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China Stocks Tumble Most In 4 Months; Australia Cuts Rates To Record Low
Yesterday, when we heard that China brokers may impose tighter margin requirements to contain what is now a laughable stock bubble we said that tonight's Shanghai session could get exciting:
China may get exciting: Some China Brokers Raise Margin Trading Requirement: Sec. News
— zerohedge (@zerohedge) May 4, 2015
It did: overnight the Shanghai Composite tumbled by 4.1% to under 4300, the biggest one day drop since January 19.
Additionally, the Shanghai Stock Exchange Property Index falling 8% although keep in mind that the sub-index added 52% in 3 months to end-April on relentless hopes of central bank easing the worse the economic data got. The rout also spread to Hong Kong where the HSI dropped as much as 1.9%, down 4th day in longest loss streak since March 11.
While it is too early to know if the Chinese stock bubble has finally burst, it is just as unclear what precipitated the selloff. On one hand Reuters attributes the drop to the previously noted collateral concerns saying "media reports of tougher margin requirements by some brokerages added to concerns about market liquidity ahead of a new batch of share listings." Specifically, brokerages such as CITIC Securities Co Ltd, Haitong Securities Co Ltd and Huatai Securities Co Ltd tightened requirements for margin financing this month in a bid to control risks, the Shanghai Securities News reported on Tuesday.
This is major concern for China where the unprecedented jump in margin debt coupled with an explosion in new accounts has been the primary driver behind the relentless rise in the Shanghai Composite. "The move could curb money inflows in a highly-leveraged stock market rally. The outstanding value of margin financing - the amount of money investors have borrowed to buy stocks - has exceeded 1.8 trillion yuan ($290 billion) and repeatedly smashed records in recent sessions."
"I suspect the brokerages are doing so under the guidance of regulators, so this reflects regulators' intentions," said Zhang Chen, analyst at Shanghai-based hedge fund manager Hongyi Investment. "It gives an excuse for some investors to take profit."
Additionally, liquidity has been soaked up by a flurry of new IPOs with the market grappling with short-term liquidity pressures as nine companies start taking subscriptions from investors on Tuesday with more scheduled to launch share sales later this week. Altogether, subscription for new batch of A-share IPOs is expected to peak today with a total of 25 IPOs in early May estimated to drain 2.34 trillion in yuan of liquidity according to Bloomberg calculations.
All of this follows a move by the RBA in which the Australian central bank cut rates as expected from 2.25% to 2.00%, a record low.
Rising property prices in Australia's biggest city, Sydney, a strong currency and a drop in iron ore prices were among the reasons for the cut.
The cut is the second this year, following a previous 25 basis point cut in February.
Here is Goldman's take:
Bottom Line: As expected, the RBA cut rates by 25bp in May, but a subsequent initial ~US40c rally in the AUD suggests financial markets viewed the lack of an explicit easing bias in today’s brief statement in a relatively hawkish light. In our view, however, it is important to acknowledge that in months where the RBA changes the policy rate it tends to reflect more on the decision itself and does not always communicate a clear forward-looking reference in the statement attending the decision. This was the case in February 2015, for example – with an easing bias more clearly articulated not long after that. In turn, and with the RBA’s current economic forecasts already calibrated on further easing in any case, we would not be surprised to see an easing bias expressed more explicitly in Friday’s Statement on Monetary Policy (SMP; if a more moderate one).With May’s rate cut closely following 1Q2015 CPI, we also believe the timing of today’s decision underscores the importance that the RBA places on actual CPI outcomes in framing its outlook for inflation – raising the risk that the rate cut we currently have penciled in for July is delivered a month later in August (following 2Q2015 CPI). In the interim, we expect Friday’s SMP to reveal further growth downgrades, and to continue to refocus attention on trends in household demand (as opposed to broader measures of aggregate demand). All in all, we believe the coming months will see ongoing benign inflation and note that our proprietary indicators are flagging downside surprises on the growth/employment front. Against the backdrop of the rising risk of slippage in the timing of the rates lift-off in the US, we continue to lean towards another rate cut this year.
What was clearly notable about this particular rate announcement is that it was not frontrun by HFTs....
Zoom of 8 seconds during $AUD news. No reaction for a full second - previous events most likely leaked pic.twitter.com/cF3vpVnVrH
— Eric Scott Hunsader (@nanexllc) May 5, 2015
... unlike previous occasions...
... even though as a reminder Australia's regulator found no illegal activity previously and merely blamed lack of liquidity on the massive, and directionally correct, moves:
Preliminary findings reveal moves in the Australian Dollar ahead of the announcement to be as a result of normal market operations in an environment of lower liquidity immediately ahead of the RBA announcement. The reduction in liquidity providers is a usual occurrence prior to announcement in all markets. Much of the trading reviewed to date was linked to position unwinds by automated trading accounts linked to risk management logic and not misconduct.
And here we thought that HFTs add liquidity.
In any event, even if one had known the statement in advance, that subsequent move in the AUD was such that pretty much everyone's stops were taken out first to the downside, and then to the upside.

Most surprisingly, despite the rate cut, Australia's ASX200 index closed just a fraction in the red.
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chinese are born gamblers ... i would not count them out yet ... then again, who knows
I bet they double down.
Yep. Sum Ting Wong
Shanghai and Hang Seng charts FWIW:
http://www.marketwatch.com/investing/Index/SHCOMP/charts?CountryCode=CN
http://www.marketwatch.com/investing/Index/HSI/charts?CountryCode=HK
The Chinese shoeshine boys say screw this.
It's up to the Crazed Chinese HousewivesTM now.
http://www.zerohedge.com/news/2015-04-09/crazed-chinese-housewives-frothing-hong-kong-bubble-euphoria
What's Mandarin for "BTFD"?
There are just too mant people in China for anyone to think about keeping their sanity.
If the Chinese stock exchange is not fraudulent enough for them, the criminals are always welcome here in Australia. The ASX is infested with a spate of China based IPOs and reverse takeovers, all farcical scams. Australia: taking it up the backdoor and loving it!
http://drbenway.blogspot.com/ncr
They will ease. Oh, they will ease.
Rising property prices in Australia's biggest city, Sydney= reason for cut??
Not rising fast enough?
mass shearing of sheep dead ahead
The Oz MSM is broadcasting the "With rates this low, it's the perfect time to borrow!" mantra, it's just sickening...
People are geared up to the eyeballs down here this has a very unhappy ending.
http://www.afr.com/real-estate/residential/nsw/sydney-closes-in-on-1m-me...
OK, with the median income around $58,000 pretax... we have a mathematical certainty thats its way past a bubble.
http://www.ibtimes.com/chinas-student-warren-buffett-buys-us-insurer-iro...
SHANGHAI -- China’s biggest private conglomerate Fosun has agreed to buy full control of American insurance company Ironshore in a deal worth $1.84 billion. The deal, which follows reports of a Chinese consortium’s purchase of iPhone sensor maker OmniVision, is the latest sign of Chinese companies’ growing determination to expand globally.
The Shanghai-based company’s Fosun International investment arm will buy the remaining 80 percent of Ironshore, which specializes in commercial property cover and casualty insurance, after paying $464 million for a 20 percent stake in the company in February, the Shanghai Daily reported on Tuesday.
Fosun Chairman Guo Guangchang said in a statement that the acquisition, which is pending regulatory approval, would “strengthen the group’s capability to access long-term high-quality capital.” He said Fosun planned to retain the senior management of Ironshore, “while improving its products and services.”
Fosun began in real estate and pharmaceuticals, and has major investments in steel. Its global investments, estimated at $25 billion since 2010, include U.S.-based Studio 8, and the former One Chase Manhattan Plaza building in New York, and a stake in French holiday company Club Med. It recently bought Australian oil firm Roc Oil, and a stake in German bank BHF.
In recent years it has invested as much as a third of its capital in the insurance industry -- it has set up a life insurance company with Prudential Financial, and last year bought U.S. company Meadowbrook, and took an 80 percent stake in Portugal’s largest insurance company Caixa Seguros for over $1 billion...
Ho Nu Lo is here.
Rising property prices in Sydney was given as a reason behind the rate cut? WTF?!
Makes sense. In Amercia we sold them a volcano to cover our debt.
We call it Yellowstone Park.
And a strong currency? Compared to what? The Aussie was par with the USD not that long ago and is now 78 cents. Strong compared to Japan and the Euro? Two self-trashed currencies?
It was hilarious today listening to the ANZ mouthpiece saying there was a "potential danger" that lower rates might trigger an RE bubble, in Australia ... lol! ... and then the jerk went on to say, "... and we sure don't want that to happen, as it might cause a very messy unwind", or words to that effect!
Can you believe that crap?
And the totally gutless brainless idiot script-reading ABC 'news reader', didn't even blink, she didn't say a word that might challenge his absurd illusion-making on the basis of the known and extravagant facts.
"And the totally gutless brainless idiot script-reading ABC 'news reader'
~Yes but thinking is very hard and it is something no one in the MSM was taught to do. Just follow the scrpit, that's all they have brains enough to do.
If they can't say anything themselves, maybe they can borrow Luther. He's Obama's anger translator and says all the things Obama would like to say but can't for pc reasons. Very funny. Watch his magic at work:
https://www.youtube.com/watch?v=-qv7k2_lc0M
Australia's bubble trouble: http://www.acting-man.com/?p=36502
Yep, but that would be because the labor market is on the ropes.
No matter what official stats claim, there are a lot of people out of work, with no money and big bills, rent has never been more unaffordable, utilities the same, and in the regional centers (3/4 of Australia) it is getting a lot worse during the past quarter.
But that's alright, because the federal government is kicking off mandatory 'work for the dole' again in July this year, which was basically phased-out after 2008. So once again the Lib/Nats going to totally disenfranchise the working-poor and middle-class and will again get turfed out of office and dumped on their arses, at the next election.
The last time the Lib/Nats tried this sort of regime (in the pre-2007 'boom' phase, no less) John Howard not only lost the election and got booted out of Govt, but he even lost his prior very 'safe seat' of Bennelong, to an ABC socialist egomaniac and whinger, and Howard was thus unceremoniously kicked completely out of the PM's office, out of the Lib leadership, out of the Parliament and out of Canberra ... in one day! ... lols
So, as always, with the Lib/Nats can't help their hubris and authoritarian Lee Kuan Yew affectionado streak, and over-reach for the stick, and hide the carrots. Thus Abbot is now going to try the same sort of 'Work Choices'-like punitive thuggish industry-policy setting which got Howard and Co., booted ou, and 'Kevin07' and the money-spenders elected in.
lol ... solving the deficit dilemma ... NOT
The Libs just never learn. And now the Treasurer and the Industry and Human Services Ministers are the most hardline Lee-Kuan-Yew wet-dream look-alike freaks, of the lot of them.
You cannot blame the HFT market makers for not providing liquidity.
Their market making and trading competency is so ridiculously at rock bottom low, that if the regulator does not grant these HFT market makers the privilege to frontrun the market, they would have gone totally bankrupt since many years ago.
Sometimes you have to give some sympathy for their incompetency.
Low iron ore prices? So weaken your currency so you can sell moar iron ore into a market with low demand? Hmmmm, how is that working out for the frackers and Saudis?
As others have said, the cure for high home prices is not to cut rates - although if you inflate the bubble until it pops then you do cut home prices once they collapse.
And the Aussie fell from par down to 78 cents against the US Dollar. The Aussie is not a strong currency unless you compare it with self-crippled currencies like the Yen and Euro.
It sounds more like the rate cut plague has reached the Aussie central bank.
Other world markets will likely follow suit. The Dow and the S&P 500 seem imminently prepared to do so... so says Dow Theory
S&P 500
http://www.globaldeflationnews.com/sp-500-indexelliott-wave-update-for-w...
DJIA
http://www.globaldeflationnews.com/dow-jones-industrial-averageelliott-w...