Global markets are indicating heightened vulnerability. Thursday trading saw the S&P500 decline 1.54%, the second biggest decline of 2017. The session also saw the junk bond market under pressure. A notable $2.18bn of junk fund outflows this week spurred the headline, ‘Risk Exodus Gets Real With Biggest Fund Redemptions in 6 Months.’ Currency markets are increasingly unstable. The euro traded to 1.1838 on Monday and fell to a trading low of 1.1662 on Thursday. The dollar/yen rose to 110.95 on Wednesday before reversing course to a near nine-month low of 108.60 during Friday trading. Gold traded to $1,300 in early Friday trading, the high going back to the election. Early-week market relief over the North Korean situation quickly shifted to unease over festering domestic issues.
August 16 – Wall Street Journal (Gabriel Wildau): ‘One of the most influential analysts of China’s financial system believes that bad debt is $6.8tn above official figures and warns that the government’s ability to enforce stability has allowed underlying problems to go unchecked. Charlene Chu built her reputation as China banking analyst at credit rating agency Fitch, where she was among the earliest to warn of risks from rising debt, especially in the country’s shadow banking system… In her latest report, Ms Chu estimates that bad debt in China’s financial system will reach as much as Rmb51tn ($7.6tn) by the end of this year, more than five times the value of bank loans officially classified as either non-performing or one notch above. That estimate implies a bad-debt ratio of 34%, well above the official 5.3% ratio for those two categories at the end of June… ‘What I’ve gotten a greater appreciation for is how everything is so orchestrated by the authorities,’ she said. ‘The upside is that it creates stability. The downside is that it can create a problem of proportions that people would think is never possible. We’re moving into that territory.”
This post was published at Wall Street Examiner on August 19, 2017.