RBS Says “sell everything”
“Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small”. That’s in a research note from RBS, reported by The Telegraph this morning. they fear that China has set off a series of correction dominoes, that could see 20% taken off major equity markets, oil down below $20 and high quality bonds moving further into negative territory as investors seek a safe haven. You could perhaps forgive RBS for taking a more cautious tone than most, given what happened to them last time – and (if there is a) this time round they wouldn’t be able to hide behind a wall of government money.
The oil price continues to cause concern, with it becoming so low now that the previous net situation of increase consumer spending offsetting falling oil investment and tax revenues, we are now seeing a situation, particularly in the US where oil is so low that defaults are looming, investment in the sector is virtually non-existent and as a result GDP is bound to suffer. CNBC reports that half of US shale drillers could go bankrupt and that even when the price recovers it might only get back to $45-60 over the medium term.
In the currency market, South Africa has provided the biggest moves of the last few days. The Rand is probably the best bellwether for African investor sentiment, as it is the most liquid of the currencies in the region. The fall of nearly 10% in the value of the Rand since the beginning of the year is largely down to concerns over Africa’s mineral and commodity production now that China is a major market concern.
China’s central bank has said that they will keep the Yuan largely stable against the currency basket – but that doesn’t mean that we will see stability in the USDCNY rate. Short sellers of the Yuan versus the Dollar have had a great time of it since the beginning of the year and though the Central Bank say the short sellers ‘will not succeed’ and that it is ‘ridiculous and impossible’ to see further moves, it seems as though Beijing aren’t willing to stabilise markets or reverse the trend, which would be to the detriment of their own competitiveness in global trade. N.B, I’ve just re-read this paragraph and if you’d like a clearer and more detailed explanation, Zerohedge has it!
Overnight we’ve seen a tiny reversal in fortunes, with China trading higher by 0.2%, though the rest of Asia has traded lower, lead by Japan after Shinzo Abe said that sales tax will increase again as long as there aren’t any ‘Lehman level events’ in the market – a reassuring turn of phrase!
Today; European stock markets have opened higher, Sterling is on the back foot again – following disappointing retail numbers from December – and there is a reasonable stream of data to keep us occupied. UK industrial production, UK GDP estimates and Mark Carney speaking in Paris this afternoon are all going to be worth a watch.