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China Sold Second-Largest Amount Ever Of US Treasurys In December: And Guess Who Comes To The Rescue | Zero Hedge
While we will have more to say about the disastrous December TIC data shortly, which was released early today, and which showed a dramatic plunge in foreign purchases of US securities in December – the month when the S&P soared to all time highs and when everyone was panicking about the 3% barrier in the 10 Year being breached and resulting in a selloff in Tsy paper – one thing stands out. The chart below shows holdings of Chinese Treasurys (pending revision of course, as the Treasury department is quite fond of ajdusting this data series with annual regularity): in a nutshell, Chinese Treasury holdings plunged by the most in two years, after China offloaded some $48 billion in paper, bringing its total to only $1268.9 billion, down from $1316.7 billion, and back to a level last seen in March 2013!
This was the second largest dump by China in history with the sole exception of December 2011.
That this happened at a time when Chinese FX reserves soared to all time highs, and when China had gobs of spare cash lying around and not investing in US paper should be quite troubling to anyone who follows the nuanced game theory between the US and its largest external creditor, and the signals China sends to the world when it comes to its confidence in the US.
Yet what was truly surprising is that despite the plunge in Chinese holdings, and Japanese holdings which also dropped by $4 billion in December, is that total foreign holdings of US Treasurys increased in December, from $5716.9 billion to 5794.9 billion.
Why? Because of this country. Guess which one it is without looking at legend.
That’s right: at a time when America’s two largest foreign creditors, China and Japan, went on a buyers strike, the entity that came to the US rescue was Belgium, which as most know is simply another name for… Europe: the continent that has just a modest amount of its own excess debt to worry about. One wonders what favors were (and are) being exchanged behind the scenes in order to preserve the semblance that “all is well”?
(Reuters) – A full-scale flight from emerging market assets accelerated on Friday, setting global shares on course for their worst week this year and driving investors to safe-haven assets including U.S. Treasuries, the yen and gold.
U.S. stocks slumped, putting the benchmark S&P 500 on track for its worst drop since November 7 and pushing the index down 1.8 percent for the week. Concerns about slower growth in China, reduced support from U.S. monetary policy and political problems in Turkey, Argentina and Ukraine drove the selling.
The Turkish lira hit a record low. Argentina’s peso fell again after the country’s central bank abandoned its support of the currency.
The declines mirror moves from last June when developing country stocks fell almost 18 percent over about two months and hit global shares.
The broad nature of the selloff combines country-specific problems with the reality that reduced U.S. Federal Reserve bond buying reduces the liquidity that has in the past boosted higher-yielding emerging markets assets.
The Fed last month pared its monthly purchases of bonds by $10 billion to $75 billion. The U.S. central bank will hold a policy meeting on Tuesday and Wednesday and is widely expected to again pare its stimulus program.
“We expect the emerging market selloff to get worse before it starts getting better,” said Lorne Baring, managing director of B Capital Wealth Management in Geneva. “There’s definitely contagion spreading and it’s crossing over from emerging to developed in terms of sentiment.”
Activity was heavy in exchange-traded funds focused on emerging markets. The iShares Morgan Stanley EM ETF was the second-most active issue in New York trading, trailing only the S&P 500’s tracking ETF.
An MSCI index of emerging market shares fell as much as 1.6 percent. Since mid-October, the index has lost more than 9 percent. The MSCI all-country world equity index was down 1.6 percent.
Funds have continued to flee emerging market equities. In the week ended January 22, data from Thomson Reuters Lipper service showed outflows from U.S.-domiciled emerging market equity funds of $422.41 million, the sixth week of outflows out of the last seven.
Emerging market debt funds saw a 32nd week of outflows out of the last 35, with $200 million in net redemptions from the 250 funds tracked by Lipper.
“It’s just the final realization that they can’t continue to grow as an economy the same way they did before,” said Andres Garcia-Amaya, global market strategist at J.P. Morgan Funds in New York. “It’s a combination of less liquidity for these countries that depended on foreign money and China kind of throwing some curve balls as well.”
The Turkish lira hit a record low of 2.33 to the dollar, even after the central bank spent at least $2 billion trying to prop it up on Thursday.
Turkey’s new dollar bond, first sold on Wednesday, fell below its launch price. The cost of insuring against a Turkish default rose to an 18-month high and Ukraine’s debt insurance costs hit their highest level since Kiev agreed a rescue deal with Russia in December.
Argentina decided to loosen strict foreign exchange controls a day after the peso suffered its steepest daily decline since the country’s 2002 financial crisis [ID:nL2N0KY0FC]. On Friday, it was down 2.8 percent.
On Wall Street shares sank.
The Dow Jones industrial average was down 205.12 points, or 1.27 percent, at 15,992.23. The Standard & Poor’s 500 Index was down 24.93 points, or 1.36 percent, at 1,803.53. The Nasdaq Composite Index was down 66.82 points, or 1.58 percent, at 4,152.05.
But in a signal that the selling may be overextended, investors were willing to pay more for protection against a drop in the S&P 500 on Friday than for three months down the road. The last time the spread between the CBOE volatility index and three-month VIX futuresturned negative was in mid- October, shortly after a 4.8 percent pullback in the S&P 500 opened the door to the last leg of the 2013 market rally.
European shares suffered their biggest fall in seven months. The FTSEurofirst 300 index of top European shares closed down 2.4 percent at 1,301.34 points. The index has now erased all its gains for 2014, and is down 1.1 percent on the year.
Spain’s IBEX index, highly exposed to Latin America, was the worst-hit in Europe, falling 3.69 percent.
The dollar index was flat, a day after falling 0.9 percent against a basket of majorcurrencies, including the euro, yen, Swiss franc and sterling. That was its worst one-day performance in three months.
A flight to safety lifted currencies backed by a current account surplus, such as the Japanese yen and Swiss franc, and highly rated government bonds. German Bund futures rose and 10-year U.S. Treasury yields hit an eight-week low below 2.75 percent.
Gold traded close to its highest level in nine weeks and was poised for a fifth straight weekly climb as weaker equities burnished its safe-haven appeal. Spot gold rose to $1265.10, up from $1263.95.
(Reporting by Barani Krishnan; Additional reporting by Dan Bases and Toni Vorobyova; Editing by Nigel Stephenson, Nick Zieminski and Leslie Adler)