Bovespa

Following yesterday's most recent Europe-led rout, the market is attempting a modest rebound, driven by the usual carry funding currency pair (EURUSD and USDJPY) levitation, although so far succeeding only modestly with not nearly enough overnight ramp to offset the bulk of yesterday's losses. In a centrally-planned, currency war-waging world, it is sad that only two key FX pairs matter in setting risk levels. But it is beyond hypocritical and highly ironic that according to a draft, the G-20 will affirm a commitment to "avoid weakening their currencies to gain an advantage for their exports." So the G-20 issues a statement saying nobody is doing it, when everyone is, thus making it ok to cheapen your exports into "competitiveness"? In other words, if everyone lies, nobody lies. Of course, also when everyone eases, nobody eases, and the world is back to square one. But that will only become clear eventually.

• Hilsenrath: Heat Rises on Central Banks (WSJ)
• Some at Fed Are Urging Pre-Emptive Stimulus (NYT)
• Obama Warns of Headwinds in Europe; Urges European Leaders to Take Decisive Action on Euro (WSJ) - also needs reelection
• ECB thinks the unthinkable, action likely weeks away (Reuters)
• Games Turn London Into ‘Ghost Town.’ (FT)
• Greek Leaders Seek to Defer Austerity Cuts (FT)
• Hong Kong Builders Unload Properties to Raise Cash for Land Rush (Bloomberg)
• North India Crippled by Power Cuts (FT)
• Euro-Area Unemployment Rate Reaches Record 11.2% on Crisis (Bloomberg)
• Italy's Monti sees hope of end to euro crisis (Reuters)

Every day the Fed's control of all capital markets becomes greater and greater, and every day ordinary investors, and even habitual gamblers, realize they have had enough with participating in a rigged casino, in which the now completely meaningless and irrelevant level of the S&P or the DAX or Nikkei or the 10 Year bond is nothing but a policy tool in the global devaluation race to the inflationary bottom. And while we have shown the week after week of relenltess equity outflows as aging baby boomers call it quits and instead opt for return of capital (than on), the full impact of this boycott on Bernanke's usurpation of capital markets, in which a simple WSJ scribe can move the market more than the deteriorating fundamentals of the world's biggest company-cum-gizmo maker is best seen in trading volumes. Which as Securities Technology shows, are now down 19% in the first half of 2012. Of course, if one were to exclude the robotic presence in stock trading, which is anywhere between 50 and 70%, it would be a miracle to find any human beings still trading with each other.

Banks and ratings companies are sounding their loudest warnings yet that the euro area risks unraveling unless its guardians intensify efforts to beat the two-year-old sovereign debt crisis.

Following my thoughts on the fireworks going off everywhere in emerging markets, if you are not short emerging yet (EEM is a great proxy. Look at Bovespa in Brazil or TUR the Turkish ETF, it is all looking horrible and about to get completely decimated), you can still buy silver and sell Spanish equities. A few weeks ago when silver had broken the 50-dma I had pointed that it should retrace towards 25.80/26.50. We came right around those levels and caught a huge bid today. Confirmation by breaking out of the bearish downtrend channel since the recent highs would point towards new highs. Meanwhile the IBEX has completed a consolidation wedge and held resistance at 11,000. As a long as we stay below the afore-mentioned resistance the next stop on the way down is 9,600.

As argued over the past few weeks and first introduced in my piece "Catfight: it's on!" central banks are now engaged in modern monetary warfare. This was acknowledged just about that bluntly by the Brazilian central bank yesterday. There are two ways to play the game. The Swiss way, meaning traders front-run the central bank when their favorite FX dealer tells them the SNB is checking offers in EURCHF at which point you buy ahead of them and sell 2 hours later, leaving sell stops below the indicated support level the SNB is defending to get short when they give up. That's the easy one. What will the BCB be like? Should people buy 1.7050 banking on them being tenacious and waiting for a return of risk aversion to squeeze the shorts? Should they leave stop sells at 1.6900 to get short on a break? Probably a bit of both. As for the BOJ I reiterate my conviction that it should not be messed with at this point and I would much rather play alongside their bid. Indeed they have not only committed to an open period of intervention and have quite a few bullets left, but more importantly they have not sterilized their interventions. That to me means business: they print and they buy, they make the rules, don't challenge them under those conditions. In that environment, my belief is that relative monetary policies will drive FX moves. Currently there is 98% dollar bears based on the assumption the Fed will print at will. That to me is a simplistic view and I will be looking for mispricing to take the other side of the bet. The reason is that this argument does not factor in what other central banks are doing. Sellers beware: there is more to the picture than just selling the USD to play the Fed. I will send out a detailed analysis of my findings as I make progress in this domain. - Nic Lenoir

Ironically the only sane call on the now openly deranged market action comes from an long-term institutional establishmentarian in the face of none other than Templeton's Mark Mobius. His brief and spot on assessment : "The entire Petrobras issue is an abomination and a terrible violation of shareholder rights. We may be entering an IPO bubble. It means that people are just not looking at the values and irrationally buying these things." Oh shut up Mark, who cares about values... Yet perhaps someone can channel a little Mobius on CNBC so he can quell some of the overly exuberant lunacy that is spewing forth from the now leaderless TV station, which nonetheless does nothing to change the autopilot "ponzi propaganda" mode.

Vix posted a very key bullish reversal ouside the lower bollinger band. Over the last two years, this has been a bearish signal for equities 100% of the time. In January the top in price lagged the low in Volatility by 7 business days, and the lag was 10 business days in April. Buyers beware, you have one or two weeks of fun, and after that comes a strong bearish move which will take the market lower than 1,000 in S&P futures. We will be very carefully following bearish divergence for equity indices to confirm this major signal.

The European stress test today was a very very sad buffoonery to witness. Firstly the worst case scenario is a 3% GDP contraction and a 20% equity market sell-off. Let's be frank if GDP contracted in Europe by 3% stocks would fall a bit more than 20%. More importantly, as 20% correction would leave the market clear by 33% above the lows of 2009. You would think the worst case scenario would be at least to revisit these lows. So basically the worst case scenario is not really credible as a "worst" case. Secondly the test focused strictly on the mark-to-market holdings of sovereign bonds. That is like sizing up an iceberg using only the tip. Spanish banks for example are ridden with housing inventories that are most likely marked at the 2006/2007 highs, and all that is happily excluded from the test, as well as accrual accounting books. The fact that they had to resort to truncating the scope so much given a relatively mild worst case assumption tells you how much head scratching must have gone on to make this look half way decent. It even felt like they invented some random unknown banks that failed just to make it legit. Solid work I must say, and on a summer Friday with no volume and syndicated desks using algos to push up the tape, the reception by the market looks quite grand on paper. The fact sadly is that no one cared today and there is not one reasonably informed investor out there who doesn't see this for what it is: a sad joke. Unfortunately when everybody gives up on the market and it melts up for no reason, I think we are really worst off than if we took the pain we deserve now and deal with the real state of affairs. This expensive extension of a broken system will only make it worse in the end. - Nic Lenoir

The market continues to chop around aggressively in the 1,055/1,100 for the S&P future.

Copper has broken out which is one of the markets we had our eye on. The next big resistance beyond 317 is 328/329 (huge overlap and 61.8% retracement). The next two mornings we walked in to strong bids in the commodities space and higher equity prices in China. The Shanghai composite has lost 33% from the highs of the summer 2009, so the market has a lot of room to bounce and that's why maybe copper which is highly correlated to economic and market activity in the region has taken the lead breaking out. Note that the Nikkei has not recovered much from the lows so far but has held the key support at 9,090. I would be tempted to play long in that market at least since I see the future moving up to 10,600 if the bounce continues. - Nic Lenoir

The jury is out: I have been in the deflation camp personally for the last 2 years, but I hear the arguments for Zimbabwean hyperinflation, or the case of the oscillation in no man's land as governments and central banks stop us on our way to the deflationary Kondratieff winter at each market collapse with a new round of monetization. Maybe this last cynic remake of the Japanese lost decades is the most obvious way to bet on the demagogy of our modern "capitalist" system where government are helpless against deflation and will therefore sacrifice our future and the planet if they have to in order to save whatever face they have left. - Nic Lenoir

Here are 10 gold charts that every global commercial investment firm is terrified to show their clients.

The only trend that seems unlikely to abate at this point is Gold's bullish trend. We seem to be set to take out the highs and further accelerate from here. The only danger to the trend is a wave of defaults which would be massively deflationary in theory, but at this points it is unlikely politicians will let that happen. They will only make everyone wait painfully to come up to the obvious conclusion that they will bend and provide the liquidity needed and thereby cause damage to the system. - Nic Lenoir

With the $ rally starting to broaden i.e. to the AUD and CAD and the Fed discussing asset sales (I've written extensively about how I believe the Feds balance sheet = the $ supply) owners of risk assets need to be EXTREMELY CAREFUL. $ rallies are truly toxic. Don't forget that during the last one 1995-2000 we blew up Asia in 97-00 and stocks in 2000! - Credit Agricole

Today's market action highlighted the perfect chaos that has engulfed the markets over the past several weeks, with most investors suddenly having no idea what to do with the mountain of cash on the "sidelines", and as a result putting most of it in Treasuries (remember the whole crash the markets hypothesis?), threatening to unwind the steepener trades that have become all the rage over the past several months. This is despite the just voted through $1.9 trillion debt ceiling increase, the ridiculous US budget deficit, looming state and municipal defaults, and the just cancelled MTA bond auction. Adding uncertainty to it all is tomorrow NFP report which as the BLS noted today, could probably see even greater revisions than the 824,000 presented before, coupled with rumblings of an incipient trade war between China and the US which could cause this major buyer of US heavy manufacturing to scale back its purchases. All of this is occurring on the backdrop of plunging markets everywhere, but especially in Europe where sovereign default risks are now spreading like wildfire, hitting stock and corporate levels without discrimination. And the cherry on top is that the contagion fears are spreading globally, with the Bovespa now closing 4.7% and the BZL plunging.