It’s all fun and games until someone gets downgraded.
So last night, Moody’s handed China its first downgrade since 1989, a move that reflected growing incredulity with the notion that Beijing will somehow be able to simultaneously deleverage and maintain the current pace of economic growth.
China, of course, wasn’t happy. The Ministry of Finance called parts of Moody’s analysis “absolutely groundless.”
“It is a psychological blow that China will not take kindly to,” Christopher Balding an associate professor at the HSBC School of Business at Peking University in Shenzhen said.
Chinese stocks sold off early on the news, but just as the SHCOMP looked like it had a date with 3,000, it abruptly reversed course and managed to close green.
So that’s obviously the infamous “national team” at work. “It seems that regulators do not want the Shanghai benchmark to fall below 3,000, so when the index is close to that level, they will start buying for stability,” Castor Pang, strategist at Core-Pacific Yamaichi HK in Hong Kong told Bloomberg overnight.
It was a similar story across markets. That is, everything you thought would get hit did get hit early but the dour mood proved fleeting.
Asian sovereign bonds opened lower, the aussie slipped, Australian 10-year yields climbed, USD/Asia NDFs rose, Chinese corporate dollar bond spreads widened and China CDS rose slightly. But as Bloomberg goes on to note, “emerging Asian currencies and regional stocks pared their early losses taking their cue from the sudden reversal” of the SHCOMP.
Needless to say, the downgrade weighed on the metals complex which had enough to worry about already. Iron ore futs on the Dalian nearly traded limit-down, before ultimately closing at 455.50 yuan – that’s on top of Tuesday’s 3% loss. Nickel fell as much as 2.4% on the LME. That of course weight on the miners in Europe.
Meanwhile, crude is trading near 1-month highs after Tuesday’s API report which showed a 1.5 million bbl draw in US inventories. We’ll see what the EIA data confirms or doesn’t confirm ahead of OPEC.
Here’s a look across global equities:
- Nikkei up 0.7% to 19,742.98
- Topix up 0.6% to 1,575.11
- Hang Seng Index up 0.1% to 25,428.50
- Shanghai Composite up 0.07% to 3,064.08
- Sensex down 0.1% to 30,328.05
- Australia S&P/ASX 200 up 0.2% to 5,768.98
- Kospi up 0.2% to 2,317.34
- FTSE 7506.96 21.67 0.29%
- DAX 12634.55 -24.60 -0.19%
- CAC 5339.91 -8.25 -0.15%
- IBEX 35 10898.50 -17.80 -0.16%