Archive - Aug 2015 - Story

The market has already delivered its verdict swiftly in the face of the global equity market correction– reducing substantially the probability of a rate hike in September, and pricing in a full rate hike only by March next year. We assign a higher probability than the market for a lift off in September but acknowledge that the risk has shifted towards later, a slower pace and a lower terminal rate. For now, we hold on to the put on EDU5 that we initiated two weeks ago. "Data dependency” over the next couple of weeks might really mean “equity market dependency”. If the equity market drops 10%, the Fed will most likely not hike, no matter what the payrolls data is.

China's Ministry of Public Security says the accused are very, very sorry for their actions, in which they "misled society and the public, generated and spread fearful sentiment, and even used the opportunity to maliciously concoct rumors to attack [Communist] Party and national leaders."

• Hilsenrath: Fed Appears to Hold Line on Rate Plan (WSJ)
• Europe, Asia stocks set for worst monthly drop in three years on China, Fed (Reuters)
• Beijing abandons large-scale share purchases (FT), if only for a few hours
• China’s Next Problem: Paying for Its Stock-Market Bailout (WSJ)
• Crises Put First Dents in Xi Jinping’s Power (WSJ)
• Man Group’s China Chief Said to Assist Police in Probe (BBG)

· The final US Nonfarm payrolls report before the September FOMC rate decision takes centre stage this week after developments in China last week dampened expectations for a Fed rate lift off

· The ECB rate decision and press conference is this week’s main event in Europe, with some analysts forecasting an extension to QE by the end of the year

Sometimes you have to work really hard for those "soft dollars."

Yesterday, the FT triumphantly proclaimed: "Beijing abandons large-scale share purchases", and that instead of manipulating stocks directly as China did last week on Thursday and Friday, China would instead focus on punishing sellers, shorters, and various other entities. We snickered, especially after the Shanghai Composite opened down 2% and dropped as low as 4% overnight. Just a few hours later we found out that our cynical skepticism was again spot on: the moment the afternoon trading session opened, the "National Team's" favorite plunge protection trade, the SSE 50 index of biggest companies, went super-bid and ramped from a low of 2071 to close 140 points higher, ending trading with a last minute government-facilitated surge, and pushing the Composite just 0.8% lower after trading down as much as -4.0%.

Following Monday’s historic stock market downturn, many politicians and so-called economic experts rushed to the microphones to explain why the market crashed and to propose "solutions” to our economic woes. Not surprisingly, most of those commenting not only failed to give the right answers, they failed to ask the right questions.

With 30% of Venzuelans eating two or fewer meals per day, social unrest is mounting rapidly in President Nicolas Maduro's socialist utopia. As WSJ reports, soldiers have now been deployed to stem rampant food smuggling and price speculation, which Maduro blames for triple-digit inflation and scarcity. "Due to the shortage of food... the desperation is enormous," local opposition politician Andres Camejo said, and nowhere is that more evident than the trampling death of an 80-year-old woman outside a state-subsidized supermarket.

Update: So much for the "no more intervention" - CHINA SAID TO ORDER BROKERAGES TO BOOST STOCK MARKET SUPPORT

A busy weekend in Asia was dominated by mayhem in Malaysia, and witch-huntery in China. Chinese authorities began a wide-scale crackdown on rumor-mongerers, arrested journalists, and even detained a regulator for insider trading, as they lifted loan caps on the banking system at the same as withdrawing (verbally) support for the stock market. China strengthen the Yuan fix by 0.15% to 6.3893 - this is the biggest 2-day strengthening of the Yuan fix since Nov 2014. Then just to rub some more salt in the wounds, Goldman cut China growth expectations to 6.4% and 6.1% respectively for the next 2 years. Chinese stocks are opening modestly lower (SHCOMP -3.3%).

While many were skeptical that the mystical Nazi treasure train had been finally discovered after many years of searching, an official update last Friday by the Polish government suggested that that may indeed be the case. As the Mail reported on Friday, a representative of the Polish culture ministry, Poland’s National Heritage and Conservation Officer Piotr Zuchowski, said that the man who helped hide the train had revealed its location shortly before he died, and that proof of the train has been observed on radar. Mr Zuchowski told reporters that the train was about 100 metres long but added: 'It is not possible to disclose the exact location of where the train can be found. 

The economic slowdown in China was set in motion a long time ago when the yearly rate of growth of the money supply fell from 39.3 percent in January 2010 to 1.8 percent by April 2012. The effect of this massive decline in the growth momentum of money puts severe pressure on bubble activities and in turn on various key economic activity data. Any tampering with the currency rate of exchange can only make things much worse as far as the allocation of scarce resources is concerned.

"You know what's funny? If we owed the state money, they'd come take it and they don't care whether we have a roof over our head. Our budget wouldn't be a factor. You can't say (to the state), 'Can you wait until I get my budget under control?'"

"Something happened  The August turbulence in global markets has produced significant shifts, including a 6.6% fall in equity prices. The currencies of emerging market countries have depreciated substantially against the G-4, while emerging market borrowing rates for sovereigns and corporates have moved higher. Global oil prices have been whipsawed as have G-4 bond yields. The speed and magnitude of these movements is reminiscent of past episodes in which financial crises emerged or the global economy slipped into recession. However, nothing appears to be breaking."

Chinese (Mis)Fortune Cookie...

In the latest example of Beijing attempting to deleverage and re-leverage all at once, China has lifted a cap on loan-to-deposit ratios for banks while simultaneously capping local government debt issuance for 2015. Meanwhile, bad loans are still on the rise at China's "big four" banks, underscoring the extent to which China's economy is rapidly deteriorating and drawing a line under the risk the PBoC is running by forcing banks to lend into an extraordinarily uncertain environment.