Wednesday 26 December 2018

Focus on the Asian market rout

Nikkei Crashes 1000 Points, Tumbles Into Bear Market

25 December, 2018

Update: Japan's Nikkei and the broader Topix indices fell over 1,000 points, or 5% in Tuesday morning trading to a 20-month low on the heels of the worst S&P 500 Christmas Eve crash on record. The Nikkei average hit an intra-day low of 19,138.88, or -5.09%, while the broader Topix was also around 5% lower. 

A few hours after the S&P tumbled over 2.7%, sliding into a bear market for the first time in a decade, Japan's Nikkei 225 - which had been sliding gradually for the past week - dropped sharply by over 3.2% at the open...
One day after Steven Mnuchin convened the President's Working Group on Financial Markets, also known as the Plunge Protection Team, only to see a record Christmas Eve drop in US stock markets, China showed the US how market manipulation is done.
With only a handful of Asian markets open on Christmas Day, and with Nikkei 225 plummeting 1000 points as Japan's blue chip index closed a whopping 5% lower and entered a bear market, China's stocks similarly started the day off on the back foot with both the Shanghai Composite and the SSE 50 Index of the country’s largest stocks sliding around 2.5% in early trade. However all that reversed in the afternoon session when the Chinese National Team came in and started buying mostly financial stocks, lifting the country's markets and pushing the Composite back over 2,500, ending with a loss of just 0.9%.
Agricultural Bank of China added 0.9% on Tuesday, erasing a drop of 0.6% thanks to the burst of late day buying. Bank of China rose 0.6 percent, and Bank of Communications rose 0.4%. China Southern Airlines rose 1.9 percent as the best performer on the SSE 50 measure, erasing a slide of 1% in the morning.
Meanwhile, an index of energy stocks was the worst performer among the CSI 300 Index’s 10 industry groups, falling 2.1% as crude fell to the lowest level in a year and a half. China Petroleum & Chemical and PetroChina lost at least 2%. Earlier in the session, Chinese oil futures for March delivery fall by the 7% daily limit from Monday’s settlement price to 351.6 yuan/bbl ($51.12) on Tuesday in Shanghai as the global oil rout leaves no market unscathed.
"The gains by big banks and insurers suggest state buying, and some funds may also be bottom-fishing stocks," said Dai Ming, a fund manager with Hengsheng Asset Management. Kang Chongli, a Beijing-based strategist with Lianxun Securities told Bloomberg that the 2,500 level "is both a policy and technical bottom" for the Shanghai Composite Index. The index closed just above it, at 2,504.82.
Just like the now confirmed Plunge Protection Team, China’s "national team" of state-backed funds often buys shares during turbulent times. Large caps like banks are among the most favored targets, and buying often comes in the afternoon so gains, or at least smaller losses, are locked in for the day.
Tuesday's re-emergence of the Chinese plunge protectors will come as a relief to struggling local investors after Goldman found that, inexplicably, in the third quarter the National Team was a net seller of RMB104 BN in stocks, the biggest quarterly sale by the National Team since the Chinese stock bubble popped in late 2015.

And while Beijing showed Mnuchin how state-sponsored manipulation of the market should work, the latest intervention will offer little comfort to Chinese investors, as the Shanghai Composite is down 24% this year, its worst performance in a decade as the trade war with the U.S. escalated.
... becoming the latest index to tumble into a bear market, sliding over 20% from its October 2 peak.
Meanwhile, the broader Topix index - which had already entered a bear market from its January 2018 highs - plunged even more, dumping over 4.3% and was trading at levels last seen in November 2016, as more than 2 years of gains have been largely wiped out in just the past 3 months as the Christmas Eve rout launched in the US goes global.

Today seems straight from the Twilight Zone: First the PPT and now Abenomics in full reverse.
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Japan has virtually given up on reaching 2% inflation after nearly six years of trying. An argument gaining ground in Tokyo holds that the inflation goal, once seen as paramount, doesn’t matter so much after all. Inflation excluding volatile fresh food and energy prices was just 0.3% in November, and it has barely budged all year.
Mr. Abe has largely stopped discussing the dangers of deflation, and his government is actually trying to push some prices down ahead of a tax increase set to take effect in October 2019. Mr. Abe’s de facto No. 2, Chief Cabinet Secretary Yoshihide Suga, has called on mobile-phone carriers to lower fees by about 40%—a move that could knock a full percentage point off inflation, according to government estimates.
There is no change to our stance of seeking the 2% price goal as soon as possible by patiently continuing powerful easing,” Mr. Kuroda said at a November press conference. At the same time, he has started talking more about the potential downsides of aggressive monetary easing,
Still, BOJ officials are hesitant to abandon the target altogether out of fear it could damage expectations and push the country back into deflation, said people familiar with the BOJ’s thinking.
Raising Prices
Torikizoku (Chicken Nobility), raised prices for the first time in 30 years last year, by the equivalent of 16 cents.
"Once prices went up, it wasn’t just the chickens that got skewered. Same-store sales at the chain have fallen more than 5% every month since May and profit fell 76% compared with a year earlier in the most recent quarter."
Abe now wants mobile-phone carriers to lower fees by about 40%, a move that could knock a full percentage point off inflation, so it can raise taxes.
Price Stability
The BOJ does not officially want to abandon its inflation target. And BOJ predecessor, Masaaki Shirakawa says “What is more important is…to aim for sustainable price stability in the medium to long term.
Japan is the one nation that seems to have a modicum of price stability. It doesn't want it. Heck, it does not even seem to know it has some stability.
The Fed defines stability as prices forever rising.
This is all straight from the Twilight Zone.
What's Coming?
I do suspect that at some point these sorts of financial shenanigans will "succeed" beyond Japan's wildest expectations with Japan intervening to stop massive inflation.
All it will take is an attitude changes that's arguably long overdue.
For discussion, please see Japan's Red Queen Race.
Mike "Mish" Shedlock

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