Tag Archives: Economy

Wall Street Ends the Day Down Despite Early Gains

Investors were hopeful on Tuesday as U.S. stock seemed to have early gains, but those gains were reversed and U.S. stocks ended down within the final 30 minutes of trade.

Trading on Wall Street was voluminous . S&P 500 was down 1.4% even after a late selloff that gained them 2.9% earlier today.

The day ended with the Dow Jones industrial average falling 204.91 points, or 1.29%, to 15,666.44.  The NASDAQ Composite lost 19.77 points and S&P 500 was down 25.59 points, it’s biggest loss since 2011.

“You saw a knee-jerk drop and a knee-jerk recovery and now people are thinking about it,” said Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Mass.

The Chinese central bank cut interest rates by 0.25%, making the one-year lending rate 4.6%. The reason was “aimed at lowering corporate borrowing costs and to ensure enough liquidity for stable credit growth.”

“I think it’s a real good start, but it’s on the low end of what the markets were looking for. It indicates China has stepped off the idea that markets will go it alone, and instead the government will support them. It’s not a question about how much assistance there is, now that they’ve made the commitment, it will be enough [to quell market sentiment],” McMillan stated.

Despite these efforts to boost China’s equity markets, the Shanghai Composite lost 7.63% and Japan’s Nikkei fell 3.96%.

The price of oil barely rose, but the slowdown in China kept prices from rising significantly. The price of copper rose 2.3%, but the values of both gold and silver fell.

China’s Currency Impacts World Markets for Second Day

China’s Central Bank cut the guiding rate for their national currency for the second day in a row, impacting world markets as the Chinese government attempts to boost exports.

Officials with the Central Bank tried to dampen the shockwaves being sent through world markets by saying the day’s move was not part of a sustained devaluation of the Chinese currency.

“Looking at the international and domestic economic situation, currently there is no basis for a sustained depreciation trend for the yuan,” it said in a statement.

The Yuan was down 1% Wednesday after a 1.9% devaluation Tuesday.  The total overall decline is the largest in two decades and comes after Chinese government reports showed exports from the nation fell 8% during July.

The currency is now going to be set based on market forces where it previously had been set solely by the People’s Bank of China alone.

“Greater exchange rate flexibility is important for China as it strives to give market-forces a decisive role in the economy and is rapidly integrating into global financial markets,” the International Monetary Fund said in a statement regarding the Chinese action.

Some U.S. officials were harsh in their comments toward China’s action.

“For years, China has rigged the rules and played games with its currency. Rather than changing their ways, the Chinese government seems to be doubling down,” New York Senator Chuck Schumer told the BBC.

The U.S. Treasury’s response was more neutral.

“We will continue to monitor how these changes are implemented and continue to press China on the pace of its reforms, including additional measures to transition to a market-oriented exchange rate and its stated desire to move towards an economy that is more dependent on domestic demand, which is in China and America’s best interests. Any reversal in reforms would be a troubling development.”

As of noon EST, the Dow Jones Industrial Average was down 160 points and all major markets around the world were lower.

China Jolts World Markets with Yuan Devaluation

China’s central bank announced they devalued the country’s currency by 2%, causing the biggest one day loss in the currency trade for the Yuan in decades and showing the second-largest economy in the world continues to struggle.

The move is causing major concern among traders around the world that other nations will begin to devalue their currencies in an attempt to gain advantage in a slower trade market.

“In terms of competitive forces, this raises the stakes. This isn’t a war per se but about maintaining competitiveness. A lot of significant emerging markets have been using this valve,” said Andre da Silva, global head of interest rate strategy at HSBC Holdings, referring to currency devaluations.

“The yuan exchange rate will be more market-oriented going forward,” Zhou Hao, an economist at Commerzbank in Singapore, wrote in a report. “Volatility of both the onshore and offshore rates will pick up significantly.”

The move by China caused the Dow Jones Industrial Average to fall over 200 points.  Apple fell more than 4 percent and Caterpillar fell more than 3.5 percent because of the Yuan’s impact on the profits of those multinational corporations.

Analysts say that Apple was a target of the move because the decline helps Apple’s Chinese rivals.

“Chinese tech companies across sectors are all pushing out into the world,” said Xiang Ligang, chief executive of Chinese telecommunications industry website cctime.com. “The yuan devaluation will make these products that much more competitive overseas.”

Greece and China Create Small World Market Impact

The rejection of the Greek referendum and a massive stimulus action by China are not hitting all world markets as much as feared except in the area of oil.

U.S. crude oil fell over 7 percent to $52.53 a barrel, the lowest level since April.  Brent crude, the world standard, fell over 6 percent to $56.50.  The markets were hit with pressure from the Greek and Chinese situations plus Iran is preparing to flood the market after sanctions get lifted from a potential nuclear deal.

“Even without Greece, China’s stock market woes and Iran priming to hit the market with more barrels, the demand picture in oil has only been okay while the supply picture has been phenomenal,” said John Kilduff, partner at New York energy hedge fund Again Capital, told CNBC.  “With these number of bearish elements weighing on the market now, the only thing of support has been the seasonal demand in gasoline, and even that will be going away soon.”

American stock markets were down after the Greek “no” vote but not as much as feared by analysts.

The Dow ended the day down 47 points or 0.3%.  The S&P 500 as down 0.4% and Nasdaq was down 0.3%.

“There’s been no panic of any kind,” Paul Hickey, co-founder of Bespoke Investment Group told clients according USA Today. “The market remains faithful that the European Central Bank and other European institutions have done an adequate job firewalling the eurozone against Greece.”

The resignation of the Greek finance minister Monday is believed to have helped mute the impact of the Sunday referendum.

Greece Votes No To Bailout Terms

Greek voters sent a firm “no” to the demands of European creditors when they voted by a 61-39% margin on Sunday’s referendum on austerity measures.

While the citizens of the country cheered, the rest of the world watched as the nation took steps closer to bankruptcy and bank failure. The banks in Greece had been shut down for the last week because of low balances and were only running because of emergency funds from the European Central Bank.  ECB officials plan to meet Monday to see if they continue to prop up the banks and if so, for how long.

Voters told news outlets they were tired of the demands of creditors and that a rejection of tax increases and pension cuts was “a matter of national dignity” according to the New York Times.

The vote was also seen as a victory for Prime Minister Alexis Tsipras, who ran on a campaign platform of rejecting new austerity measures.  He claims that the vote was not a vote to “rupture” from Europe.

“I’m fully aware that the mandate that I was given (by voters) is not for a rupture with Europe, but a mandate boosting our negotiating strength for reaching a sustainable deal,” Tsipras said.   “The people today replied to the right question.  They did not answer to the question in or out of the euro. This question needs to be taken out of the discussion, once and for all.”

European observers say, however, it’s now likely Greece will be forced into bankruptcy and removal from the Euro.  A possible expulsion from the European Union is now on the table.

Markets across the country saw tumbles due to the Greek rejection of the referendum.  The only market that did not show a massive decline was China, because the Chinese government dumped a massive stimulus into the economy.

Major Rallies Scheduled Before Confusing Greek Vote

Major rallies are being scheduled in Greece today ahead of a referendum Sunday on a proposal for the country’s debt that is not even on the table.

The country has already defaulted on a loan from the International Monetary Fund (IMF) and European Union (EU) officials are warning that a no vote from the Greek citizens on Sunday could mean the country’s exit from the Euro.  Economists say such a result would cause ripple effects throughout the world economy.

Greek voters, however, are very confused by the referendum.

“No one is really telling us what it means,” said Erika Papamichalopoulou, 27, a resident of Athens, told the New York Times. “No one is saying what will happen to us if we say yes, or what will happen to us if we say no.”

Banks in the nation remain closed ahead of the Sunday vote.

Prime Minister Alexis Tsipras appeared to take steps Wednesday to accept many of the demands of the nation’s creditors but has also been telling citizens to vote down the referendum on the deal.

European leaders are pointing out that Sunday’s vote is revolving around a deal that is no longer on the table because the framework was built around a bailout package that was revoked on Tuesday.

The IMF surprised many on Thursday when it called for more aid and debt relief for Greece.  The IMF says the Greek situation has significantly deteriorated because of conflict with creditors and calls for European leaders to be more generous financially toward Greece.

Greece Makes New Proposal to Creditors

Greece has submitted an 11th hour proposal for debt restructuring that includes a two-year aid proposal.

The statement came hours before Greece’s default on a loan to the International Monetary Fund.  The proposal would require another bailout for Greece from the Eurozone’s European Stability Mechanism (ESM), a $560 million dollar rescue fund.

Athens has until 5 p.m. Tuesday to make a $1.8 billion dollar repayment to the European Central Bank before they are in default.

German Chancellor Angela Merkel seemed to be very cool toward Greece’s new proposal.  Germany is Greece’s biggest creditor.

“This evening at exactly midnight Central European Time the program expires. And I am not aware of any real indications of anything else,” she told a news conference.

Several european leaders began to express concern that Greece may be forced out of the Euro by their default and the impact it could have on the Euro, the EU and the region.

“What would happen if Greece came out of the euro? There would be a negative message that euro membership is reversible,” said Spanish Prime Minister Mariano Rajoy to Reuters.

“People may think that if one country can leave the euro, others could do so in the future.”

Greece No Vote Would Mean Euro Exit

European Union financial experts say that if Greece’s voters reject a referendum on the nation’s debt this Sunday it would mean the nation leaves the Euro.

Greece shut down the nation’s banks on Monday after a weekend run on ATMs caused many to run out of cash.  A strict limit on ATM transactions has been put in place by the government through Thursday.

The shut down of banks and the stock markets in the nation will last at least through the Sunday vote.

Greek leadership was defiant in the fact of default and the EU no longer providing bailout funds to the nation.

“The decision not to prolong financial aid to Greece is offensive, and it’s a disgrace for Europe in general,” Greek Prime Minister Alexis Tsipras said in a national address.

The country’s poorer neighbors, however, are showing little sympathy for Greece’s plight.

“We are much poorer than the Greeks but we have performed reforms,” Rosen Plevneliev, the president of Bulgaria said. “When you have a problem, you have to address it and not shift it to Brussels or onto somebody else.”

The country’s actions have carried negative impact on world financial markets.  World stock markets all took sharp dives at their openings which carried throughout the day; the euro tumbled on world currency markets.

Puerto Rico Governor Says Country Can’t Pay Debt

While much of the world was focused on Greece and a potential default that could cause ripples throughout the European economy, another nation has announced they will be unable to pay their bills.

Puerto Rico governor Alejandro Garcia Padilla told the New York Times that the country’s economy was close to a “death spiral” and that it cannot pay the $72 billion it owes creditors.

“The debt is not payable,” García Padilla said. “There is no other option. I would love to have an easier option. This is not politics, this is math.”

“My administration is doing everything not to default,” García Padilla added. “But we have to make the economy grow,” he added. “If not, we will be in a death spiral.”

The self-governing U.S. commonwealth has been in a recession since 2006.

Gracia Padilla said that unless creditors come to the table and “share the sacrifices” made by the citizens of the country, it could be bad.

“If they don’t come to the table, it will be bad for them,” he told the Times.  “What will happen is that our economy will get into a worse situation and we’ll have less money to pay them. They will be shooting themselves in the foot.”

Because Puerto Rico is a territory and not a state, it cannot file for bankruptcy in the same manner that Detroit, Michigan did in 2013.

U.S. Worried Russia Will Gain Greece’s Favor

U.S. officials are watching the economic situation in Greece with concern that it might lead to a situation where Russia could gain influence over a NATO member.

Greece, on the verge of bankruptcy, has been struggling with members of the European Union regarding debts and loans to cover costs.  If Greece defaults, Russia could swoop in with economic help and turn that nation against the West.

“You can easily see how geopolitically this would be a gift to Russia,” says Sebastian Mallaby at the Council on Foreign Relations. “You do not want Europe to have to deal with a Greece that is a member of NATO but which all of a sudden hates the West and is cozying up to Russia.”

President Obama and his administration have been quietly talking with German leaders about getting the EU to resolve the standoff with Greece.  Apparently the EU’s issues with Ukraine have factored into the Greece discussions.

The Greek prime minister traveled to Russia last week to meet with Russian president Putin.

Russia has been working to weaken the EU’s support for sanctions which require all 28 member nations to approve before going into effect.  If Greece remains in the EU but receives major support from Russia, they could block further sanctions.

“We still believe that Europe remains united against Russia and what they’re doing,” says John Kirby, state department spokesman, when asked about the potential impact of a Greek default.

“I think coming out of the G7 you saw a lot of unity in Europe for continued sanctions against Russia and the possibility for increased sanctions to further isolate Russia.”