The stability of global capital markets, the ECB meeting and US employment data are highlights. Risk seems to be greater than discounted that Sept rate hike is still a distinct possibility.
Having recently explained (in great detail) why QE4 (and 5, 6 & 7) were inevitable (despite the protestations of all central planners, except for perhaps Kocharlakota - who never met an economy he didn't want to throw free money at), we found it fascinating that no lessor purveyor of the status quo's view of the world - Citigroup's chief economist Willem Buiter - that a global recession is imminent and nothing but a major blast of fiscal spending financed by outright "helicopter" money from the central banks will avert the deepening crisis. Faced with China's 'Quantitative Tightening', the economist who proclaimed "gold is a 6000-year old bubble" and cash should be banned, concludes ominously, "everybody will be adversely affected."
Many were stunned at the pace of the v-shaped recovery in US equity markets this week after Monday and Tuesday's carnage. However, as the following chart makes very clear, there was good reason for it... Having overshot to the downside of "Fed-Balance-Sheet-Implied" levels but around 100 S&P points, the broad index ripped back higher to almost perfectly settle at "Fed Fair Value" - between 1980 and 2000. But, there is a rather ominous event occuring in 2016 that is out of The Fed's control that implies S&P 1,800 unless QE4 is unleashed.
"As soon as people sense the government is withdrawing from direct intervention, there will be lots of investors starting to dump stocks again."
Overnight's start attraction was as usual China's stock market, where trading was generally less dramatic than Thursday's furious last hour engineered ramp, as stocks rose modestly off the open only to see a bout of buying throughout the entire afternoon session, closing 4.8% higher, and bringing the gain over the last two days to over 10%. This happens as China dumped a boatload of US paper to push the CNY higher the most since March, strengthening from 6.4053 to 6.3986, even as Chinese industrial profits tumbled 2.9% from last year: this in a country that still represents its GDP is rising by 7%. Expect much more Yuan devaluation in the coming weeks.
"Price insensitive" flows are starting to materialize, and our goal is to estimate their likely size and timing. These technical flows are determined by algorithms and risk limits, and can hence push the market away from fundamentals. The obvious risk is if these technical flows outsize fundamental buyers. In the current environment of low liquidity, they may cause a market crash such as the one we saw at the US market open on Mondaay"
Over the years, Socgen's Albert Edwards has repeatedly expressed his skepticism of both the economy and the market (the longest US equity "bull market" since 1945) both propped up by generous central banks injecting liquidity by the tens of trillions (at this point nobody really knows the number now that the 'black box' that is China has entered the global "plunge protection" game) and yet never did he have as "conclusive" a call as he does today. As the following note reveals, when looking at one particular indicator, Edwards is now convinced: 'we are now in a bear market."
The biggest surprise in today's NAR release came from the following Larry Yun statement: "Uncertainty in the equity markets — even if the Fed raises short-term rates in September — could stabilize long-term mortgage rates and preserve affordability for buyers." So with China, Larry Summer and the IMF now calling for a rate hike, the NAR - of all entities - is suddenly quite happy to see the recent market rout continue, which would keep rates lower and promote "affordability." Guess nobody tell Larry that China has now started dumping bonds.
- Virginia TV journalists killed by suspect with 'powder keg' of anger (Reuters)
- Policeman shot to death and three women stabbed, one fatally, in Louisiana (Reuters)
- China Intervened Today to Shore Up Stocks Ahead of Military Parade (Reuters)
- Margin Calls Bite Investors, Banks (WSJ)
- "Computer glitch" is preventing dozens of mutual funds, ETFs from promptly pricing their securities (WSJ)
- Oil prices rise more than 4 percent as equities rally (Reuters)
- Oil Industry Needs Half a Trillion Dollars to Endure Price Slump (BBG)
China has been the epicenter of recent market concerns as global markets focus on China's growth trajectory. Equity markets have been hit hard but the question is - how much further is there to go before it's over? Goldman Sachs looks at what the options market telling us? With HSCEI implied volatility over 40, a significant term structure inversion, and high skew, Goldman warns options all signal caution ahead.
As the ashes of the China's scorched equity markets lay smoldering at the feet of the plunge protection national team which finally gave up on rescuing the market after CNY900 billion proved inadequate to arrest the slide, and on the heels of the PBoC’s latest effort to staunch the bleeding by resorting to yet more policy rate cuts, we bring you the full, annotated SHCOMP market and policy timeline courtesy of Bloomberg.
Take your pick - here's three good reasons to engineer a "crash" that benefits the few at the expense of the many.
Here We Go Again: US Equities Surge Even As Chinese Stock Market Rollercoaster Tumbles To 8 Month LowSubmitted by Tyler Durden on 08/26/2015 08:16 -0400
It seemed like finally China's relentless and increasingly futile attempts to have a green stock close would work: interest rate cuts, liquidity injections, direct stock interventions, even threats on the Prime Minister's head, and just to make certain moments before the close news very deliberately broke that government funds are buying large financial stocks, especially state-owned banks, to support the index, in the latest clear signs of government support, the Shanghai Composite seemed on pace to end an unprecedented series of consecutive tumbles which have dragged the composite down nearly 1000 points, or 25% in one week, and then... red close, with the SHCOMP down 1.3% to 2927, and a stunned China watching in horror as the central bank and government lose control, and everything they throws at the biggest market bubble of 2015 does absolutely nothing.
Hold onto your bootstraps. Markets are setting themselves up for a surprise as the Fed is still likely to hike rates in September. Today’s ‘risk-on’ move is a function of those expecting delay. Rising levels of market volatility are here to stay and will be magnified by this ‘surprise’. Those ignoring the warnings of a rate hike by Fed officials do so at their own peril.
Every Federal Reserve Chair since 1979 has faced a notable challenge in the first 12-20 months of their tenure – something akin to capital markets “Bullies” hazing the new kid at school. Paul Volcker had the 1979-1980 Iranian oil shock/recession, Alan Greenspan the 1987 Stock Market Crash, and Ben Bernanke the 2007 Financial Crisis. Their responses shaped market perceptions about Federal Reserve priorities and set the stage for the remainder of their tenures, from Inflation-Fighting Volcker to Save-the-World Bernanke. Now, it is Chair Yellen’s turn...