| The Data Flow From China, Crude Oil Dive And The “Fear Index”
$VXX, $OIL, $USO, $GLD, $DIA, $SPY, $ICE The dive of global financial markets is showing no signs of moderation. Driven by the worst selloff in US equities since Y 2011, the Chicago Board Options Exchange Volatility Index (VIX) jumped 118% to 28.03 last week, its biggest 5-day gain on record. American equities were the last to succumb to warnings on global growth emanating for months from bond, currency and commodities markets. Nothing’s been safe in the worldwide rout as equities from China to Europe and emerging markets plunged more than 5% last week, the worst declines in 4 years. The options-derived gauge of stress known as the VIX more than 2X, including a 46% increase on Friday alone, leaving it at the highest mark since Y 2011. Monday morning the VIX spiked 36% to 38.21 at 10:37 a in New York, adding as much as 90% for the biggest 1-day jump on record.
There is fear in the markets: volatility and the S&P had not followed other asset classes up until now, US equities are in the mix now. The weakness ignited a frenzy in equity hedges, sending the VIX up as traders bought protection in options that pay off when assets retreat. In Europe, the VStoxx Index climbed 35% Monday, heading for its biggest jump since Y 2008. Monday, in the US, DJIA opened down more than -1500 pts before -588 points, or -3.57% on a relief bounce, and S&P 500 index finished -3.94% at close. Chinese shares were/are under pressure in Asia. Following the -8.7% decline Monday, the CSI300 index lost another -130 pts, or -3.9% at the time of this writing. Commodities also weakened. Crude Oil prices extended the recent selloff to the lowest levels since early Y 2009. The front-month WTI Crude Oil contract dove to as low as 37.75 before ending the day at 38.24, or -5.46%. The Brent Crude Oil contract dove 6.09% to settle at 42.69. Gold gave back some of the gains made over the past 3 days with the benchmark COMEX contract slipping -0.54%.
Chinese equities are accused of leading the upheaval in global financial markets. China is not the cause. In an attempt to contain the crisis, the China State Council announced that pension funds are allowed to invest up to 30% of their funds into equity assets. Yet, this has failed boost market sentiment in here. The market expects further monetary easing measures from the PBOC, such as interest rates and RRR cuts. On the macro economic front Weak commodities, slowing growth in China, and RMB Yuan devaluation are said to have been putting downward pressure on global inflation. Speculators now doubt that the US Fed ill begin tightening next month. The July FOMC minutes noted that “some participants expressed the view that the incoming information had not yet provided grounds for reasonable confidence that inflation would move back to +2% over the medium term.” Monday, Atlanta Fed president Dennis Lockhart, who has showed inclination for a September rate hike, stated in his speech that he was expecting a rate hike “sometime this year”. It is increasingly likely that the Fed might continue to keep its powder dry in September. On the dataflow The China Conference Board leading index eased to 0.9% in July, from a Southwardly revised 0.6% a month ago. In Australia, the Conference Board leading index contracted -0.2% in June, down from 0.2% a month ago. New Zealand’s RBNZ 2- year inflation expectation stayed unchanged at +1.9% in Q-3 of Y 2015. In the Eurozone, Germany’s IFO confidence would be released. The business climate probably fell to 107.6 in August from 108 a month ago. Housing data is due in the US. The house price index probably grew +0.4% M-M in June, unchanged from a month ago. The S&P/Case-Shiller Composite-20 (city) might have gained +5.1% Y-Y in June, up from a +4.94% in May. New home sales may have added +5.81% to 510-K in July. Stay tuned… HeffX-LTN Paul Ebeling
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