Chinese equity markets plunge sharply

Wednesday, July 08, 2015

The Hang Seng index plunged over 2000 points overnight (-8.2%) towards 22,900 as concerns regarding Chinese’s economic stability weighed on market sentiment, prompting investors to sell-off. China’s Shanghai Composite Index also declined sharply, showing its biggest drop since 2007. Please note that at least 1,301 Chinese companies halted trading on mainland Chinese exchanges, locking up $2.6 trillion of shares or about 40% of market capitalisation, according to Bloomberg. The Chinese central bank said that it will provide ample liquidity to the market. China’s auto sales declined 3.2% y/y in June, to 1.43 million units, falling for the first time in more than two years as economic growth continued to slow. Carmakers like General Motors and Volkswagen AG have already decreased prices in an effort to boost market share and counteract slowing demand.     

European leaders have given Greece until Thursday to present new proposals, which could secure a deal. A full EU summit is scheduled for Sunday, while European Council President Donald Tusk reported “it is the most critical moment in the history of Eurozone”. Failure to reach an agreement this week, Greece could face the prospect of a Grexit on Monday 13th July. The euro continues to hover within the recent range of 1.09-1.11 against the USD, struggling for direction. Yesterday, the euro hit a new recent  low at 1.0916 but closed significantly off the lows at 1.1011.

Today, the main focus will turn to the first post-election UK budget. The conservative government is looking to make £12 bln of savings including tax reforms as well as cuts to the UK housing benefits. Chancellor George Osborne is about to propose longer Sunday trading hours. The Treasury suggested that the two extra hours of Sunday trading could create nearly 3,000 jobs in London. Osborne reported that there is a “growing appetite” for shopping on a Sunday. The Bank of England is due to announce UK interest rates tomorrow, though we do not expect any big surprises as it is likely to keep rates unchanged for the time being.

In the US, investors’ attention will turn to the release of the Fed minutes from the latest FOMC meeting. Market participants will be keeping an eye on the release of the US consumer credit. This morning, the USD index has held above 96.50 against a basket of currencies, after having hit a high at 97.23 yesterday.   

Crude oil prices extended losses in early trade this morning as ongoing concerns regarding a slowdown of Chinese economy weighed on market sentiment. Brent front month futures retreated over 1.5% in early trade towards $56 per barrel, while WTI front month futures slid lower breaching $52 per barrel. The release of the weekly EIA oil inventories report could provide insight into current oil fundamentals. According to a Bloomberg survey, a decline of 488K in crude oil inventories for the week ending 3rd July is expected. Crude oil stocks at the key location of Cushing, Oklahoma, are expected to have dropped by 306K barrels. Gasoline inventories are estimated to have declined by 222K and distillate stocks are expected to have increased by 944K barrels.   

Hang Seng index

HSI Index (Hong Kong Hang Seng I 2015-07-08 09-19-04  

EURUSD

EURUSD Curncy (EUR-USD X-RATE)   2015-07-08 09-16-56  

     

Events for today:

1530

US

w/e

EIA Energy Stocks

1900

US

Jun

FOMC Meeting

2000

US

May

Consumer credit

 

All times UK Local Time

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