Forget about Greece, emerging markets are the latest recipe for market turmoil. Especially China, where the economy looks to be in worse shape than anticipated, is causing quite a few headaches. China’s stock market is going nuts. The ‘government orchestrated’ recovery was wiped out in just two days, sending the index back towards the low of earlier this month.
The 'government orchestrated' rally of Chinese stocks was almost completely wiped out in just 2 days! #China http://t.co/Tn4J6Eg0hV
—
jeroen blokland (@jsblokland) July 28, 2015
At the same, volatility in Chinese stocks is immense. The graph below shows the intraday moves of the Shanghai Composite Index compared to the intraday moves in the S&P 500 Index. The daily, in some cases hourly, swings in Chinese stocks are difficult to comprehend at times.
This graph shows just how #volatile the Chinese equity market is. Intraday moves are massive compared to the S&P 500. http://t.co/p7I0RN0jbM
—
jeroen blokland (@jsblokland) July 31, 2015
To emphasize: Volatility of the Chinese stock market now tops the volatility of Bitcoin.
In case you missed it! #China's stock market is now more volatile than #bitcoin! #volatility http://t.co/L2UuffXsra
—
jeroen blokland (@jsblokland) July 28, 2015
But emerging market troubles extend beyond China. Russia’s ruble has depreciated 20% against the US dollar in just two months as oil prices have again collapsed. Additional facts: Russian inflation stands at 15.3% and GDP is expected to shrink by 4% in 2015!
The Russian #ruble is down 20% in the last two months as Brent #oil enters bear market. #Russia http://t.co/wdBbqHWCdh
—
jeroen blokland (@jsblokland) July 28, 2015
Next, Brazil. While a stunning country to visit, its economy has soured. Brazil’s central bank had to lift interest rates a massive 16 times since 2013 to keep inflation at bay. That’s got to hurt. Additional facts: inflation equals roughly 9% and GDP is expected to shrink at least 1.5%.
ICYMI! #Brazil's central bank raised its key rate for the 16th(!) time since 2013, saying level is now high enough. http://t.co/1eqMpRqdlk
—
jeroen blokland (@jsblokland) July 30, 2015
Growth issues are abundant in emerging countries. The emerging market Manufacturing PMI stayed below the developed country PMI for 26 consecutive months now. On top of that, the PMI level is below the holy level of 50.
Slowing down! The Emerging Market Manufacturing #PMI is trailing the developed market PMI for more than 2 years now! http://t.co/IQxV1KOa5k
—
jeroen blokland (@jsblokland) July 29, 2015
To make things worse, the US dollar is currently having its third biggest winning streak of the last 40 years. As monetary policy is diverging, investors seek sanctuary in the Greenback. A rising US dollar is a nightmare for emerging countries.
Emerging markets' biggest nightmare... http://t.co/oLPLsaEP6X
—
jeroen blokland (@jsblokland) July 30, 2015
Compared to emerging markets, Spain is heaven. GDP growth topped 3% for the first time since early 2008. Austerity believers must just love this, right?
#SPAIN! http://t.co/IZvfCD67hz
—
jeroen blokland (@jsblokland) July 30, 2015
Despite the widening Eurozone recovery, inflation levels remain an issue. Headline inflation for July came in at 0.2%, still miles away from the ECB target. That said, reported core inflation was higher than expected at 1.0%. Before you get too exited, that’s also way off target.
BREAKING! #Eurozone July Flash CPI steady at 0.2% YoY, but core CPI unexpectedly rises to 1.0% YoY. #inflation http://t.co/v2x0RgbzS9
—
jeroen blokland (@jsblokland) July 31, 2015
In the US, everybody was so busy judging the GDP revisions, the Q2 number got too little attention. It was a decent quarter in which personal consumption beat forecasts. Concerning those revisions: ‘Yes’ the first quarter looks better now, but over a ten-year period it remains the weakest by far.
Correction. After revisions, Q1 US #GDP growth averaged just 0.2% (annualized) over the last 10 years. http://t.co/MksZbJADq9
—
jeroen blokland (@jsblokland) July 30, 2015
As expected, the Fed kept rates unchanged. In a deliberately vague statement the FOMC didn’t gave any hints on the timing of the first rate hike. It’s all data dependent, of course. The lowest wage growth since at least 1982 should give those betting on December a heads up. For now, the wait continues. It has been nine years since we have last seen a rate hike. I’m getting anxious…
The wait goes on! #Fed http://t.co/S03kcaGXjI
—
jeroen blokland (@jsblokland) July 29, 2015
Despite the disappointing wage growth data, I think the Fed should raise rates soon. Especially since the Fed didn’t seize the opportunity last year. I wrote a short blog this week, containing five charts that show the Fed could easily start hiking rates now.
Five charts on the #Fed raising interest rates!
jeroenbloklandblog.com/2015/07/29/fiv… http://t.co/b4hg0BbO8r
—
jeroen blokland (@jsblokland) July 29, 2015
Thank you for reading the Week End Blog. Enjoy your weekend!