Dazed And Confused: Futures Tumble Below 200 DMA, Oil Near $40, Soaring Treasurys Signal Deflationary DelugeSubmitted by Tyler Durden on 08/20/2015 07:00 -0400
It is unclear what precipitated it (some blamed China concerns, fears of rate hikes, commodity weakness, technical picture deterioration although it's all just goalseeking guesswork) but overnight S&P futures followed yesterday's unexpected slide following what were explicitly dovish Fed minutes, and took another sharp leg lower down by almost 20 points, set to open below the 200 DMA again, as the dazed and confused investing world reacts to what both the Treasury and Oil market signal is a deflationary deluge. Indeed, oil is about to trade under $40 while the 10Y Treasury was last seen trading at 2.07%. Incidentally, the last time oil was here in March of 2009, the Fed was about to unleash QE 1. This time, so called experts are debating if the Fed will hike rates in one month or three.
Facing a growing public backlash and seeking to deflect charges that the government is complicit in a massive coverup of a completely avoidable disaster that ultimately caused the deaths of more than 100 people, Beijing has compelled the Party-affiliated majority shareholders of Tianjin International Ruihai Logistics to admit their role in circumventing restrictions on the storage and handling of hazardous chemicals.
Another day, another technical breakdown, only this time not for the US but for the entire world. As BofA points out, "the weekly global A-D line shows a 2011-style breakdown", which it notes "is a market risk", although it remains unclear if central banks, and China's National Team in particular, use technicals when deciding to manipulate stocks.
Amid heavy volume at the open, US equity markets are rapidly reverting to Monday's lows. The Dow is now down 200 points from the Monday highs. Having seen the biggest squeeze on Monday, small caps are leading the plunge.
A rate hike is coming. It is coming because the economy is not in crisis and zero rates are crisis rates, Bloomberg’s Richard Breslow writes. It is coming because the benefits of starting down the path to monetary policy normality are vitally important to the future health of the economy and restoring the Fed’s reaction function. The world can share the benefits and the costs. But one thing we do know, is that with all the hinting and polling and talk of trajectory, it is not priced in.
Chinese Intervention Rescues Market From 2-Day Plunge, Futures Red Ahead Of Inflation Data, FOMC MinutesSubmitted by Tyler Durden on 08/19/2015 06:37 -0400
With China's currency devaluation having shifted to the backburner if only for the time being, all attention was once again on the Chinese stock market roller coaster, which did not disappoint: starting off with yesterday's dramatic 6.2% plunge, the Shanghai Composite crashed in early trading, plunging as much as 5% in early trading and bringing the two-day drop to a correction-inducing 11%, and just 51.2 points away from the July 8 low (when China unleashed the biggest ad hoc market bailout in capital markets history) . And then the cavalry came in, and virtually the entire afternoon session was one big BTFD orgy, leading to a 1.2% gain in the Shanghai Composite closing price, while Shenzhen and ChiNext closed up 2.2% and 2.7%, respectively.
Follow the plunge protection.
China Stocks Crash, More Than Half Of Market Halted Limit Down; PBOC Loss Of Control Spooks Global AssetsSubmitted by Tyler Durden on 08/18/2015 08:09 -0400
Just hours after the PBOC announced a modestly "revalued" fixing in the CNY, which curiously led to weaker trading in the onshore Yuan for most of the day before a forceful last minute intervention by the central bank pushed it back down to 6.39 it was the local stock market spinning plate - which had been relatively stable during the entire FX devaluation process - that China lost control over, and after 7 days of margin debt increases the Shanghai Composite plunged by 6.2% in late trade, tumbling 245 points to 3748, just 240 points above its recent trough on July 8, a closing level some 27% off its June peak.
The US equity markets stumbled out of the gate as the S&P 500 slipped back down to test its 200-day moving average. Then as volume dried up, the inevitable occurred - an algo-driven vertical melt-up pushing stocks back to unchanged... Crucially, undelying this 'panic-buying' is only 35% of stocks are advancing!!
The Telegraph’s John Ficenec has written an excellent piece warning of a possible market crash in the coming weeks. He identifies eight key “signs things could get a whole lot worse.”
It was a relatively quiet weekend out of China, where FX warfare has taken a back seat to evaluating the full damage from the Tianjin explosion which as we reported on Saturday has prompted the evacuation of a 3 km radius around the blast zone, and instead it was Japan that featured prominently in Sunday's headlines after its Q2 GDP tumbled by 1.6% (a number which would have been far worse had Japan used a correct deflator), and is now halfway to its fifth recession in the past 6 year, underscoring Abenomics complete success in desrtoying Japan's economy just to get a few rich people richer. Of course, economic disintegration is great news for stocks, and courtesy of the latest Yen collapse driven by the bad GDP data which has raised the likelihood of even more Japanese QE, the Nikkei closed 100 points, or 0.5% higher.
Just two days ago we warned of the dramatic disconnect between equity insurance and credit insurance markets - at levels last seen before Bear Stearns collapse. As the Yuan devaluation shuddered EURCNH carry traders and battered European assets, US equity markets stumbled onwards and upwards, impregnable in their fortitude with The Fed at their back no matter what. However, US corporate bond markets were a bloodbath...
The most pivotal importance of China is that it was the world’s latest financial hope. The yuan devaluation shatters that hope once and for all. The global economy looks a lot more bleak for it, even if many people already didn’t believe official growth numbers anymore. Because we’ve reached the end of the line, the game changes. Of course there will be additional attempts at stimulus, but China’s central bank has de facto conceded that its measures have failed. They just hope you won’t notice, and try to bring it on with a positive spin. Central banks are not “beginning” to lose control, they lost control a long time ago. The age of central bank omnipotence has “left and gone away” like Joltin’ Joe. Omnipotence has been replaced by impotence.
China "can't determine" what chemicals were warehoused in an industrial zone that exploded on Wednesday, leading local residents to question whether the air is safe to breathe. Meanwhile, Greenpeace suggests a hard rain risks driving air borne pollutants into the groundwater even as Beijing swears there's no evidece of chemicals in seawater.
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.