April 17, 2015
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Global markets saw a selloff on Friday, driven by concerns over Greek’s possible exit from Euro, crackdown on margin lending in China and subpar US corporate earnings. Yields on 10-year German government bonds hit a record low of 0.07% as investors tried to move from equities to bonds. This led to a fall in European markets with Germany’s DAX loosing 2.6% and France’s CAC 40 loosing 1.6%. According to major strategists in Europe, Greece is making little progress in negotiating its debt with it’s international creditors and that could lead it to defaulting on its debt or even exiting the euro. Athens’ main stock exchange lost around 2.5% and has declined more than 40% over the last 12 months, making it one of the world’s worst performing indices. Greece needs to pay its civil employees and pensioners at the end of this month and as the date comes closer they are tapping all the remaining cash reserves across the public sector (pension funds and regional administrations)- a total of $2 Billion Euros. A senior Greek finance ministry official said that ” This is the last bit of cash that Greek state has”. Greece’s remaining time with euro could be decided on Saturday during their meeting with their lenders.
The Chinese securities regulator warned against excessive borrowing in Chinese markets and imposed sanctions on margin borrowing in order to control margin trading. This led to a 5%decline of Chinese equity markets in post-close trading, which further brought the negative sentiment to Europe and North America. Margin borrowing has been a major driver of China’s stock market run and Chinese shares have hit 7 year highs after seven weeks of gain. Their main index SCH COMP has almost doubled over the last 12 months and is up almost 70% this year. The Chinese regulator also allowed fund managers to lend stocks for short selling to increase the supply of shares. This led to a fear of sell-off among investors as Chinese markets have had an enormous run over the last 12 months. The world’s second largest economy has a significant impact over the global sentiment and if Chinese markets lost 5% then this could lead to a global sell-off next week.
Source- Bloomberg, Globe Investor Gold, Financial Post, Market Watch