This content is from: Portfolio

Daily Agenda: Chinese Regulators Ban Stock Sales by Large Investors

NYSE failure calls control measures into question; Honda expands airbag-related recall; U.S. senators propose new offshore tax.

The Shanghai Composite index rose by 5.8 percent in trading today, the largest one-day increase for the benchmark since spring 2009, as investors began snapping up blue-chip large-caps in response to dramatic new moves by regulators. Yesterday the China Securities Regulatory Commission announced a ban on selling equities for major shareholders. Investors with holdings of more than 5 percent in companies whose stocks are listed on the Shanghai and Shenzen exchanges will be blocked from any liquidations for the next six months. Public company executives are also barred from selling under the directive. Separately, state news agency Xinhua today reported that law enforcement agencies are working with regulators to identify short sellers, raising concerns over possible scapegoating as authorities scramble to deflect blame for the wild market volatility. Inflation data released today by the National Bureau of Statistics for June indicated a sharper-than-anticipated contraction in wholesale prices at –4.8 percent year-over-year, while consumer costs remain below People’s Bank of China targets at 1.4 percent growth. Policymakers retain wide latitude to implement more targeted liquidity interventions in light of the significant deflationary pressure present in the economy.

NYSE goes dark for hours. Multiple sources ascribe failed implementation of new software as the reason for a technical malfunction that caused trading to halt for three hours at the New York Stock Exchange yesterday. Some industry analysts have raised questions about control measures at the bourse if the reports prove to be accurate. A new software rollout resulted in a trading halt at the NASDAQ exchange in 2013 and a similar implementation failure effectively bankrupted trading giant Knight Capital Group in 2012 when the firm’s software executed a series of unintended trades.

Greece delivers new proposal. In a missive described by analysts in Brussels as vague, Greece today requested a new three-year bailout program from euro zone partners in exchange for tax and pension reforms. The Greek government also today extended the forced bank and exchange holiday to extend through next week, as some financial analysts have predicted that a near-term failure among more vulnerable institutions in the nation is growing more likely. In comments made yesterday, International Monetary Fund Managing Director Christine Lagarde again broke from addressed the likely need for a restructure of Greece’s debt, while reiterating that her organization is unwilling to bend its own rules to accomplish this. In the U.S., notes from the most recent Federal Open Market Committee released yesterday mentioned concerns over the potential spillover from a possible “Grexit.”

Honda expands recall. Japanese automaker Honda Motor Co. announced the recall of an additional 4.5 million cars as part of the ongoing investigation into airbags manufactured by subcontractor Takata Corp. This will bring the total number of Honda recalls related to Takata airbags to 24.5 million. Growing concerns that a failure in the design of the airbags in question has lead to motorist injuries and fatalities has created political pressure in the U.S. on manufacturers who purchase Takata products to examine past models for potential problems.

German exports rise. The trade surplus reported for May by Germany’s Federal Statistics Office today exceeded consensus forecasts at €22.8 billion ($25.2 billion) on surprisingly strong exports. Total shipments abroad edged up 1.7 percent for the month. Exports within the euro zone rose by 5.1 percent versus the same month in 2014, while shipments abroad rose by 2.3 percent year-over-year.

Offshore tax proposed by U.S. lawmakers. New York Senator Charles Schumer and Ohio Senator Rob Portman yesterday unveiled a tax proposal that would focus on overseas income earned by U.S. corporations. The duo proposed a one-time tax on nonrepatriated funds held overseas as part of an effort to recapitalize the Highway Trust Fund. Presently, the fund is financed through fuel taxes, which have come up short in meeting operational costs.

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