There is one main story today, and that is the resumption of the slide in equities. It is having a ripple effect through the capital markets. Bond yields are tumbling. Gold is firm. The dollar is narrowly mixed, though the yen stands out with almost a 0.5% gain.

Most of the large equity markets in Asia, including Japan, China, Hong Kong, Korea, and Taiwan were off mostly 2%-3%.India and some smaller bourses, like Thailand and Indonesia were off closer to 1%. In Europe, the Dow Jones Stoxx 600 gapped lower to return to levels not seen since December 2016. It has lost roughly 4% in the five-day slide, which is the longest since January-February. The S&P 500, which finished yesterday below the 200-day moving average, is also poised to gap lower. Earlier this month, the S&P 500 tested 2700, and it appears poised to retest this area.  

China:  

After rallying 6.6% in the past two sessions, the Shanghai Composite fell 2.25% today. It remained, though, in yesterday’s ranges. The losses come despite (or because?) officials continue to unveil efforts to support the market. The State Council (similar to the cabinet in other governments) promised support for bond financing of price sector firms. Although the PBOC is to provide funding, there were no details in terms of size, timing, or rules of accessibility. The central bank continued to provide liquidity and boosted the re-lending and re-discounting quota. 

Equities are one of the linchpins in the Chinese financial system as there has been extensive use as collateral for loans. Meanwhile, as the equities have become more volatile, the yuan remains confined to narrow ranges straddling CNY6.94.  

Italy:  

One might not know it by looking at the four basis point decline the yield of Italy’s 10-year benchmark bond, the most in Europe today, that the EC is poised to take the unprecedented step of returning the budget proposals to Italy and formally ask the government to try again to color within the lines, so to speak.