2016 crisis update: the year of the Red Fire Monkey burns the world’s markets down

STOXX Europe 600 Index.jpg

STOXX Europe 600 Index record low: 10 January – 09 February 2016

The Chinese New Year began two days ago and has brought already significant turbulences and volatilities to the global financial markets and economies. Luckily for the world’s second largest economy, Chinese stock markets are closed due to New Year’s festivities and haven’t experienced, at least yet, the losses of the European, U.S. and Japanese markets.

This year is the one of the red fire monkey in China and it is said that will bring financial as well as political changes. The later was extensively witnessed in the stock markets around the world where major indices experienced great losses.

Europe’s banks were among the worst performers last Monday and dragged the markets down with their poor performance. The concern about China’s slow growth is one factor that is not making things look better for investors.

European indices are going down

Germany’s main stock market represented by the Deutsche Boerse AG Stock Index DAX, which consists of 30 German blue chip stocks traded at the Frankfurt stock exchange, fell by 17,35% year to date to 8879,40. Especially, its banking sector revealed serious problems with Deutsche Bank AG , the leading financial service provider, to have a year to date loss of -39.13%. Even if the company’s Co-CEO John Cryan reassured investors that the bank remains stable characterizing it as “absolutely rock-solid”, the share experienced a record low and dropped at 13.71 euros yesterday.

CAC 40 Index in Paris has dropped 13.79% since the beginning of the year showing the poor performance of the French market and specifically of the 40 largest listed equities in France. Furthermore, FTSE 100 Index in London dropped to 5632.19 showing a 9.77% year to date decrease.

An overall view of the European stock exchanges is reflected in the STOXX Europe 600 Index which is derived from the STOXX Europe Total Market Index. The STOXX Europe 600 Index notes a 15.42% fall from the beginning of 2016 and experienced a 2-year low, at 310 yesterday. It seems that the whole financial system is on fire and a possible financial crisis like or worse than 2008 may not be far away after all.

U.S. and Japan feel the monkey most

It seems that the arrival of the Chinese New Year didn’t start well for the American and Japanese financial markets either. The Standard and Poor’s 500 Index, which measures the performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries, has closed last Monday at 1853,44, at its lowest level since April 2014.

The Nikkei-225 Stock Average, Japan’s main index, has also experienced substantial year to date losses of 15.49%. Particularly, Nomura Holdings ‘s share, one of the leading financial giants, decreased from 577.7 last Friday to 510 last Tuesday, dropping by 13.27% in only 2 trading days.

Will Europe ever get out of crises?

Europe is struggling to boost its economy with any means but it seems to be very difficult, not to say impossible. The president of the ECB is injecting more money into the financial system and more specifically into the banks in order for the latter to fill in the real economy and consequently increase inflation to ECB’s target of close but below 2%. But this is not happening whatsoever and Mario Draghi is seriously thinking about providing even more cash to the banks and even lend them with a negative interest rate, at a time when this sector is rapidly slowing down.

In detail, Michael Hewson, chief market analyst at CMC Markets, mentioned last Monday: “The questions of non-performing loans as well as shrinking margins are creating an increasingly difficult environment for European lenders and it would appear that investors are slowly waking up to the reality that negative rates aren’t likely to help the profitability of a sector that is still dealing with the legacy of the sovereign debt crisis”.

Except for the financial and banking problems that are plaguing Europe, political leaders haven’t found yet one solution to the refugee crisis, something that is significantly influencing the Old Continent economically and even puts at risk the whole European project.

All in all, it seems that the Chinese prophecy will come true and the year of the monkey will slow down economies around the world and reveal the awful weaknesses behind the European financial and political structure.

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