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.
"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
Just a day after a dismal read on GDP, the latest data out of Brazil shows a spike in both inflation and unemployment, as the country's economic outlook continues to deteriorate at an alarming pace.
Following September's strongest Core CPI gain since June 2014, October accelerated that modestly with CPI ex food and energy rising 1.9% YoY. Broad CPI rose 0.2% YoY (slightly better than the 0.1% expected rise) - the highest sicne December. Month-over-month saw new and used vehicle prices drop, Apparel prices drop 0.8% (most since Dec 2014), PCs drop 0.9%, but was notably offset by the bigger-weighting in Medical Care which rose 0.7% MoM (3.0% YoY) and Shelter rose 3.2% YoY.
The developing deflationary cycle stunting the world economy has arisen from the monumental harm that central bankers have already done, not from lack of sufficient vigor and boldness in attempting to contravene its consequences.
China can’t allow its industrial economy to sink without a fight. It will have to devalue the renminbi to try to get more market share for its exports. It still has 80% of its workers earning less than $10 a day. A lower renminbi will reduce real wages further and make China’s exports cheaper than ever. And then, what about the rest of the world? As the renminbi goes down, the dollar, yen, and euro will have to go up. Commodities – priced in dollars – will stay down. U.S. corporate profits will fall. The stock market “tape” will go down. Consumer prices, too, will remain low... or go negative. Deflation. Deflation. Deflation.
Almost all serious analysts see a Terminal problem developing - "We will go from deflation to hyperinflation without seeing inflation." But hyperinflation is a political phenomenon. It is caused by those same authorities the masses think they can trust. When they are threatened, they will protect themselves by printing money on a scale we haven’t seen since the War Between the States (consumer prices in Richmond, Virginia, had risen 6,700% by the end of the war).
Anyone who thinks that somehow this will not impact the rest of the globe is out of his or her mind.
Back in September we explained why, contrary to both conventional wisdom and the BOJ's endless protests to the contrary, neither the BOJ nor the ECB have any interest in boosting QE at this - or any other point - simply because with every incremental bond they buy, the time when the two central banks run out of monetizable debt comes closer. Since then the ECB has jawboned that it may boost QE (but it has not done so), and overnight as reported previously, the BOJ likewise did not expand QE despite many, including Goldman Sachs, expecting it would do just that.
AsiaPac Calm Before BoJ Storm, Japanese Household Spending 'Unexpectedly' Drops As China Releveraging ContinuesSubmitted by Tyler Durden on 10/29/2015 20:27 -0500
As all eyes, ears, and noses anxiously await the scantest of dovishness from Kuroda and The BoJ tonight (despite numerous hints that they will not unleash moar for now), the data that was just delivered may have helped the bad-news-is-good-news case. Most notably Japanese household spending dropped 0.4% YoY (with tax hike issues out of the way) missing expectations by a mile as the 'deflationary' mindset remains mired in Japanese heads. AsiaPac stocks are hovering at the week's lows unable to mount any bid as China fixed the Yuan notably stronger and instigated a new central pricing plan for pork prices (which suggests concerns about inflation domestically). Once again Chinese margin debt reaches a new 8-week high as 'stability' has prompted releveraging among the farmers and grandmas.
"Fed officials suggested they had become less concerned in recent weeks about turbulent financial markets and uncertain economic developments overseas ... open[ing] the door more explicitly than they have before to raising rates at a final 2015 meeting in December."
"The nightmare for the Riksbank board is maybe something like this: they are gathered in the south of Sweden, looking out over the Baltic Sea, when they see a giant wave of money coming in from the euro zone and try to fight it with a hose."
China Cuts Interest Rate By 25 bps, Cuts RRR by 50 bps; Futures Soar; Fed December Rate Hike Back In PlaySubmitted by Tyler Durden on 10/23/2015 06:22 -0500
- CHINA CUTS BANKS’ RESERVE REQUIREMENT RATIO
- CHINA CUTS 1-YEAR LENDING RATE BY 0.25 PPT
- CHINA CUTS 1-YEAR DEPOSIT RATE BY 0.25 PPT
- CHINA CUTS RESERVE RATIO BY 0.5 PPT
As long as politicians and media keep talking about disinflation and central bank inflation targets, and all they talk actually about is consumer prices, we will all fail to acknowledge what’s happening right before our very eyes. That is, the system is imploding. Deflating. Deleveraging. And before that is done, there can and will be no recovery. Indeed, this current trend has a very long way to go down. So far down that you will have a very hard time recognizing the world, and its economic system, on the other side of the process. But then again, you have a hard time recognizing the world for what it is on this side as well.
When China was closed for one week at the end of September, something which helped catalyze the biggest weekly surge in US stocks in years, out of sight meant out of mind, and many (mostly algos) were hoping that China's problems would miraculously just go away. Alas after yesterday's latest trade data disappointment, it was once again China which confirmed that nothing is getting better with its economy in fact quite the contrary, and one quick look at the chart of wholesale, or factory-gate deflation, below shows that China is rapidly collapsing to a level last seen in 2009 because Chinese PPI plunged by 5.9% Y/Y, its 43rd consecutive drop - a swoon which is almost as bad as Caterpillar retail sales data.