Archive - Sep 2015 - Story

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.

Coming to, or rather from, every forced "minimum wage" provider near you.

What does it take to make you sit up and take notice of the problems surrounding society today? The events of the past few weeks should have been a warning shot across the bow for many. Our financial and distribution systems are in a delicate balancing act right now and any sudden shifts could send them tumbling off the cliff rendering the services they perform extinct in a matter of hours. What will it take to make you respond to the many crises taking place today?

Following Monday's roller coaster of manipulated market machinations, perhaps China's leadership will keep its mouth shut tonight and just "monitor" the situation. Japan's opening 300-point flash-smash has now been eviscerated back to unchanged, Chinese stocks look set to open lower as Margin debt rose for the first time in 13 days (likely thanks to CSRC telling retail investors to "come back in, the water's fine.") As markets anxiously await China's trade data - which will either confirm the collapse or confirm the manipulation (given the utter devastation in Taiwan and South Korea trade data), the PBOC fixes Yuan weaker after 5 straight days of stronger fixes and injected another CNY150 billion in 7-day rev repo.

In hot spot after hot spot in the Middle East, U.S. and Saudi objectives and priorities diverge, even if in some loose sense they are considered to be on the same side. It ought to be astounding that a place this far removed from the liberal democratic values with which the United States likes to be associated, even without considering the aforementioned divergence of objectives elsewhere in the region, still is considered a close partner of the United States. The usual, and to a large degree valid, explanation is that, as Friedman puts it, “we’re addicted to their oil and addicts never tell the truth to their pushers.”

The United States Bureau of Engraving and Printing makes approximately $696 million in currency each day. Amazingly, according to their very fitting website MoneyFactory.gov, in the fiscal year of 2014 they printed over $2.2 billion in $1 bills alone. It’s good practice, because with concerns of deflation circulating around Europe and Asia, the Feds may want to put the printing presses into overdrive.

Whether it is due to thin holiday liquidity, due to the BOJ intervening just ahead of its usual time, because Japan's "legendary" Twitter trader "CIS" just went bullish (again), because prime minister Abe just learned he would be reinstalled as head of his ruling LDP party because no challenger had emerged unleashing three more years of unchallenged Abenomics, because Japan's Q2 GDP was just revised modestly higher (to a less negative number) or just because this is how the New Normal rolls, moments ago the Nikkei flash smashed higher some 400 points higher, in a well-choreographed algorithmic frenzy, to take out Friday's high stops.

The data point everyone has been waiting on is out and, just as we tipped weeks ago, China liquidated nearly $100 billion in USD assets during the month of August in support of the yuan.