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April 14, 2015

Markets Gone Crazy Around the World!

By Wolf Richter at Wolf Street

The global economy has, let’s say, some issues, including a slight demand problem. Growth has shifted into low gear in China and has stumbled in the US so far this year, while Europe has trouble wading out of the mire. But stock markets jubilated last week:

Hong Kong’s Hang Seng soared a stunning 7.9% followed by the Shanghai Composite’s jump of 4.4%. Chinese stocks are beautifully spiking as everyone in China is now once again gambling on them as a way to get rich quick. It worked out last time too. In Europe, the German DAX rose 3.4%, The British FTSE 4%, and the French CAC 40 3.5%. Stocks have been booming in Europe all year, with for example the DAX up 26% year-to-date! Japan’s Nikkei and India’s SENSEX rose about 2% for the week. The S&P 500 “edged up,” given  how this week has been,  by only 1.7%. It was a phenomenal week for global stocks.

So corporate earnings look terrible for the first quarter. In the US, quarterly earnings estimates have been slashed by the largest amount since 2009, and are now expected to decline. It’s not just energy. Some of this is merely an effort to lower the bar so far that even companies with crummy earnings can still clear it, and that by “beating” the estimates – no matter how terrible earnings are – shares can still march higher. Either way, it doesn’t look good.

It’s just one more phenomenon in a long list of phenomena so far this year in the global financial markets. As Michael Hartnett, Chief Investment Strategist at BofA Merrill Lynch, put it so succinctly:
  • 26 rate cuts by global central banks (569 since Lehman went down)
  • Oil price finds a floor around $50/b after 60% collapse
  • Q1 = third consecutive quarter of positive returns for US$
  • US$ (DXY) quarterly return in Q1 = sixth largest since 1971
  • 2015 US earnings per share now projected to be negative (first time since 2009)
  • $5.3trn of government bonds trade with negative yield
  • March sees >€60bn of Euro corporate bond issuance, largest ever
  • Swiss issue 10-year sovereign bond at a negative yield, first time ever
  • Mexico launches a €1.5bn 100-year Euro bond issue at 4%
  • Swiss franc surges 25% intraday
  • Market cap of US tech/biotech exceeds that of both Emerging Markets and Eurozone
  • Shanghai stocks surge 24%; Russia equities jump 33%
  • Best performing mega-caps: Gazprom (21%), BASF (19%); worst: Wal-Mart, HSBC (both -6%)
  • Portugal Credit Default Swaps narrows 76pps, Greece widens 876pps
  • ECB goes “all-in,” Fed “blinks”
  • Even Iran’s stock market has rallied!
Head spinning? That’s the kind of year it has been!

And now GE has stepped into the fray. Amidst the global euphoria about financial assets of all kinds, it suddenly decided to dump most of its financial assets, including its vast commercial property assets. With impeccable timing: it rides up the bubble over the years, sees it finally mature, and now worried, tries to get out while it still can. But it’s doing a lot more.

Courtesy Wolf Richter at WolfStreet.com (EconMatters archive here)

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters. © EconMatters All Rights Reserved | Facebook | Twitter | Free Email | Kindle

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