NEW YORK (Reuters) - Elections in Greece and France over the weekend have ushered in a new period of uncertainty for financial markets that could stand in the way of the easy-money rally that boosted stocks at the start of the year.
LONDON: European shares extended gains on Wednesday after a report that Greece was ready to accept most conditions from its international creditors to clinch a debt deal. The Financial Times, citing a letter Alexis Tsipras sent to the heads of the European Commission, the IMF and the European Central Bank, reported the Greek prime minister will accept all his bailout creditors' conditions that were on the table this weekend, with only a handful of minor changes.
ATHENS/BRUSSELS: Greek Prime Minister Alexis Tsipras spoke to the leaders of Germany, France and the European Commission by phone on Sunday in an attempt to break the deadlock over a cash-for-reforms deal as time runs out to save Greece from bankruptcy. After months of wrangling and with anxious depositors pulling billions of euros out of Greek banks, Tsipras's leftist government has signalled a willingness to make concessions in order to unlock 7.2 billion euros in bailout money.
In the past few week, China intraday lending rates as measured by SHIBOR got as high as 25% (See China Cash Crunch: 1-Day Interest Rate Spikes to Record High 25%).
With rates spiking, global stock markets plunged.
On Monday China insisted banks had significant liquidity sending a message that banks need to manage their own risks. This sent the Shanghai stock market index down about 6% as show in the following chart.
Policymakers in Beijing have spent much of the past few years trying to unlock the untapped potential of Chinese consumers since they account for only 36 per cent of China’s gross domestic product, compared with the United States’ roughly 66 per cent.
But the collapse in Chinese stock prices, which have plummeted nearly 30 per cent since their mid-June highs, is complicating the consumer story.
“The situation merits close monitoring,” said Derek Holt and Frances Donald, economists at Scotiabank Economics.
Bizarro market got you paralyzed with inaction (and unwilling to generate trading commissions for Goldman) as you try to make sense of an insane world in which first rising (but not too much) bond yields were desperately spun as positive for the economy and thus stocks because it means inflation is finally on the way, only for the same spinners to turn around and now allege that plunging bond yields are great for the Equity Risk Premium so you must, you guessed it, buy stocks?
We’ve long maintained that Japan is ground zero for the “QE works vs QE doesn’t work” debate. The Fed’s economic models, and 99% of the economic models employed by Central Banks in general, believe that monetary easing can bring about an economic recovery. The primary argument for this crowd if QE has thus far failed to produce a recovery is that the QE efforts have not been big enough.
The soap opera in Greece continues with Germany and France tugging on opposite sides of the rope, and support for Golden Dawn, an alleged neo-Nazi party rising in the wake.
French president François Hollande is on the sidelines, not wanting another battle with German chancellor Angela Merkel who has her own set of problems.