Courtesy of Pam Martens.
U.S. stock and bond markets are closed today in honor of Martin Luther King, Jr. but market turbulence continues around the world.
Last night the Shanghai Composite stock market index plunged 7.7 percent after the China Securities Regulatory Commission announced a crackdown on the margin lending operations of the country’s three largest brokerage firms. The firms were given a three-month ban on opening new margin accounts. According to the regulator, the brokerages had been failing to reassess risk before extending margin loans beyond a six-month term.
The China upheaval comes on the heels of a plunge in industrial commodity prices over the past six months with crude oil falling almost 60 percent in that period.
Then there was last Thursday’s shock and awe from the Switzerland central bank’s decision to remove the 1.2 cap on the Swiss Franc’s peg to the Euro. While the U.S. Federal Reserve tries to provide forward guidance to prepare markets for its next moves, Switzerland’s central bank, the Swiss National Bank (SNB), stunned currency markets with no advance warning. The shock of the announcement sent the Swiss Franc soaring to a 30 percent gain over the Euro in the minutes following the announcement, delivering global pain to wrong-way currency bets.
The trail of currency losses from the Swiss move is in the billions of dollars and growing, impacting big banks, hedge funds, currency dealers, and unknown counter-parties. Barron’s Wayne Arnold is calling the move “Franc-mageddon.” The Financial Stability Oversight Council, which includes representatives from all of Wall Street’s regulators, is reviewing the losses experienced by U.S. institutions.
Bloomberg News is reporting this morning that three global banks, Citigroup, Deutsche Bank AG and Barclays PLC have cumulative losses from the action by the Swiss National Bank of approximately $400 million. Citigroup’s trading desk is said to have lost more than $150 million of that amount.
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