After several months of artificial, centrally-planned calm in Chinese markets, where "malicious sellers" found out the hard way the Politburo means business, overnight the relative quiet in Chinese stocks since August broke with a bang when the Shanghai Composite tumbled as much 6.1% before closing down 5.5%, the biggest drop in three months and the largest weekly loss since the depth of the Chinese rout in mid-August while a gauge of Chinese volatility surged from the lowest level since March.
Following yesterday's dramatic geopolitical shock, U.S. equity index futures rise as Russia has not escalated the confrontation with Turkey as some had feared, while Asian shares fall, reversing earlier gains. European stocks are rallying and the euro is falling on the back of a Reuters report that the ECB is mulling new measures to prop up lending, although it’s not clear at this point what the real impact from these measures would be.
It had been a relatively quiet session overnight when as reported previously, the geopolitical situation in the middle east changed dramatically in a moment, when NATO-member country Turkey downed a Russian fighter jet allegedly over Turkish territory even though the plane crashed in Syria, and whose pilots may have been captured by local rebel forces. The news promptly slammed Turkish assets and FX, sending the Lira tumbling, pushing lower European stocks and US equity futures while sending 2 Year German Bunds to record negative yields.
As a result of the global commodity weakness, global stocks have fallen for the first time in six days as the sell-off in commodities continued, dragging both US equity futures and European stocks lower. However, putting this in context, last week the MSCI All Country World Index posted its biggest weekly gain in six weeks: alas, without a coincident rebound in commodity prices, it will be merely the latest dead cat bounce.
"So much of what we now accept as routine in financial markets would have been thought impossible prior to the 2008 crisis ?- the next logical stage in the global currency war will be direct fx intervention!"
- Albert Edwards
"The equilibrium, for now, is QE infinity – but political risk could be the breaking point"...
· The tragic events in Paris are set to dictate price action at the beginning of the week in Europe
· The US sees an increase in tier 1 data this week as well as the release of the minutes from last month’s Fed meeting
“The bubble may already have burst” for the most expensive homes, Barber said. Now, "36 percent of all properties currently on the market across prime central London are being marketed at a lower price than they were originally listed at, with the average reduction in price being 8.5 percent."
The biggest event overnight came from Europe, where Draghi managed to once again jawbone the Euro lower by ober 50 pips when he told European lawmakers in a prepared testimony that downside economic risks are "clearly visible," repeating his October press conference statement, adding that the ECB will reexamine degree of accommodation in December as "inflation dynamics have somewhat weakened." And the statement that crushed the Euro: "If we were to conclude that our medium-term price stability objective is at risk, we would act by using all the instruments available within our mandate to ensure that an appropriate degree of monetary accommodation is maintained." I.e., another "whatever it takes" moment.
For the third day in a row, China dominated the overnight newsflow with the latest industrial output data, which printed at 5.6% missing expectations of a 5.8% increase, and was tied with March for the lowest print since late 2008.
- Fed speakers are likely to take focus in the US this week as market participants attempt to forecast the likelihood of a December FOMC rate lift off
- Eurozone GDP release is the most notable Eurozone data of the week, with a possible downbeat reading increasing the possibility of further easing by the ECB
Once again, the two major macroeconomic announcements over the weekend came from China, where we first saw an unexpected, if still to be confirmed, increase in FX reserves, and then Chinese trade data once again disappointed tumbling by 6.9% while imports plunged 18.8%. So how did the market react? The Shanghai Composite Index rose for a fourth day and reached its highest since August 20because more bad data means more easing from the PBOC, and just to give what few investors are left the green light to come back into the pool, overnight Chinese brokers soared after Chinese IPOs returned after a 5 month hiatus. Elsewhere, Stocks and currencies in emerging markets slump on prospect of higher U.S. borrowing costs before year-end and after data underscored slowdown in Asia’s biggest economy. Euro strengthens.
A Stunning Admission From A BOE Central Banker: This Is What The Coming "Helicopter Money" Will Look LikeSubmitted by Tyler Durden on 11/06/2015 13:51 -0500
“Consider for example a tax cut for households and businesses that is explicitly coupled with incremental Bank of Japan purchases of government debt – so that the tax cut is in effect financed by money creation”
- Ben Bernanke, Some Thoughts on Monetary Policy in Japan, 2003
As DB so well-puts it, "Welcome to random number generator day also known as US payrolls." Consensus expects 185k jobs to have been added in October but it’s fair to say that the whisper number has edged up this week with slightly firmer US data. It is also fair to say that even if one knew the number beforehand, it would be impossible to know how the market will react.
- BOE Stays Cautious on Rate-Hike Timing as Inflation Outlook Cut (BBG)
- China Enters Bull Market (WSJ)
- Britain says Islamic State likely brought down Russian plane (Reuters)
- Dollar jumps as markets fix on December rate expectations (Reuters)
- Activist Investor Bill Ackman Plays Defense (WSJ)
- BOJ Survey Data Reveals Signs of Growing Inequality in Japan (BBG)
- UAW Warns of General Motors Strike If Workers Fail to Approve Contract (WSJ)