- Crude prices fall towards $40 on global glut (Reuters)
- China Central Bank Injects Most Funds Since February as Money Rates Increase (BBG)
- Divided Fed Puts Yellen on Hot Seat (Hilsenrath)
- So Long September: Bond Traders Defer Their Date With the Fed (BBG)
- More Foods Boast Non-GMO Labels—Even Those Without GMO Varieties (WSJ)
- UN to let Iran inspect alleged nuke work site (AP)
- IAEA says access to Iran's Parchin military site meets demands (Reuters)
- Time to End Quarterly Reports, Law Firm Says (WSJ)
Dazed And Confused: Futures Tumble Below 200 DMA, Oil Near $40, Soaring Treasurys Signal Deflationary DelugeSubmitted by Tyler Durden on 08/20/2015 07:00 -0400
It is unclear what precipitated it (some blamed China concerns, fears of rate hikes, commodity weakness, technical picture deterioration although it's all just goalseeking guesswork) but overnight S&P futures followed yesterday's unexpected slide following what were explicitly dovish Fed minutes, and took another sharp leg lower down by almost 20 points, set to open below the 200 DMA again, as the dazed and confused investing world reacts to what both the Treasury and Oil market signal is a deflationary deluge. Indeed, oil is about to trade under $40 while the 10Y Treasury was last seen trading at 2.07%. Incidentally, the last time oil was here in March of 2009, the Fed was about to unleash QE 1. This time, so called experts are debating if the Fed will hike rates in one month or three.
"Evidence in support of Bernanke's view of the channels through which QE works is at best mixed. There is no work, to my knowledge, that establishes a link from QE to the ultimate goals of the Fed inflation and real economic activity. Indeed, casual evidence suggests that QE has been ineffective in increasing inflation."
Market pundits robotically suggest that the Fed should not raise rates because inflation is too low. Well, if zero rates and $4 trillion in asset purchases did not boost inflation, do they really believe that another few months at zero rates will do the trick? Some Fed researchers are actually asking whether policies have become counter-productive to their dual mandates. The path to rate normalization will not come without pain. On the contrary, there will be a difficult period, potentially even a damaging recession. Fed doves will likely feel vindicated. However, while a period of hardship is likely inevitable, purging both bad businesses and market speculation is vital for long-run economic health and will allow more productive businesses to evolve over time.
FOMC Minutes Leaked Early After Embargo Broken, Fed Warns Risk To GDP Forecast "Tilted To The Downside"Submitted by Tyler Durden on 08/19/2015 13:41 -0400
Seconds ago, someone accidentally (we hope) pulled a Janet Yellen as the following just came across the wires
FOMC MINUTES: MEMB 'GENERALLY AGREED' MORE INFO NEEDED TO HIKE
FOMC MINUTES: NO TIP TOWARDS SEPT LIFTOFF, DOESN'T RULE IT OUT
But the bottom line is that the Fed just admitted things are going from bad to worse: "The risks to the forecast for real GDP and inflation were seen as tilted to the downside." The question now is what comes first: QE4 or the first rate hike in nearly a decade.
If we call stagnation progress, what have we accomplished?
Turkey’s lira is once again in free fall, after testing all-time lows against the dollar during multiple sessions of late as political turmoil and civil war wreak havoc on the currency. As BofAML notes, "now that the CBT has left rates unchanged and announced that it will largely rely on selling more FX to tame volatility in FX market while waiting Fed to hike first, TRY still remains a fair game."
Chinese Intervention Rescues Market From 2-Day Plunge, Futures Red Ahead Of Inflation Data, FOMC MinutesSubmitted by Tyler Durden on 08/19/2015 06:37 -0400
With China's currency devaluation having shifted to the backburner if only for the time being, all attention was once again on the Chinese stock market roller coaster, which did not disappoint: starting off with yesterday's dramatic 6.2% plunge, the Shanghai Composite crashed in early trading, plunging as much as 5% in early trading and bringing the two-day drop to a correction-inducing 11%, and just 51.2 points away from the July 8 low (when China unleashed the biggest ad hoc market bailout in capital markets history) . And then the cavalry came in, and virtually the entire afternoon session was one big BTFD orgy, leading to a 1.2% gain in the Shanghai Composite closing price, while Shenzhen and ChiNext closed up 2.2% and 2.7%, respectively.
The US and world economies are frauds that are coming unraveled. The Greek bailout is the most recent example of “kick the can down the road” solutions. The US housing bubble was an attempt to cover up/recover from the dot-com bust. Now the US is in a financial bubble engineered to recover from the housing bubble debacle. Soon this bubble will burst. Only the date is unknown.
UPDATE: At the end of the morning session there is more blood on the streets as The PPT never turned up... Chinese stocks are now down 10-12% since Monday's close.
Following yesterday's massive CNY120bn liquidity injection - the largest since Jan 2014 - and the notable absence of the plunge protection team in the afternoon rout ("we're only here for emergencies"), we note that margin debt fell for the first time in 8 days as Chinese farmers and grandmas realized once again that the stock market is not a free-ride to nirvana. Chinese stock futures indicate the losses will be extended at the open (SHCOMP -2.7%) as the Yuan fix is held unchanged.
The central bank has injected new capital into the China Development Bank (CDB), which provides medium and long term financing to major national projects, in a bid to reinforce its capital adequacy.
Given the carnage unfolding across EM currencies and the myriad headwinds the world's emerging economies face going forward, it should come as no surprise that sentiment has turned decisively negative. Is it time to be a contrarian? BofAML thinks so.
Political turmoil, rising violence, and general EM malaise have hit Turkey's currency hard and on Tuesday, the central bank left rates unchanged prompting further weakness in the lira which had already fallen earlier in the session after Emine Nur Gunay, PM Davutoglu's chief adviser, hinted that a rate hike was not in the cards.
"We Were Short… Now We Are Not!: The trend since mid-June is upward and today’s collapse in the Chinese stock market will serve only to make the bid for the US bond market that much stronger!" - Dennis Gartman