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.
Perhaps the biggest surprise about the overnight Chinese stock rout is which followed the lowest manufacturing PMI since March 2009, is that it happened despite repeat sellside pleas for a PBOC RRR cut as soon as this weekend: usually that alone would have been sufficient to push the market back into the green, and it almost worked when in the afternoon session stocks rebounded after dropping as much as 4.7% below the "hard" floor of 3500, but then a second bout of selling just before the close took Chinese stocks right back to the lows with the Shanghai Composite closing at 3,507, down 4.3% on the day, having wiped out the entire 18% rebound from July 8 when the PBOC first threatened both sellers and shorters with arrest.
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.