After a week of relentless FX volatility, spilling over out of China and into all other countries, and asset products, it was as if the market decided to take a time-out overnight, assisted by the PBOC which after three days of record devaluations finally revalued the Yuan stronger fractionally by 0.05% to 6.3975. And then, as a parting gift perhaps, just as the market was about to close again, the Chinese central bank intervened sending the Onshore Yuan, spiking to a level of 6.3912 as of this writing, notably stronger than the official fixing for the second day in a row. In fact the biggest news out of China overnight is that contrary to expectations, the PBOC once again "added" to its gold holdings, boosting its official gold by 610,000 ounces, or 19 tons, to 1,677 tones.
Forced liquidation... capitulation ... contract roll... or "liquidity provision" gone awry? You decide.
For the first time since March 2009, the front-month WTI crude futures contract has traded with a $41 handle. As it draws ever nearer the 2009 lows, we are reminded of the ominous warnings that DoubleLine's Jeff Gundlach issued in January. - "I hope it does not go to $40 because then something is very, very wrong with the world, not just the economy. The geopolitical consequences could be – to put it bluntly – terrifying."
Earlier this week, Russian Foreign Minister Sergei Lavrov met with his Saudi counterpart Adel al-Jubeir to discuss options for Syria’s future. At the post-meeting press conference, Russia's top diplomat let his real feelings for the Saudis slip.
With Chinese growth still in question and IEA glut concerns weighing heavily, yesterday's bounce in crude (on lower US production) has been erased as it tests back to a $42 handle - at 6-year lows...
- China central bank tries to soothe global markets, says no reason for yuan to fall further (Reuters)
- Huge blasts at Chinese port kill 44, with hundreds injured (Reuters)
- China efforts to slow yuan fall hoist Europe shares, bond yields (Reuters)
- Greek Economy Unexpectedly Surged Before Capital Controls (BBG)
- Joe Biden Is Sounding Out Allies About a 2016 Bid (WSJ)
- U.K. Tries to Kick-Start Shale Gas With Planning Speedup (BBG)
With everyone now focused on what China's daily Yuan fixing will be ever night, there was some confusion why last night the PBOC decided to devalue the CNY by another 1.1% to 6.4010, despite its promise that the devaluation would be a "one-off" event, taking the 3 day devaluation to just about 4.5%. However, subsequently in a press conference, central bank vice-governor Yi Gang said that the PBoC will continue to step in when the market is ‘distorted’, that there is no economic basis for the Yuan to fall continuously and that it will look to keep the exchange rate ‘basically stable’. The Vice-Governor also said that the PBoC will closely monitor cross-border capital flows and that reports suggesting the Central Banks wants to see the currency depreciate 10% are ‘groundless’. Which is ironic considering after just 3 days, the PBOC is already half the way there!
We all know how sectarian, religious and political differences have thrown many Middle Eastern countries into chaos and armed conflict. But there is a deeper factor at play which deserves greater recognition: severe water scarcity.
As we hurtle toward the absolutely critical months of September and October, the unraveling of the global financial system is beginning to accelerate.
Based on data for the week ended August 7th, the Major Trend Index dropped to a NEGATIVE reading of 0.90, led by declines in both the Attitudinal and Momentum/Breadth/Divergence work. The topping action evident in the MTI and other disciplines is consistent with either a severe correction, or a cyclical bear in the near future. We’ve therefore cut net equity exposure in both the Leuthold Core and Leuthold Global Funds to 38%, down from 48% in late July, and 61-62% in late June. A further reduction is possible in the days ahead.
The week's weakness started with the surprise yuan devaluation, but the moves in everythingfrom crude oil to U.S. government debt signal that investors and traders are telling the Fed to hold off for now. Will U.S. policymakers listen? Make no mistake: the Fed marches to its own data-dependent drum. These indicators will only tell you if the central bank has the right tempo to support markets.
US crude production declined 0.74% last week to its lowest level since May 15th. US crude inventories dropped for the 4th week of the last 5, but considerably less than expected.
The overnight market has been a repeat of yesterday's action, when following China's repeat 1.6% devaluation of the CNY (which was to be expected since the PBOC made it quite clear the fixing would be based off the market value, a value which continues plunging), the second biggest in history following Monday's 1.9% plunge, traders appeared stunned having believed the PBOC's lies that the devaluation was a one-off and as a result the E-Mini tumbled overnight, and is now 30 points lower from last night's PBOC fixing announcement, trading at around 2058, and far below the "magical" 200-DMA support line, which has now been solidly breached.