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    Malaysian men watch the trading board at a private stock market gallery in Kuala Lumpur, Malaysia on Tuesday, May 12, 2015

    Chinese Shares Decline as US Dollar Hits 12-Year Highest

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    As US Fed is inching towards an interest rate hike, developed nations are becoming more of safe havens for the funds leaving the once thriving Third-world financial markets.

    Kristian Rouz – Amidst expectations of a soon increase in US borrowing costs, America’s assets are being swept up by robust investors’ demand, pushing the greenback above its level of valuation last seen in 2002.

    US stocks followed the dollar’s lead with Nasdaq-listed tech shares hitting their all-time highest during Wednesday’s trading, while equity markets outside North America retreated on Thursday with mainland China’s stocks collapsing below their 4-month lowest amid Beijing’s renewed crackdown against margin trading.

    US equities rallied toward the close on Wednesday, making up for the losses of the previous day, as robust gains in tech shares pushed the Nasdaq Index above its record highest. The Nasdaq Composite added 1.47%, culminating at 5,106.59 points as Apple’s shares rose 1.9%. However, future bets on Apple’s stock declined 0.08% overnight.

    The S&P 500 Index rose 0.92%, settling at 2,123.48, just below its all-time highest seen last week. The index was also driven by tech and healthcare equities, as cutting-edge sector of the US economy are most prominent beneficiaries of its accelerated growth.

    25 out of the 30 sectors on the Dow ended the day in the green, propelling the index just 0.67% higher. Volatility is rife on Wall Street amidst the abundance of investment capital, of both foreign and domestic origin. Any asset, as long as it is rooted in the US economy, is meeting overwhelming demand, the US dollar no exception.

    America’s currency rallied against 16 of its major counterparts, the most being the yen, after the US Fed was reported to be preparing a hike in interest rates, and also amidst reports of stronger US inflation. The US unemployment report is expected on Thursday. The greenback rose to 124.3 yen, its strongest since December 2002. Later on the day, the dollar sagged 0.3% against the euro to $1.0939.

    Nonetheless, given the US Fed is determined to raise borrowing costs this year, supported by solid US macroeconomic data, the dollar is expected to advance to 126 yen and $1.03 against the euro by late 2015.

    Asian shares were down in Thursday’s trading, weighed on by great losses in mainland China. The CSI 300 Index slumped 7% after Beijing tightened its margin-trading regulation. Chinese authorities fear a bubble might emerge in the profitable area of trading in unsecured assets. However, the crackdown on margin trading is ill news for China’s equity markets, which are mostly speculative given the scarce presence of investment capital in the Communist nation.

    The Shanghai Composite crashed 6.5% as regional investors were selling off stock in panic, triggered by Beijing’s tightening of the trading rules. In Hong Kong, shares dropped 2.3%, and Australia’s S&P/ASX 200 Index also declined 0.2% on the soft corporate data.

    However, in Japan equity markets soared as the weak yen boosted exporters’ profits outlook. The Nikkei 225 hit its 15-year highest, adding 0.38% to 20,551.26 points.

    In Europe, most stocks declined amidst a rally in bond market. Stoxx 50 lost 0.47%, so did the French CAC 40 Index. In Frankfurt, the DAX shed 0.36%. Yield on the benchmark 10-year Deutsche Bunds slid two basis point to 0.54% as demand for the German fixed-income papers rose in response to the sell-off in China and the perceived risks of the Greek debt crisis.

    In the UK, however, equity market rallied with the FTSE 100 Index rising 0.15% after consumer spending and investment data indicated ninth consecutive quarter of expansion in the kingdom’s economy. British GDP added 0.3% in Q1, the actual data confirming a previous forecast by the Office for National Statistics. However, the UK’s economy is still driven largely by domestic demand, while the Conservative government of David Cameron promised a sway towards more reliance on exports five years ago. A strong sterling might be to blame as British exports slid 0.3% and imports rose 2.3%, cutting about 0.9% off the quarterly economic expansion. Consumer spending added 0.5%, and investment rose 1.7%.

    The looming hike in US borrowing costs is gradually reshaping the landscape of international trade. Investment capital is explicitly seeking safe havens, while the export-reliant Germany and Japan are benefitting from the stronger dollar environment. Economic confidence is high in most developed nations due to influx of foreign money. The current scheme of global capital movement provides for the money now flooding the market of tech equities is more often than not originating from the less sustainable exploitation of natural resources and/or dirt cheap labour in the Third World nations.


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