stability to the markets in the UK. It is part of having eviscerated the productive and industrial heart of Britain and left it riddled with the unpalatable worm of the banks. The US finds itself in the same position.

    The volatility of the Chinese markets can be put down to other issues, which have been discussed at length here on the Slog.

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  29. I am always suspicious of someone quoting **correlation** not always when one compares variables does a correlation equal 1 as that implies some thing is perfect…the error in any variable correlation is 1 – r squared x 100, consequently a perfect correlation is impossible.
    As to the concepts of Mr Wards article:
    1. Their is a price ward between the US and China….and that is pure currency….the yanks think the yuan is over priced.
    2. The oil nations …..dont want to allow fracking to interfere with price and know that fracking costs are $70…so driving US frackers outta the market by keeping oil below $70 keeps market share
    2a. The oil nations also dont want Libya and Iran back to claim market share so they are driving prices down below $70.
    3a The oil nations are using people to heap pressure on the west to help maintain market share.
    4. As to commodities, a similar market grab by the big miners is being made…to drive smaller players out…as the big miners need supply and hope to buy up the little fish.

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  30. And John pay attention to how Iran/Libya want their market share back…Libya have been outta the game along time and they have the best crude in the world…less cracking and easier to get product and the Iranians have almost as much oil as the Saudis and they are coming back thanks to Obama…currently they have Hugh storage on ships and have to pay for ship storage..when they drop that on the market..and they will…even giving it away to pay storage ….trust me oil price with drop like a brick…and the Saudis budget prices oil at $90..And you wonder why the Suadis fight the Yemenis….to get the Yemeni oil to sell more …best to kick the Yemanis out and pinch their fields to get oil for free.
    Like someone recently said….we have a dick head in our midst..his name is David Cameron…for this clown we have created a generational night mare in the middle East..his moral compass deserves condemning, his talent is suspect in spades, he should surely like Blaire before him be sent to jail

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  31. On the issue of Deutsche Bank, there is a lot of evidence from Notquant as to its being about to fail. But wait… the figures quoted are large because the operation is large. Is there any bank that is hiring people, rather than scaling down their workforce??? Is there a bank that hasn’t had to raise its Tier1 capital? Sure, Deutsche is the bad boy, because the media want to focus on this rather than (say) RBS who are literally bankrupt or HSBC which according to a few Sloggers is as well.

    For all its faults, Deutsche Bank is still paying its taxes. I’d like to see a few British banks doing that…

    At one point, it was estimated that Deutsche Bank had a staggering 75 trillion dollars worth of exposure to derivatives. Any guesses as to which city allows this kind of practice? It’s not Frankfurt and it’s not Berlin… and it’s not New York (albeit that most banks can still get away with it there). It’s the place that made even the American regulators turn white: London. Deregulated London, casino city to the world’s bankers.

    Greek Airports now how many sloggers know that all of Britain’s rail freight was sold off to the Germans?? I’ll bet not many, but that’s how capitalism works: it doesn’t need the population at large to know who they’ve sold things to or why. Anyway, the Krauts are paying more taxes than the British operators ever did, and they’re employing British drivers amongst all the others. So imagine the Greek airports sold to a German company that is going to pay its taxes – well, it might if it’s asked by the Greek government. After all, one of the main stumbling blocks for Greece through this whole affair is their inability to tax corporations effectively. (Shades of the US here… who could solve their economic problems in just the same way, but there you go. Failing governments look like failing corporations… poor ol’ Deutsche Bank! They just don’t get how to create business.)

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  32. @Peterloo – someone commented at least a couple of years ago on how the descent into financial and economic hell would be slow, divergent and very hard to predict. Following a relatively quiet period (when there were obviously things going on but difficult to say what), I think we are seeing a fresh (and violent) eruption of the finanicial volcano and there could be a lot of casualties, this time in the business world. After all, it’s all about money whether it’s the stock markets, the banks or big business.

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  33. The wealthy, their institutions, corporation, foundations,trust funds and offshore ‘instruments’ have been so efficient they have simply sucked all the money, or life blood out of the system.

    As all the rest of us have less and less and work twice as hard for that, the system chokes.

    What is needed, obviously, is a massive rebalancing of the system. The wealthy and the banks MUST invest in PEOPLE.

    First, the rule of LAW must be reinstated. Laws to protect Human Rights, laws to protect the environment and honourable, honest COMMERCE LAW.

    The, the wealthy need to start building.

    Not just infrastructure, such as roads, bridges, ports, housing, rail and all the other commerciel niceities, but also the social infrastructure needed by any 21st century society. Hospitals, schools, universities, social care and the myriad of other things that make us human.

    But the biggest shift of all needs to comee within us all. We are none of us blameless, We ALL must share the burden of guilt. This is the dystopic, disfunctional world that we all built.

    A completely new paradym is required. We must all decide what things, ideals and principles, are most important.

    We must realise that somewhere along the road of mankinds destiny, we became something less than noble. Less than human.

    But do not despair, Their is nothing human beings cannot achieve, for good or bad.

    If you want to live in a better world, WE ALL have to build it.

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  34. Pingback: TGIF: That was the week that was… #PigGate | PoliticalSift

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