Pre-Market Primer: Stocks and Bonds Suffer as China Enters Bear Market, FTC Probes Google Inc's Waze Acquisition
Stocks are down all across the board today as Chinese equities
enter a bear market and government debt sells off.
Chinese stocks suffered their worst day since 2009 as Shanghai's CSI 300 Index (SHA:000300) fell 6.3% to more than 20% down from its peak, entering bear market territory. Investors fear a credit crunch as China's central bank declines the need to inject more liquidity into the system and cracks down on underground lending. The PBOC said that "the overall liquidity in China's banking system is at a reasonable level, but due to many changing factors in the financial markets and also because of the mid-year point, the requirements for commercial banks in liquidity management have become higher."
This is the first time since December that the Chinese stock index dipped below 2,000. Concerns for China's economy also precipitated a dip in copper prices. September contracts for the industrial metal fell 2.6% to $302.05/lb in Chicago trading today.
Goldman Sachs also cut its forecast for Chinese economic growth. The bank now expects GDP to rise 7.5% year-over-year in the second quarter, down from 7.8%.
Bonds suffered a sell-off this morning as well. Government bond yields for European countries and the US rose considerably, putting more pressure on cash-strapped governments with higher borrowing costs. The US 10-year treasury yield rose to a two-year high of 2.6%.
Spain's cost of borrowing hit a three-month high of over 5% for its 10-year bonds.
European stocks also sold off today, sending major benchmarks down over 1%, but on a brighter note, Germany's IFO index rose despite the region's flooding. The indicator shows that companies are more confident about future economic improvement. The index rose to 105.9 for June from 105.7 in May.
Stock index futures are indicating that last week's downturn might continue into today. Shares on Friday rose in late trading hours on reports that the market is misreading the Federal Reserve's intentions regarding quantitative easing. Dow (INDEXDJX:.DJI) futures were off 0.87% at 14,583. Futures contracts on the S&P 500 (INDEXSP:.INX) sank 0.97% to 1,568.70 and Nasdaq (INDEXNASDAQ:.IXIC) futures climbed 0.52% to 2,895.00. There are no major US economic releases due out today.
In corporate news, the FTC is reviewing Google Inc's ( GOOG ) acquisition of Waze, an Israeli company that produces crowd-sourced traffic data that could bolster its already dominant position in mobile map technology.
Deere & Company ( DE ) fell 3% after JPMorgan analysts cut its rating on the company to underweight from neutral.
Vodafone Group Plc ( VOD ) shares are down over 1% today after confirming that it will buy Kabel Deutschland Holding AG (ETR:KD8) for 87 euros per share, or $10 billion total. Kabel, the largest cable operator in Germany, is Vodofone's second major fixed-line operator acquisition in a year.
In the Bank for International Settlements' annual report, the central bank of central banks said that monetary policy can't be the only route for stimulating struggling economies and that fiscal measures need to be used as well.