Equity Markets

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.

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...

With EM in turmoil from Brazil to Malaysia, Bloomberg has mapped the carnage, showing just how many EM equity markets are in or closing in on bear market territory.

Stocks remain green but the pre-open surge on the back of a China rate cut has been erased as USDJPY rolls over...

"I do not believe that the global economy is healing. I believe that the global economy is heading into a slump once again... It's not a pretty picture. All those people who say they will buy... I wonder if they still have money?"

Translation: the Fed is not data dependent, but it is, as we have said all along, entirely market dependent.

Following the recent broad market selloff which has taken all US stock indices into the red for 2015 and in some cases, red for the past 52 weeks, the real question traders should be asking themselves now that the power and potentcy of central bank intervention is increasingly questioned is whether stocks are now fundamentally cheap or at least, "fairly" valued. The answer, as SocGen's Andy Lapthorne points out, is a resounding no.

We warned on Friday, after last week's China rout, that the market is getting ahead of itself with its expectation of a RRR-cut by China as large as 100 bps. "The risk is that there isn't one." We were spot on, because not only was there no RRR cut, but Chinese stocks plunged, with the composite tumbling as much a 9% at one point, the most since 1996 when it dropped 9.4% in a single session. The session, as profile overnight was brutal, with about 2000 stocks trading by the -10% limit down, and other markets not doing any better: CSI 300 -8.8%, ChiNext -8.1%, Shenzhen Composite -7.7%. This was the biggest Chinese rout since 2007.

dear HFTs, get ready to be the scapegoats

— zerohedge (@zerohedge) August 20, 2015

BULLARD SAYS FED DOESN'T REACT DIRECTLY TO EQUITY MARKETS

"I have learnt from history that it is very hard working out what the trigger is. In 2008, it was the collapse of Lehman Brothers that triggered a credit crunch. Now it could be a major event in Turkey or a default of the Brazilian oil company Petrobras or some event in Malaysia. But if I have to pick one I would say it is Turkey introducing capital controls. Such controls will mean that Turkey will not pay back principals amounting to 400 Bio. $ and the interests on it." - Russell Napier

Perhaps the most important price point in the entire equity market was broken today... The odds of the post-2009 bull market continuing unimpeded are now significantly reduced.