– Stocks face worst quarter since 2011 over fears for global economy
– Global economy concern as China slows down sharply
– Concern over Federal Reserve stewardship
– Increasing nervousness over U.S. earnings outlook
– Stock markets of the world’s ten largest economies are currently in red
– Gold rose 1.5% in GBP, 2.4% in Swiss franc and 4.6% in Canadian dollar
– Gold down 4.5% in USD while global stocks fall 5% to 13%
– Stocks remain overvalued and still opportunity to re-balance into gold
After the China Tremors of July-August, September rolled in with a roar of a veritable Bear.
All in, on a quarterly basis, S&P was down 8.2 percent, DJIA fell more than 8.7 percent and EuroStoxx 50 shed 12.9 percent. Only longer dated (5 years-plus) U.S. bonds and Japanese Yen have managed to wrestle out quarterly returns in excess of 1 percent.
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Chart: Index of Chinese Margin Debt
Source: Bloomberg
Meanwhile, the CBOE Volatility Index (VIX), a popular measure of the implied volatility of S&P 500 index options, jumped 38.4 percent compared to the start of July. Risk aversion once again became a major strategy play in 3Q.
The core drivers for the changed risk sentiment are global themes.
China – at the front of the financial news flow – continued to post weakening macroeconomic data. August marked an outright collapse in Composite PMI, down to 48.8 from 50.8 in July, marking the fastest contraction of output since February 2009. September manufacturing PMI came in at a miserably low 47.2, with Composite PMI falling to 48.0 signaling a rapid rate of economic growth deterioration for the second month in a row.
Chinese economy’s woes, however, are far from being contained. Ongoing deleveraging in the markets – cutting margin loans volumes, unwinding carry trades (including across broader Asian markets), and closing off risk-parity positions – all saw Shanghai Composite Index falling from the peak of 5,166 in mid-June to 3,038 at the end of September. As of September 29, total margin debt in Chinese stock makers stood at CNY921 billion, down more than 50 percent on peak attained in June (chart), but still well ahead of 3Q 2014 levels.
Chart: Index of Chinese Margin Debt
Source: Bloomberg
The same factors also caused major ripples across the globe because Chinese economic problems, in part, reflect a global growth slowdown.
The latest IMF economic outlook, published this week, shows sharp deterioration in growth across all emerging economies (EMs). Worse, growth prospects are also becoming more volatile.
Between 2012 and 2013, the emerging economies posted annual GDP growth, on average, only 0.25 percentage points below prior consensus forecasts. This year, per IMF estimates, the gap is going to be more than four-fold.
Most current composite PMIs for August-September for BRIC economies shows weak conditions across three out of four largest Emerging Markets, with downward trend persisting since June 2014 and weak growth conditions remaining in place since the end of 1Q 2013 (see chart).
Continue reading on the GoldCore.com blog [16]
IMPORTANT NEWS
Gold struggles near 2-week low after strong U.S. data – Reuters
S&P posts worst quarter since 2011 – Reuters
U.S. Stocks Have Worst Quarterly Rout in Four Years – Bloomberg
Glencore Rallies Most Ever After Company Reassures Investors – Bloomberg TV
Mitsui Posts Record Decline After Swiss Probe, Glencore Rout – Bloomberg
IMPORTANT ANALYSIS
IMF warns of new financial crisis if interest rates rise – The Guardian
America’s Manufacturers Got Crushed in September – Bloomberg TV
BofA Issues Dramatic Junk Bond Meltdown Warning: This “Train Wreck Is Accelerating” – Zero Hedge
Is The Fed Preparing For A “Controlled Demolition” Of The Market – Zero Hedge
Mitch Feierstein: Firms too big to fail before, like JPMorgan, are bigger now – Independent
Read more News & Commentary [17] on GoldCore.com
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