As of this writing, the Nikkei is down nearly 500 points. Singapore is least trashed, down 3%, the Hang Seng is down over 6%.
The apparent triggers are first, a lousy industrial output report out of China, confirming the various informal indicators of economic weakening there we have tallied, and second, a vote no confidence in Paulson’s latest folly, the “let’s bailout credit card debt so the banks can let consumers get themselves in even further over their heads.” And get this comment in a Bloomberg story (hat tip reader Don)
His remarks are an acknowledgement that the pitch he made to Congress for the bailout hasn’t delivered what was promised. Paulson sold the Troubled Asset Relief Program as a way to rid bank balance sheets of illiquid mortgage assets, and he may encounter resistance from Congress for the remaining $350 billion after using most of the first half to buy bank stakes.”
Now I am beginning to wonder. Every time Paulson talks, the market goes down. His shtik is that he is being candid. But if you wanted to a reason to throw tons of government money at the financial services industry, you need to have a reason. Stock markets going into near freefall do tend to focus the mind. Remember, the original plan was for Paulson to get to spend only $350 billion of the $700 billion TARP. He now wants a pretext for gettin his hands on the rest before the Obama crew takes the helm.
So back to the other reasons the market is tanking. On the dismal China report,
China’s industrial production grew at the slowest pace in seven years, adding to evidence that the world’s fastest-growing major economy risks a deeper slowdown as exports cool.
Output rose 8.2 percent in October from a year earlier, the statistics bureau said today, after gaining 11.4 percent in September. None of 18 economists surveyed by Bloomberg News had predicted such a small increase.
China cut taxes on 28 percent of exports yesterday, adding to $586 billion of spending pledged by the government to sustain growth as a global recession looms. The economy may expand 5.8 percent this quarter, the weakest pace in at least 15 years, according to Credit Suisse AG.
“Besides weaker orders, companies have cut production to reduce inventories because of the dimmer outlook for growth,” said Liao Qun, chief economist at Citic Ka Wah Bank in Hong Kong. “The stimulus package will help but it will take time.”
The central bank may cut interest rates again before the end of the year, make “many more” reductions in 2009 and continue to stall the yuan’s appreciation against the dollar to protect jobs in export industries, Liao said.
The one-year lending rate is 6.66 percent after three cuts totaling 81 basis points since September. China’s third-quarter economic expansion of 9 percent was the weakest in five years.
From another Bloomberg story, on the reaction in Asia to the Paulson proposal:
Asian stocks and U.S. futures fell, extending a global rout, as the U.S. Treasury scrapped plans to buy mortgage assets, Intel Corp. cut its sales forecast and Best Buy Co. warned of a slowdown in spending.
Mitsubishi UFJ Financial Group Inc. dropped 4.4 percent as Treasury Secretary Henry Paulson shifted the focus of the government’s $700 billion bailout plan to consumer credit. Citigroup Inc. and the Standard & Poor’s 500 Financials Index slid to 12-year lows yesterday. Toshiba Corp., Japan’s largest semiconductor maker, dropped 4.8 percent after Intel lowered its fourth-quarter sales prediction by about $1 billion. Best Buy, the largest U.S. electronics retailer, lost 8 percent in New York after saying profit will decrease.
“With Paulson’s plan change, investors think the initial $700 billion won’t be enough,” Mitsushige Akino, who oversees about $468 million at Ichiyoshi Investment Management Co., said in an interview with Bloomberg Television. “Best Buy’s forecast illustrates the dimming spending climate in the U.S.”
Oh, and just a footnote, the rouble has been tanking and Russia had to shut its stockmarkets. From the Financial Times (hat tip reader Dwight):
Russian shares sank sharply on Wednesday before trading was halted as investors digested lower oil prices, uncertainty over the rouble, and worries about the Kremlin’s interference in the economy.
The price of insuring Russian debt soared as credit market sentiment turned dramatically against Russia and some of its leading companies.
Russia’s RTS stock exchange index fell 12.5 per cent in the first three hours of the session before trading was suspended for the rest of the day. Trading was halted on the more liquid Micex stock exchange on Tuesday following a steep slide and it remained closed on Wednesday. Both exchanges are scheduled to reopen on Thursday….
After using large amounts of foreign exchange reserves defending the currency, the central bank on Tuesday lowered the floor by which it would let the rouble fall 1 per cent against a dollar/euro basket.
Central bank chairman Sergei Ignatiev signalled it might allow the rate to fall further, saying the bank would allow more “flexibility” in the rouble exchange rate…
Chris Weafer, chief of strategy for Uralsib investment bank in Moscow, said investors fear the state is using the credit crunch to target attractive companies for takeover. “There is a real fear that elements in the state will use the debt crisis to extend their reach, to take over more assets,” Mr Weafer said.
The erosion in confidence has hit Russian debt markets as well. The cost of protecting Russia’s debt against default leapt by 172 bp to 786.2bp on Wednesday, meaning it now costs €172,000 ($216,000) annually to insure €10m of the country’s bonds over five years.