Monday, July 29, 2013

Financial Review: Unstable Bond Markets in 2013 Q2

Global bond markets were highly unstable in 2013 Q2 (second quarter), particularly since US Federal Reserve announced to start reducing its bond purchase size by end-2013. Below please find our exclusive summary table of all significant business or financial news in 2013 Q2 (April to June):

Apr. 1:(1) China Securities Depository and Clearing Corporation (CSDCS) started to allow residents from Hong Kong, Macau and Taiwan living in mainland to directly invest in domestic A-share markets. You might read also: Shanghai A-share Market Reform.
(2) A new type of H7N9 bird flu hit China.
Apr. 5:Japan Nikkei 225 gained as Bank of Japan (BoJ) announced aggressive quantitative easing (QE) expansion scheme to double its money supply from JPY 135 trillion to JPY 270 trillion by December 2014, through purchasing longer-term Japanese government bonds (JGB).
Apr. 8:Hong Kong Stock Exchange (HKEx) started to launch a new evening futures trading session (after-hours) from 5pm to 11pm. You might read also: Hong Kong Financial Centre.
Apr. 12:(1) Gold traded below USD$1500 per ounce (the first time since 2011) amidst Cyprus Central Bank considered selling its gold reserves.
(2) Japan and US finished bilateral consultations for TPP (Trans-Pacific Partnership).
Apr. 15:(1) Gold futures further crashed by 9%, the biggest daily loss in 30 years since 1983.
(2) Crude oil dropped below USD$90 per barrel in WTI (West Texas Intermediate) trading due to weak US economic data.
Apr. 17:ICBC (Industrial and Commercial Bank of China) became the biggest publicly-listed company in the world. Source: Forbes Global Company List.
Apr. 19:Fitch downgraded UK sovereign-debt credit rating to AA+ from its top AAA (triple-A) on weak fiscal and economic outlooks.
Apr. 20:China massive earthquake near Ya'an of Sichuan province.
Apr. 29:Apple Inc (AAPL) issued corporate debt worth USD$17 billion, its first debt issue for over 20 years and also the largest-ever corporate debt for US non-banking sector.
May 1:Brent crude oil fell below USD$100 per barrel on London-based ICE Futures Exchange because of the weak Europe and China economic outlooks.
May 2:Euro dropped as ECB (European Central Bank) cut benchmark refinancing interest rate to record low level of 0.5% and might even consider negative deposit rate.
May 3:Dow Jones Industrial Average (DJIA) hit new record high level of 15000 amid strong US non-farm payroll job data.
May 7:(1) Germany Frankfurt DAX index hit record high level of 8160 and became the first key European equity index to surpass pre-crisis peak in mid-2007.
(2) Reserve Bank of Australia (RBA) cut its benchmark interest rate to record low level of 2.75% because strong Australian dollar (AUD) currency was hurting Australia economy.
May 9:Japanese Yen weaken and USD/JPY hit the psychological 100 mark, the first time since April 2009.
May 14:European Commission (EC) investigated potential manipulation during Brent crude oil MOC Market-On-Close) price assessment process by Royal Dutch Shell, BP and Statoil.
May 15:(1) France economy returned to recession, the first time in 4 years.
(2) Bank of Japan (BoJ) announced to inject JPY 2.8 trillion to save JGB (Japanese Government Bond) market as Japan 5-year bond yield surged and surpassed Germany's one, the first time in over 20 years.
May 22:Japan Nikkei 225 Index topped 15900, the first time since December 2007, but then fell over 7% as Japanese benchmark 10-year bond yield hit 1% whilst the US Federal Reserve signaled to start cutting bond purchase size in the next few FOMC meetings.
Jun. 5:(1) Japan Shinzo Abe Government unveiled its 'Third Arrow' reform of economic growth strategy. This reform included attracting more businesses by building special economic zones where trading regulations could be eased and corporate tax cuts could be implemented. Japan also resumed issuing JPY 600 billion inflation-linked bonds, the first time since 2008.
(2) Reserve Bank of India (RBI) extended its restrictions of Gold imports to include all nominated trading houses and agencies. Gold imports to India would then be just for meeting demands of Gold jewellery exporters.
Jun. 7:Shanghai benchmark overnight repo rate hit 15%, the first time in 16 months, as many wealth-management products would mature by end-June and People's Bank of China (PBoC) encouraged de-leveraging process by refusing pumping extra liquidity to help commercial banks that kept lending their money to industries with overcapacity.
Jun. 9:Former US National Security Agency (NSA) employee Edward Snowden confirmed in Hong Kong that the US government has been using PRISM scheme to spy on internet activities all over the world.
Jun. 18:Hong Kong launched the first-ever offshore RMB-denominated bond ETF in Asia. You might read also: RMB Sovereign Bond.
Jun. 19:Ben Bernanke, Chairman of US Federal Reserve, announced to reduce bond purchase size by end-2013 and might totally unwind its quantitative easing (QE) program by mid-2014 based on the current economic forecasts. Source: QE Effects on Hong Kong.
Jun. 20:China banking system money shortage problem worsen as Shanghai benchmark overnight repo rate hit record high level of 30%. Overnight and 7-day Shanghai Interbank Offered Rate (SHIBOR) also hit their record highs of 13.444% and 11.004% respectively.
Jun. 24:Hong Kong Monetary Authority (HKMA) announced the launch of a new CNH HIBOR (offshore RMB H.K. Interbank Offered Rate) fixing through Treasury Markets Association (TMA). You might read also: CNH Currency Futures.
Jun. 25:Shanghai Composite (SSE) Index fell sharply to 1849 level, the first time since January 2009, but then recovered magically at the close, mainly supported by the strong GEM (Growth Enterprise Market) rebound and the Chinese central government said to fix the inter-bank money shortage problem. You might read also: our SSE Index 2013 Target.

Just as a remark, the above 2013 Q2 financial review checklist table is essentially an extension of our 2013 Q1 summary (Source: Financial Review 2013 Q1 (First Quarter)). To read all our financial review checklist tables in past years, you may visit: Our Full Checklist of Financial Reviews for each quarter.

As a brief conclusion, global bond markets were highly unstable in 2013 Q2 (second quarter), particularly since US Federal Reserve announced to begin cutting its bond purchase size by end-2013. Not only US domestic bond yields rallied, bond yields in Japan and European countries also increased sharply in 2013 Q2. Japan Government Bond (JGB) almost crashed during the period as Japanese benchmark 10-year bond yield hit 1%. For this reason, most bond investors should have suffered loss in 2013 Q2.

Equity markets, however, performed better than bond markets as a whole in 2013 Q2. U.S. Dow Jones Industrial Average (DJIA) continued to hit record high during the period. Germany Frankfurt DAX index also hit record high during this period and became the first key European equity index to surpass pre-crisis peak in mid-2007. Asia equity markets had a mixed performance. While Japan Nikkei 225 Index topped 15900 level and then fell sharply, China Shanghai SSE Index bottomed out from 1849 level and then rebounded sharply on central government support speculations.


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