I addressed the big event for the week in this blogpost (http://equitymaven.blogspot.com/2013/06/bernanke-pops-bubble.html ) and I'll be addressing it more in this commentary.
However, another potential crisis is also impacting global markets and it's emanating from China. Recent economic data out of that country has been lousy:
The manufacturing PMI is in contraction territory and consumer confidence is dropping precipitously.
However, a more serious situation has developed. Along with a decline of capital inflows into China due to declining exports, the People's Bank of China (PBoC) is attempting to make local banks scale back on frothy credit expansion plans and efficiently manage their own liquidity. In the process the central bank has driven the seven day repo rate to as high as 28% earlier in the past week. The result has been an inverted yield curve where short term rates are higher than long term rates.
The two charts below are an historical comparison of the present Shanghai Inter Bank Offering Rate (SHIBOR) and the US Treasury curve in April 2007:
The PBOC did inject about 50 billion Yuan into the system on Thursday but it remains to be seen whether it is enough to loosen up the liquidity squeeze that has taken hold of the Chinese economy.
This is no small matter. The Chinese economy is in the same predicament we found ourselves during the fall of 2008 after Lehman imploded. The prospect that the world's largest exporting economy could slip into recession with the European continent still in the throes of recession will not bode well for the US economy or global financial markets.
All these problems are reflected on the daily chart of the Shanghai Composite Index:
Next, the prospect that the Fed may be ready to take away the punch bowl along with a weak global economy helped take the struggling commodity complex to the mat once more. This was nowhere better manifested than in the precious metals. Here's a daily chart of spot gold: