Futures Spooked After China Says “Very Worried” About Bubbles In US, European Markets

Lately not a session seems to pass without some “exciting”, unexpected event forcing momentum to reverse course, and sure enough following the best day for US stocks since June, overnight futures dropped after China’s top banking regulator said he’s “very worried” about risks emerging from bubbles in global financial markets and the nation’s property sector, sparking fresh concerns about further tightening in the world’s second-biggest economy and slamming risk assets.

Asian and European markets dropped, and US equity futures slid after Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission and central bank party secretary, said that bubbles in U.S. and European markets could burst because their rallies are heading in the opposite direction of their underlying economies and will have to face corrections “sooner or later.” Meanwhile, punting fears China’s own massive financial bubble – as a reminder China’s financial system is more than twice the size of the US making it the biggest bubble in the world –  he said that China’s financial regulators are “walking a fine line of trying to curb risks at home while limiting disruptions from abroad as the economy opens wider to foreign capital.” The CBIRC vowed in January to stay “ahead of systemic risks,” after capping bank lending to the property market, slashing shadow banking activities and claiming victory in unwinding a wild expansion in peer-to-peer lending.

“China’s monetary policy has not been as easy as the U.S. and Europe,” said Steven Leung, executive director at Uob Kay Hian (Hong Kong) Ltd. “This latest comment will create worry of further tightening.” One almost wonder if the next round of cold war between the US and Asia won’t take form of slamming each other’s capital markets and asset bubbles – after all, both are the biggest they have ever been, so if either country wanted to inflict the maximum financial pain in a short time, well it’s pretty clear what they need to do.


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