Archive - Sep 2015

Overnight we got an unexpected call from perpetual optimist JPMorgan (yes, we all miss Tom Lee), which released a report by Mislav Matejka warning that it is not "time to re-enter the US" because "upside is limited at this stage of cycle." To wit: "some of the longer term cycle signals are increasingly worrying, with rising risk that US equities start making sustained losses next year. At best, the upside potential for the US remains limited, in our view." Still, just like BofA, JPM felt the need to hedge: "too early to position for recession." 

Fool me once, shame on me; fool me twice, shame on you; fool me a third time, you must think we are all just idiots!! Following The ECB's Benoit Coeure "internal procedure error" where he leaked the imminent actions of the central bank to a group of well-heeled hedge fund managers - who proceeded to dump EURUSD ahead of the announcement, The ECB has decided - in all its arrogant wisdom - to decamp to Luxembourg to speak, once again, to participants in the world of high finance behind closed doors. The media aren’t invited (though the ECB will publish some prepared remarks from the board members.).

Copper prices have surged over 4% this morning, breaking above the 50-day moving average (trading 2.41, near 2-month highs). Aside from Glencore's demise and modest strength in the Chilean peso today, this seems more like an algo-driven run off China's massive intervention-driven momentum.

Hedge Funds are apparently dusting off their notes on how to hedge

One can only hope they will continue to remain “behind schedule”. Haven’t these hapless planners done enough damage yet?

The People’s Bank of China (PBOC) added another 15.98 tonnes of gold in August – at the same time its foreign exchange reserves fell a whopping $94 billion. 

While we wait for Greece to pick a side between the US and Russia by either allowing Moscow to use its airspace on the way to supplying Assad at Latakia or else snubbing the Kremlin and jeopardizing a potentially lucrative gas deal, at least one country has been quick to make a decision.

Update: *MOSCOW EXCHANGE PREPARING TO RESUME TRADING W/BACKUP EQUIPMENT

It appears the 'virus' of broken markets has spread...

*MOSCOW EXCHANGE SAYS TRADING HALTED IN ALL MKTS, CHECKING ON REASONS FOR GLITCH

Yet another 'glitch' strikes yet another crucial convergence point of technology and business. Wil The Russians blame the Chinese? Or The Americans?

We all know the global economy is slowing, so why would stocks soar from here? The basic answer is simple: The Fed has no choice, because this game is now for all the marbles.

"Strength is to be sold into... How far down do we expect this bear market to run? Our answer is that we can imagine that the S&P might make its way all the way down toward 1600 which would simply take the market back to the trend line going back all the way to the “generational” lows in ’09. That would be nearly a 25% correction from the highs made earlier this year... We remain here at TGL modestly net short of the market generally and we’ve no intention of changing that focus other than to become a bit shorter still as time and market conditions demand."

So much for exiting the market. According to Goldman's estimates, China spent CNY600 billion propping up the stock market in the month of August alone. Meanwhile, MNI reports that in the wake of the yuan devaluation, SAFE began "'urging' [companies to] actively take measures to limit foreign exchange purchase for advance payment under imports... and postpone forex purchases." 

• Sure, why not: China Rebounds as Trade Data Disappoints (BBG)
• Oh, that's why: China's Stock-Rescue Tab Surges to $236 Billion, Goldman Says (BBG)
• Can't make this up: German finmin says must avoid reliance on debt, cenbank stimulus (Reuters)
• Stocks rise after contrasting China, Germany trade data (Reuters)
• Euro zone second-quarter GDP revised up as Italy grows faster (Reuters)
• Brent oil rises on European, Chinese data; oversupply weighs (Reuters)
• Corporate Prosecution Deals Headed for a Legal Test (WSJ)

The last time we looked at Chinese stocks, just a few hours ago, they were on pace to close back under 3000, following the latest collapse in trade, where in August exports dropped 5.5% (last -8.3%) while imports tumbled -13.8% in dollar terms (worse than the -8.1% prior). As the Reuters chart below shows, this was the 10th month in a row of declines and the worst stretch since the 2008 crisis, confirming China will need far more currency devaluation to stabilize the trade pain. And then Chinese authorities intervened with gusto, waiting until the start of the afternoon session, at which point a massive buying orgy ensued, and pushed the SHCOMP from down more than 2% to close at the day highs, up some 2.9%!

Over the past year, some have asked - is there any labor-related chart that matters any more? The answer: a resounding yes, only it is none of the conventional charts that algos and sometimes humans look at. The one chart that matters more than ever,has little to nothing to do with the Fed's monetary policy, but everything to do with the November 2016 presidential elections in which the topic of immigration, both legal and illegal, is shaping up to be the most rancorous, contentious and divisive.

With "selling" outlawed and anything but cheer-leading strocks higher subject to detainment, it appears the Chinese government has managed to undo 3 years of liberalization and financial deregulation in the space of a week. Futures trading volume on the CSI-300 (China's S&P 500) which for a while in May became the most actively traded financial contract in the world (surpassing S&P 500 e-minis), has utterly collapsed in the last week - since the arrests and detainment of various brokerage executives - to its lowest levels in three years. As one local trader noted - Chinese index futures trading is dead.