From Wolf Richter at wolfstreet.com:
Those Sinking Banks
That the rest of the world didn’t follow Asia into another Friday stock-market abyss caused a worldwide sigh of relief. In many markets, short sellers got their heads handed to them, and no one felt sorry for them. But Asia descended into financial turmoil.
China’s markets were mercifully closed all week. But Hong Kong’s Hang Seng opened on Thursday with a 4% nosedive and ended the week down 5%. The Hang Seng China Enterprises Index, which tracks mainland Chinese companies traded in Hong Kong, plunged 4.9% on Thursday and another 2% on Friday. Down 50% from its peak, it’s back where it had been during the Financial Crisis.
Markets in Tokyo were closed on Thursday. But on Friday, the Nikkei plunged 4.8%, to 14,963, the lowest since October 2014. It’s back where it first had been in February 1986. It’s down 21% year-to-date. It’s down 28.6% from its recent high.
Thus it was inducted into a bear market, which we define loosely was a decline of 20% or worse from a more or less recent high.
It plunged 11% during the week, the worst weekly drop since October 2008. It plunged 17% during the past eight trading days, starting with February 2. That was the propitious day when the Bank of Japan’s negative-interest-rate magic curdled into a toxic mix.
On Friday, January 29, the BOJ had cut one of its deposit rates from positive 0.1% to negative 0.1%. Due to the three-tiered system, the rate cut won’t even impact anything for now as there are no deposits in that tier. It was a head fake.
The move was designed to bash the recalcitrant yen that was inching up against the dollar, and to inflate Japanese stocks that were teetering at the edge of a bear market. It worked for just two days! Then it all came unglued.
On Tuesday, February 2, stocks began to plunge, and the yen began to climb, eventually reaching 111 yen to the dollar, though it has since edged back to 112.6. Bank stocks got crushed. This has become the norm with NIRP: it hammers stocks, crushes bank stocks, and does unpredictable things to currencies.
But it inflates government bonds, and even the 10-year JGB yield fell into the pandemic negative-yield absurdity for the first time ever. Now the 10-year yield is back in the positive, a microscopic 0.08%.
After watching stock prices plunge for eight days, the frazzled BOJ dispatched its deputy governor Hiroshi Nakaso to New York to rationalize the BOJ’s action. Yesterday, he met with some investors and bankers and told them that the selloff in Japanese bank stocks was “overdone,” thus joining other voices around the globe that are desperately trying to talk up bank stocks.
To continue reading: Hounded by NIRP: Global Bear Market Progress Report
