Hong Kong

"We are seeing more globalization as Southern California has become a destination for international buyers," said Mark Hughes, chief operating officer with First Team Real Estate, covering the Southern California market. "Eighty percent of new construction in Irvine last year was sold to Chinese buyers. International buyers are driving home prices up and sometimes out of reach for many local residents."

It takes ignorance on an almost unbelievable level to try to claim that “nothing is happening” in the financial world right now.

Asian markets are bouncing modestly off a weak US session, buoyed by more unbelievable propaganda from Japan. Abe's proclamations that "deflationary mindset" has been shrugged off was met with calls for more stimulus, more debt monetization, and an admission by Etsuro Honda (Abe's closest adviser) that Japan "is not growing positively" and more QE is required despite trillions of Yen in money-printing having failed miserably, warning that raising taxes to pay for extra budget "would be suicidal." Japanese data was a disaster with factory output unexpectedly dropping 0.5% and retail trade missing. Markets are relatively stable at the open as China margin debt drop sto a 9-month low. PBOC strengthened the Yuan fix for the 3rd day in a row to its strongest in 3 weeks.

China's massive interventions in the offshore yuan spot look to have begun affecting liquidity in Hong Kong as heavy CNH buying by Chinese banks coincides with a spike in O/N HIBOR. The question now would appear to be this: how long before something snaps in mainland money markets?

• Commodities in crisis as Asian shares tumble and shipper files for bankruptcy (Reuters)
• Global Rout Eases as S&P 500 Futures Advance With Oil, Glencore (BBG)
• Chinese Stocks Decline Most in a Month in Hong Kong on Economy (BBG)
• India cuts interest rates by more than expected (BBC)
• Glencore Rebounds as $50 Billion Plunge Is Seen as Excessive (BBG)
• How Congress May Have Saved Goldman Sachs From Itself (BBG)

It was all about China once again, where following a report of a historic layoff in which China's second biggest coal producer Longmay Group fired an unprecedented 100,000 or 40% of its workforce, overnight we got the latest industrial profits figure which plunging -8.8% Y/Y was the biggest drop since at least 2011, and which the National Bureau of Statistics attributed to "exchange rate losses, weak stock markets, falling industrial goods prices as well as a bigger rise in costs than increases in revenue." In not so many words: a "hard-landing."

The Western gold space has learned a great deal about the Chinese gold market and global gold flows, though we’re always left with loose ends. For example, the issue regarding PBOC gold purchases; how much gold do they truly have and where was it bought? Does the PBOC buy 400-ounce Good Delivery (GD) bars in London and covertly transports these gold bars to its gold vaults in China mainland, or are the Good Delivery gold bars shipped to Switzerland, refined into 1 Kg 9999 gold bars, sent forward to the Chinese mainland where they’re required to be sold through the SGE gold exchange and from where they can be bought (in clear sight) by the PBOC.

"...there’s an enormous and growing disconnect between the cash and physical markets for gold. This is exactly what we would expect to precede a major market-shaking event based on a physical gold shortage."

Are some Chinese banks ramping up their exposure to shadow conduits on the way to obscuring massive amounts of credit risk? Moody's says yes...

As documented here and elsewhere, in addition to the Pope and Putin, the third world leader US president Obama is "historically" meeting this week is China's President, and General Secretary of the Chinese Communist party, Xi Jinping. But just like everywhere else, the president is mostly a figurehead for far greater political and primarily financial interests backing him. So who calls the shots in China? The following infographc lays out the key power divisions of political, economic and financial power in China at this moment.

• Global Markets Rebound on Yellen Speech (WSJ)
• Obama and Putin to meet; Syria and Ukraine vie for attention (Reuters)
• Obama to host China's President Xi amid simmering tensions (Reuters)
• Don't Fall for It, Xi! Chinese Take to Web to Scorn U.S.—and China, Too (BBG)
• Yellen Confirms Fed Still on Track to Raise Rates This Year (BBG)... but is still China dependent?
• Abe's New Economic Plan Confounds Analysts (BBG)
• It's All `Perverted' Now as U.S. Swap Spreads Tumble Below Zero (BBG)

The evening started on a high note when Janet Yellen's survival giving a speech warranted a 100 point rip in Dow futures (and USD strength). Then Japan stepped up with its first deflationary CPI print since April 2013 (which of course was met with stock-buying because moar QQE is overdue but that soon faded). EM FX is tumbling further (with Malaysia leading the charge). Chinese credit risk jumps tro a new 2 year high (as SHIBOR remains entirely manipulated flat) as China halts its 4-day devaluation with a tiny nudge stronger in the Yuan fix.

As powerful as the Fed is, it isn’t stronger than the markets. And the longer the Fed tries to sustain abnormalities like QE and 0% interest rates, the more likely it is that the whole business will end with the markets crushing the Fed. At the next sign of a market swoon or of a weakening economy, or with the next episode of deflationary jitters, the Fed will do whatever it takes, no matter what the eventual damage to the dollar’s value. Whatever the details, one thing should be clear. This politburo of unaccountable central planners is the greatest risk to your financial wellbeing today.

• Global Stocks Steady Despite China Slowdown (WSJ)
• European Recovery Saves Markets From China Gloom as Stocks Rally (BBG)
• Pope starts U.S. trip with tone of conciliation (Reuters)
• FBI Said to Recover Personal E-Mails From Hillary Clinton Server (BBG)
• Volkswagen chief faces grilling by board over diesel scandal (Reuters)
• 'European Detroit' Fear Grips VW Company Town as Scandal Widens (BBG)
• Berlin finds itself caught up in Volkswagen scandal (FT)

In many ways, the overnight market has so far been a reversal of yesterday, when a stable Asia session (with China stocks rising) gave way to a European tumble which in turn dragged the US lower.