Archive - Aug 12, 2015

The bail out is a cynical ruse, not to benefit Greece as a whole, but to benefit the banks and other creditors (the ECB and the IMF) who should take their medicine and move on. The one thing keeping the whole blighted euro project in place is an arrogant denial of the facts. A loss of political face now is a small price to pay for a much better outcome that will disadvantage far fewer people than the disorganised chaos into which Euroland will descend if the current bunch of lunatics are not put back in the asylum. Is this a Europe we want to be part of?

Ever wondered how a nation wages a currency war? As Reuters reports, Chinese state-owned banks were selling dollars on behalf of the central bank to stabilize the yuan around 6.43 against the dollar on Wednesday, foreign exchange traders in Shanghai said, as the devaluation collapse got a little out of hand. This follows wholesale dollar-asset buying to weaken the Yuan. But that leaves the question, how did they get the dollars? As the chart below shows, by trading Treasuries...

Corn (and soybeans) are plunging, limit down on CBOT following data from the August WASDE report. The USDA unexpectedly raised output estimates for corn stocks and production dramatically higher than expected. This in and of itself would send corn prices lower but the significance of the shift is likely exaggerated by the fact that satellite imagery had suggested signficantly worse crop conditions ahead. One wonders who will be right?

As far as credit markets are concerned, U.S. stock investors have lost touch with reality.

"We were convinced that a top has been formed over the course of the last several months and we were willing to be short but the Chinese devaluation has wrought havoc upon us, catching us and everyone else out. As we write, the September t-note future is trading 128 ¼ and that is ¼ point above our “close only” stop."

Fat-Finger, Flash-Crash, or Forced Liquidation... either way, something broke in the Italian bond futures market...

Bombs away...

EURCNH was among the most popular carry trades - a stable long leg and central bank sponsored weakness in the sell leg. That is why, now that The PBOC has peed in the punchbowl, all that easy money carry has been forced to unwind as volatility forces traders to buy EUR and sell CNH en masse, shuttering the carry-funded trades as they go. No where is that more clearly visible than the plunge in European stocks.

Many years ago, we said that the real comedy in the world of FX won't start until Vietnam start devaluing its currency. And even as Vietnam decided to slash its Dong on numerous occasions over the years we were looking forward to all the amusement the Asian country, once engaged in physical war with the US would provide us in its response to the just launched FX war with China, in order to preserve its currency's ongoing shrinkage. We got the answer overnight when Vietnam announced it would widen the dong’s trading band on Wednesday to further weaken the Dong in response to the comparable shrinkage by China, its biggest trading partner.

China surprised global markets yesterday by devaluing its currency on concerns about sharply decelerating Chinese economy

US crude production declined 0.74% last week to its lowest level since May 15th. US crude inventories dropped for the 4th week of the last 5, but considerably less than expected.

The S&P 500 has once again broken, rather aggressively, below its 200-day moving average and is headed close to unchanged for 2015. The Dow has tumbled 1200 points from its highs and has now broken below the level at the end of QE3... we are gonna need a bigger Fed Balance Sheet...

DUDLEY: HOPEFULLY IN NEAR FUTURE FED ABLE TO RAISE RATES

With the Greek bailout deal now nearly done, all that stands in the way of disbursal is the Greek parliamnent and a predictably incalcitrant Germany which, according to Bild (citing EU sources) has now determined that the new bailout plan is "insufficient."

The significance of these developments cannot be overstated. Central Banks will be increasingly acting against one another going forward. There will more surprises and more volatility across the board. Eventually it will culminate in a Crash that will make 2008 look like a picnic.