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.
style="box-sizing: inherit;"
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.
Mike
"Mish" Shedlock
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