Nikkei Crashes By Over 12%

Japan's equity markets experienced a seismic shock today, with the Nikkei 225 index suffering its largest points drop in history. The plunge was triggered by a combination of factors, including concerns about the US economy and the yen carry trade.

The Crash:

Nikkei 225: The benchmark Nikkei 225 index plummeted 12.4% today, wiping out 27% of its value since its peak on July 11. This drastic decline puts the Nikkei into bear market territory.

Yen Carry Trade: The yen carry trade, a popular strategy where investors borrow in low-yielding yen to invest in higher-yielding assets elsewhere, has been under scrutiny. The recent appreciation of the Japanese yen (by 10% in the last three weeks) raised fears of large-scale unwinding, affecting global markets.

Stocks Hit the Hardest:

Several key stocks bore the brunt of the crash:
- Tokyo Electron: The chip-making equipment manufacturer tanked 8.4%, significantly impacting the Nikkei index.
- Fast Retailing (Uniqlo): The owner of Uniqlo saw a 4% decline.
- SoftBank Group:The technology investor lost 6.9%.
- TSMC (Taiwan Semiconductor Manufacturing Company): In Taiwan, TSMC, the world's largest chip maker, dropped a staggering 9.8%.

Conclusion

Markets are pricing in a 60% chance of an emergency cut in rates by the Fed this week. Note: markets often get things wrong!

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Interest Rates Hit 6% as UK Sleepwalks Into The Next Financial Crisis

 

Interest rates have hit 6%, and the Bank of England is expected to raise them further. Markets expect rates to remain above 6% in 2024. This is bad news for businesses and consumers, who are already struggling with the cost of living crisis.

The problem is that the UK economy is in a very fragile state. Household debt is at record levels, and businesses are facing rising costs. This means that even a small increase in interest rates could have a big impact.

If interest rates continue to rise, it will lead to a recession. This will mean job losses, lower wages, and even more economic pain.

The government needs to do more to help businesses and consumers through this crisis. They need to cut taxes, increase spending, and support businesses that are struggling.

If the government doesn't act, the UK could be sleepwalking into the next crisis.

Here are some of the reasons why the UK is sleepwalking into the next crisis:

• The UK economy is heavily reliant on debt. Household debt is at record levels, and businesses are also heavily indebted. This means that even a small increase in interest rates could have a big impact on the economy.
• The UK is facing rising inflation. Inflation is currently at a 40-year high, and it is expected to continue to rise. This is putting pressure on household budgets and businesses.
• The UK is facing a cost of living crisis. The cost of energy, food, and other essential goods is rising. This is making it difficult for people to make ends meet.
• The UK government is not doing enough to help businesses and consumers. The government has cut taxes, but it has also raised taxes in other areas. This is not helping businesses and consumers who are struggling with the cost of living crisis.

What can be done to prevent the next crisis?

The government needs to do more to help businesses and consumers through this crisis. They need to cut taxes, increase spending, and support businesses that are struggling.

The government also needs to take steps to reduce the UK's reliance on debt. They need to encourage businesses to invest and grow, and they need to help households reduce their debt levels.

If the government doesn't act, the UK could be sleepwalking into the next crisis. This would have a devastating impact on the economy and on people's lives.

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UK Faces Significant Recession - Unsurprisingly!

Chancellor Rishi Sunak says it is "very likely" the UK is in a "significant recession" https://t.co/vJGi5ZLJa6

— BBC News (UK) (@BBCNews) May 13, 2020

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Brexit Recession Fails To Materialise

Retail sales rose 7.4% in Oct 16 compared with Oct 15 and were up 1.9% on Sept 16 https://t.co/aUbuZnxet4

— ONS (@ONS) November 17, 2016

Another nail in Project Fear's coffin!

The Pain In Spain

*BANCO POPULAR DECLINES 26% AT MADRID OPEN

- Spain in pain again pic.twitter.com/TCpjt3TOza

— Russian Market (@russian_market) May 26, 2016

The Eurozone is Killing Greece

Punchy letter from a reader in Athens in yesterday's FT pic.twitter.com/r9SJGaGrUF

— Alasdair Pal (@AlasdairPal) April 20, 2016

Greece Back In Recession

GREEK GDP FELL 0.2% IN 1Q, PUTTING ECONOMY BACK IN RECESSION

— Jonathan Ferro (@FerroTV) May 13, 2015

Japan Slides Back Into Recession

Japan has slid back into recession after reporting a third quarter fall in GDP of 0.4%.

Apparently this has "shocked" analysts and those who claim to be experts in economics.

Why?

Japan introduced a sales tax earlier this year which, quite obviously, would have (and indeed did) negatively impact consumer spending.

For reasons that only Prime Minister Shinzo Abe can know, the sales tax hikes (another is planned) were meant to bring the economy out of its decades long slump.

Quite why increases in consumer taxes were meant to stimulate the economy is beyond me, even more so why "experts" didn't see the increase in taxes as a threat to any form of nascent economic recovery!

The Joy of Volatility

The Telegraph notes that the level of margin debt that traders are using to buy shares in the stock market reached the highest levels on record, according the latest data from the New York stock exchange.

US traders borrowed $460bn from banks and financial institutions to back shares, and once cash and credit balances held in margin accounts of $278bn is subtracted this left net margin debt of $182bn in July

Traders are now more exposed to a fall in share prices than at the height of the dot-com bubble at the turn of the century, and just before the financial crisis during the 2007 peak.

The Telegraph's article goes on to almost push for a collapse in the market. However, even if the media gets its way (disasters do make great headlines), the world will survive and move on. Markets have crashed many times before, and they will continue to do so.

Money is made from volatility.

60% Market Crash? Keep Calm and Carry On!

Abigail Doolittle, founder of Peak Theories Research, has said the Federal Reserve's reluctance to raise interest rates from record lows could spark a market correction to rival the slump seen in 2007, during the global recession.

She told CNBC

"Unfortunately, I think it could come on a crash similar to what happened in 2007.

You can see that the entire bull market trend over the past five years has started to reverse. 

When you see that kind of gyration around the trend, typically it suggests you're going to see some severe volatility. As scary as it is, I think that we could see possibly a 50% or 60% correction - an equal and opposite reaction to all these unusual policy moves." 

Maybe so, maybe not.

However, markets go up and markets go down. The world has survived previous crashes and will do so again, because the only way that people make money out of markets is for there to be volatility (both upwards and downwards).

The European Quagmire

Unsurprisingly, the eurozone is stuck in both an economic and political malaise; as Germany published weaker than expected economic figures, and France's political system falls apart.

Thus the media is doing its best to pump up the markets, by pushing the tired old line that the ECB will do something radical (eg cut interest rates and go for QE).

This is of course hyperbole, as the ECB (in the shape of Mario Draghi) is incapable of doing anything radical. Instead the eurozone will sink ever further into the quagmire of its own economic and political structural failings.

Back To The Future

The Office for National Statistics (ONS) reports that gross domestic product expanded by 0.8% in the April-June period.

Compared with the second quarter of last year, growth was 3.1%, the fastest pace since the end of 2007.

Total economic output was 0.2% higher than in the first quarter of 2008, its previous peak.

Hoozah!

As Robert Peston wisely observes:

So the British economy is at last a teeny weeny bit bigger than it was just over six years ago. But you probably don't feel richer
— Robert Peston (@Peston) July 25, 2014

GDP Back To 2008 Levels

The British Chambers of Commerce (BCC) has said that the economy, which is currently 1.4% below its pre-recession peak in 2008, would exceed these levels in the second quarter of this year.

Despite saying last year that the level would not be reached until 2016, the BCC has upgraded its forecasts for growth to 2.8% this year and 2.5% next year, from previous projections of 2.7pc and 2.4pc.

John Longworth, director-general of the BCC, is quoted by the Telegraph:

"Our economic recovery is gaining momentum. Businesses across the UK are expanding and creating jobs, and our increasingly sunny predictions for growth are a testament to their drive and ambition."

BDO, in its own survey, also backed the BCC prognosis. Peter Hemington, a partner at BDO, said there was "markedly strong optimism and hiring intentions across all sectors of the economy".

 

However, according to the BCC, the UK is lagging behind Germany and the US where GDP is already well above pre-recession levels.

The Oncoming Storm

As Britain continues to be battered by storms, it and other countries should be aware of the oncoming financial storm approaching from the East.

The crisis in emerging markets has spread to Eastern Europe. The Russian central bank has vowed “unlimited” intervention to defend the rouble after it fell to a record low against a basket of currencies.

Russia’s central bank governor, Elvira Nabiullina, said she would not allow a disorderly rouble slide or risk widespread damage to the financial system. She is quoted by the Telegraph:

“We are not planning to quit intervention.” 

A macho defence of one's currency is all very well in the short term, however in the medium to long term it will achieve nothing (as Britain's disastrous flirtation with the ERM in the 1990's showed). At some stage Russia will be forced to allow the rouble to float, or else face a recession caused by an excessively tight monetary policy.

Turkey’s “shock and awe” doubling of interest rates on Tuesday has failed to restore confidence in the lira, it too will have to allow the lira to go where the markets wish.

 

Suffice to say Russia, given its rigid mindset and macho self belief, will not in the near future allow the rouble to float. Instead it will continue to tighten monetary policy, and will impose capital controls to prevent currency flight.

 

This in turn will prompt other countries in East Europe to do the same, resulting in a general stagnation of the world economy as the flow of free moving capital dries up and people's confidence in the banking system is eroded.

 

Greece's Budget Deficit Falls

Apparently, if statistics from eurostat can be believed, Greece's budget deficit for 2012 has been revised down from 10% of GDP to 9%

However, before popping the champagne corks, it should be remembered that debt stands at 156.9% of GDP.

Eurozone Out Of Recession?

The media and Europhiles are hugely excited at the headlines today that proclaim that the eurozone is out of recession.

As per the BBC, the eurozone has emerged from recession after a record 18 months of economic contraction.

GDP grew by 0.3% in the second quarter of 2013, slightly ahead of forecasts. Germany and France dragged the eurozone out of the recession with growth of 0.7% and 0.5% respectively. However, Spain experienced contraction of 0.1% on the quarter, and Italy and the Netherlands both saw output drop by 0.2%.

The eurozone cannot survive in its present form where the rich Northern countries prosper whilst the poor Southern ones collapse, just ask the good people of Greece (with close to 65% youth unemployment) if they feel that they are now out of the recession.

No Double Dipper

As sure as eggs are eggs, the Office for National Statistics (ONS) has revised its figures yet again.

This time the revision brings some good news, it appears that Britain never had a double dip recession:

"GDP growth between Q4 2011 and Q1 2012 has been revised from a fall of 0.1% to flat, thereby removing the phenomenon of two consecutive quarters of negative growth."

As I have noted many times before it is extremely unwise to rely on figures provided by the ONS, they are always out of date and invariably wrong.

Negative Interest rates

It seems that the ECB is considering negative deposit rates, ie charging banks for their deposits.

The purpose of such a move?

To encourage/force banks to lend money in order to boost the flagging Eurozone economy.

Will it work?

No one knows!

ONS Screw Up Again

In September 2012 I wrote the following about the unreliability of ONS data:

"As I have noted many times before it is extremely unwise to rely on figures provided by the ONS, they are always out of date and invariably wrong; eg in February this year inflation figures spiked partly because the ONS (as per usual) had been erroneously under reporting inflation (clothing) for several years, and the resulting correction caused a spike in inflation.

Instead of the government and the Bank of England relying on and using ONS figures to to try to manage the economy, they may as well rely on reading goat entrails as these would be more accurate, timely and easier to interpret!"

Here we are in May 2013, and yet again the ONS have been forced to revise their figures. It seems that Q1 construction figures reported by the ONS were wrong, and need to be revised upwards. As such the UK was not in recession in Q1 2013.

As per the Telegraph:

"The ONS now believes that output in the quarter contracted by 5pc, not the 5.4pc previously thought. In terms of levels of GDP, it has revised construction output for the quarter up by £108m to £25.273bn. 

Philip Shaw, UK economist at Investec, has calculated that an increase of just £70m in national output in the first three months of 2012 would cause growth to be revised from -0.1pc to 0.0pc.

All else being equal, the construction industry revisions would suggest that the economy did deliver just enough activity to escape the technical double dip recession."

As I noted above, it is extremely unwise to rely on figures provided by the ONS!

Eurozone Unemployment Hits New High

Unsurprisingly, given that monetary policy within the Eurozone is being conducted by unelected and unaccountable anti inflation zealots from the ECB, unemployment levels within the Eurozone hit a record high of 12.1% in March.

The highest increases were registered in Greece (2 1.5% to 27.2% between January 2012 and January 2013), Cyprus (10.7% to 14. 2 %), Spain (24.1% to 26.7%) and Portugal (15.1% to 17.5%) .

Eurostat estimates that there are over 19 million people unemployed within the Eurozone, 3.6 million of them being under 25.

This level of unemployment is not sustainable and is a threat to democracy.