China Blue

Global stock markets are having a sympathetic reaction to the Shanghai Composite.

Stocks had a nice rebound Wednesday but stumbled out of the gate on Thursday morning. This is coming as global stock markets are having a sympathetic reaction to the Chinese stock index. The Chinese government took action as fears grow that a massive bubble is developing in the country’s stock index, the Shanghai Composite. After officials tightened margin rules in an effort to rein in the runaway market, the Shanghai Composite closed Wednesday 6.5% down.

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Dow futures, consequently, were down 50 points in Thursday pre-opening trading, but bond prices started the day slightly up. Bond prices, which were down most of Wednesday, rebounded late as traders started front-running the buyers they hope to see Thursday and Friday.

Bond index fund managers started Thursday making their month-end purchases to match their indexes. Sometimes this buying doesn’t matter, but traders are counting on bond prices to go up in this illiquid market.

Dwight Johnston is the chief economist of the California and Nevada Credit Union Leagues and president of Dwight Johnston Economics. He is the author of a popular commentary site and is a frequent speaker at credit union board planning sessions and industry conferences.

May 28, 2015

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