Hey, iron ore rose. There were plenty of gloom and doom stories on websites yesterday and in this morning’s fish and chip wrappers about Wednesday’s 10-11% slump in iron ore prices and the damage it will do to companies, exports, industries and the federal budget. But in the interests of balance, will there be the same number of stories highlighting the 9.9% rebound in iron ore prices 24 hours later? I doubt it. And yet its cleat that big fall occurred because a lot of people just decided to sell China on Wednesday after the government lost control of the market rout. That’s why copper prices weakened this week and the price of gold didn’t rise — China was being sold, and for all commodities (perhaps bar coffee and orange juice), what China does drives markets and prices. China’s sharemarkets should settle from now on, though that’s not saying there won’t be big swings. But the fear has ebbed away.
And last night investors were back, tentatively, buying China (so the US dollar fell and the Aussie dollar rose). But the China growth story is now well and truly over for commodities and for equities for quite some time. The June quarter and monthly economic data due out next week will underline that — and don’t get too optimistic about further signs of any steadying in the country’s property sector. Wait for a few months to see how the losses in the sharemarkets play out. Banks, shadow financiers and the informal financial system, which is heavily involved in property, have reportedly been active in financing margin trading. — Glenn Dyer
The rout hurts. Haitong Securities is one of China’s major brokers, and it was one company to suspend its shares this week — but with a sound reason, as it was structuring a share buyback in the mainland and Chinese markets and wanted time to set it up. The buyback will support Haitong shares in both markets, but the timing of the announcement raised questions. It followed straight after news that its major shareholder, Haixia Capital Management, had sold its stake for US$813 million, crystallising a US$335 million loss by doing so, or 30% of the original value of that stake. Desperate times. And it’s the fear of losses of that size being repeated a thousand to 1500 times over in those other suspended companies, which has got a lot of people very worried about the cost of the rout and its knock-on effect. And that’s before there’s an accounting of the losses for tens of millions of individual investors. — Glenn Dyer
Drachma drama. Like the first cuckoo of spring, Bloomberg has announced the first sighting of the drachma (the old pre-euro Greek currency) of the current crisis. It says it was in a bill for an employee issued by the Hilton Hotels in Athens for 217.17 “Drachma EQ”.
The Financial Times and other media report that Greek banks are on their last legs and will collapse early next week as they run out of money. The central bank is currently orchestrating a money pass the parcel, moving cash from one bank to another across the country to make sure none run out, even at the 60 euro a day limit. But the FT and other media have been told this can’t last into next week and if the ECB doesn’t stump up with more emergency assistance on Monday or Tuesday, the game is up and it’s all over. By the way Greece has a plan, it really does, as the Greek government splits, with left-wing Energy Minister Panagiotis Lafazanis (he’s one who is refusing to restructure the energy sector because of extensive patronage of left wingers) announced a 2 bullion euro gas deal with Russia. He opposes any reform or new bailout plan, but unexplained by him was how it would be paid for if the euro is no longer the currency. Presumably Russia would pay upfront (the deal will be opposed by the rest of the EU), but Greece will have to find the money to cover its share. Mere details. Anyone game enough to say there will or won’t be a deal by early Monday morning, our time? Only in Greece — vainglorious one day, broke the next. — Glenn Dyer