Wednesday August 12

Stocks little changed in the aftermath of China’s currency devaluation from yesterday. The S&P500 was up 0.1% to 2,086 while the Dow Jones fell fractionally to 17,402. The Dow originally was down 1% on the day but recovered late in the day. The JOLTS report for June job openings was down from 5.357MM in May to 5.249MM in June. The hiring rate was up slightly, the layoff rate was up slightly, and the quits rate was unchanged. Investors showed risk off sentiment today. Money flowed out of European and Asian equities, emerging market currencies, and moved into haven government bonds, gold, and the swiss franc. Markets price down the possibility for September tightening after China’s move yesterday. The dollar fell 0.8% against the yen, 1.4% against the Swiss franc, and 1.2% against the euro to $1.1173.

Automotive and luxury goods companies fall as a result of China’s devaluation. China’s weakened currency will make goods more expensive for Chinese people to import, and as a result stocks for companies with exposure to this market fall. Burberry fell 3.5% today after a 4.4% decline yesterday, Peugeot falls 5.9%, and LVMH loses 5.3%. For automakers, Mercedes lost 5.3% and BMW fell 4.5%.

The German parliament appears critical of the proposed Greek program. This further complicates the matter further in the finalization stage of the plan. Their hard stance sets up a difficult meeting for eurozone finance ministers on Friday. The parliament is not satisfied with reform measures that are set to be put off until October and November, in addition to the delay of the establishment of a privatization fund. In addition, Germans also note the lack of debt sustainability in Greece, and the country is concerned about the lack of IMF support.

Finance lobbyists issue a report that discusses the effects of regulation on bond trading. The report was written by PwC and commissioned by the Global Financial Markets Association and the Institute of International Finance. The report is critical of regulations for the deterioration of liquidity. Jamie Dimon (JPMorgan CEO), Stephen Schwarzman (BlackStone CEO), Nouriel Roubini (NYU economist), have all been critical of the new regulations and their potential to lead to a recession. The restrictions on banks make bonds more difficult to buy and sell. With the buy side getting larger and the sell side getting smaller, many experts believe this could cause problems. There is a liquidity mismatch between funds and the underlying securities, which could lead to a positive feedback loop exacerbating the negative effects of a large selloff of securities in the event of redemptions.

Wednesday August 12

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