Burst Chinese Housing Bubble Leads To First Annual Price Decline Since 2012; Prices Drop In Record 69 CitiesSubmitted by Tyler Durden on 10/24/2014 08:04 -0400
It has been over six months since the Chinese housing bubble has popped. What's worse, as overnight housing numbers out of China confirmed, the government has so far failed to contain the fallout, and according to the National Bureau of Statistics, which is anything but, after a fifth straight monthly decline, Chinese home prices have now wiped out all price gains in the past year. This was immediately spun as bullish by media outlets and sellside experts as "raising expectations the government will have to implement more economic support measures to cushion the blow." I.e., buy stocks because central banks will push risk prices artificially higher yet again. In other words, bad is still good and failure continues to be success.
- Canada PM vows crackdown after capital shocked by fatal attacks (Reuters)
- Canada Gunman Was Convert to Islam With Criminal Record (BBG)
- Some U.S. hospitals weigh withholding care to Ebola patients (Reuters)
- But... Great rotation... Bond funds stock up on Treasuries in prep for market shock (Reuters)
- Saudis at War With Islamic State Confront Echo of Kingdom’s Past (BBG)
- EU’s Top Banker Warns of Rule Fixation ‘Going Beyond Reason (BBG)
- U.S.-led air strikes killed 521 fighters, 32 civilians in Syria (Reuters)
- Growing Kurdish Unity Helps West, Worries Turkey (WSJ)
- Don’t Be Distracted by the Pass Rate in ECB’s Bank Exams (BBG)
- Hedge Funds Add to Venture-Capital Bounty (WSJ)
- Speed-of-Light Trading Grows in Europe With McKay Network (BBG)
Whocouldanode? Chinese GDP managed (thanks to record-breaking credit creation and QE-lite) to beat expectations of +7.2% and come in at +7.3% (still its slowest growth since April 2009). Notably this was the biggest decoupling from Bloomberg's high-frequency economic data forecast (i.e. real data) since May 2010. Despite weakness in Cement and Steel output, Industrial Production also managed to beat and actually improve (another miracle). Retail Sales missed expectations, rose only 11.6% YoY - its weakest since Feb 2006. Initial kneejerk is a lift in USDJPY, AUDJPY, TSY yields, and S&P and NKY futures... but that has now faded...
Yesterday, Obama made a rare campaign trail appearance in Maryland where he spoke in support of Democratic candidate for governor, Anthony Brown, proceeded with his usual bulletin of reading fabricated economic data off the teleprompter in which he highlighted improvements in US unemployment (if not the 46.5 million people on foodstamps or the 93 million Americans out of the labor force), a rebounding housing market (just as the bouncing dead cat is once again dead), the benefits of health insurance (if no mention of the disaster for small businesses that Obamacare now definitively is) a resurgent manufacturing sector (just don't look at this chart) even if he did point out the unfairness of families having "two folks working", and... a mass audience exodus followed.
We suspect the market will be disappointed by this morning's headlines from China. Chinese rate markets are implying a RRR cut is coming soon (as swap rates drop below deposit rates - previously signaled 2 RRR cuts) but the PBOC announced this morning a muich more focused injection of cash to 20 of the nations' largest banks. RRR cuts, are (theoretically) considerably more broadly stimulative to lending than a $32.8 billion cash injection to banks - which are struggling to lend as demand for loans (given high costs of debt for the firms that need the money the most) is weak. One can only imagine the holes in bank balance sheets that exist if the PBOC is forced to do this. Simply put, no matter how much hope there is, as we noted previously, the PBOC will not be providing broad stimulus.
If the last three days all started with a rout in futures before the US market open only to ramp higher all day, today it may well be the opposite, when shortly after Europe opened it was the ECB's turn to talk stocks higher, when literally within minutes of the European market's open, ECB's Coeure said that:
- COEURE SAYS ECB WILL START WITHIN DAYS TO BUY ASSETS
Which was today's code word for all is clear, and within minutes US futures, which until that moment had languished unchanged, soared by 25 points. So will today be more of the same and whatever early action was directed by the central bankers will be faded into a weekend in which only more bad news can come out of Ebola-land?
Surprise! Having been fooled twice before in the last housing bubble by the NAHB's persistent optimism in the face of dismal realities, it appears October was the beginning of a breaking point in realtor confidence. The headline sentiment index dropped to 54, missing extrapolated expectations of 59, led by a collapse in prospective buyers traffic (from 47 to 41). The headline 54 level is below the lowest estimate of 56 from 52 economists surveyed. Both present and future sales sub-indices also dropped but have no fear, as the NAHB notes, "while there was a dip this month, builders are still positive about the housing market," as cheaper borrowing costs may help draw more prospectiev buyers into the market (umm yeah that hasn't worked).
- Dallas County May Declare State of Disaster From Ebola Virus (BBG)
- Markets on edge after worst turmoil in four years (Reuters)
- Central bankers may have no quick fix as markets swoon, economy weakens (Reuters)
- Risk of Deflation Feeds Global Fears (Hilsenrath)
- U.S. health official allowed new Ebola patient on plane with slight fever (Reuters)
- Texas Hospital Fights Allegations About Ebola Protocols (BBG)
- Treasuries Gain as Oil Drops Below $80 While Stocks Slide (BBG)
- Greek Bonds Slump on Bailout Concern as Spain Misses Sale Target (BBG)
- White House shifts into crisis mode on Ebola response (Reuters)
- Obama Confronts Slippery Slope as Islamic State Advances (BBG)
Yesterday afternoon's "recovery" has come and gone, because just like that, in a matter of minutes, stuff just broke once again courtsy of a USDJPY which has been a one way liquidation street since hitting 106.30 just before Europe open to 105.6 as of this writing: U.S. 10-YEAR TREASURY YIELD DROPS 15 BASIS POINTS TO 1.99%; S&P FUTURES PLUNGE 23PTS, OR 1.2%, AS EU STOCKS DROP 2.54%.
Only this time Europe is once again broken with periphery yields exploding, after Spain earlier failed to sell the maximum target of €3.5 billion in bonds, instead unloading only €3.2 billion, and leading to this: PORTUGAL 10-YR BONDS EXTEND DROP; YIELD CLIMBS 30 BPS TO 3.58%; IRISH 10-YEAR BONDS EXTEND DECLINE; YIELD RISES 20 BPS TO 1.90%; SPANISH 10-YEAR BONDS EXTEND DROP; YIELD JUMPS 29 BPS TO 2.40%.
And the punchline, as usual, is Greece, whose 10 Year is now wider by over 1% on the session(!), to just about 9%.
Central banks have reached a fork in the road.
According to Wells Q3 Earnings Supplement, while Mortgage Applications declined from a transitory one year high of $72 billion in Q2 to $64 billion, this number is going far lower. The reason: Wells' Morgage Application Pipeline just tumbled back to $25 billion, matching the lowest number since Lehman, and putting an end to any debate about the state of the US housing market.
Today US activity will be very light given the Columbus Day holiday. As DB summarizes, we have a relatively quiet day for data watchers today but the calendar will pick up tomorrow and beyond with a big focus on inflation numbers amongst other things. Indeed tomorrow will see the release of Germany’s ZEW survey alongside CPI prints from the UK, France and Spain. Wednesday’s data highlights will include the US retail sales for September, the Fed’s Beige Book, CPI readings from China and Germany, US PPI, and the NY Fed Empire State survey. Draghi will speak twice on Wednesday which could also be a source for headlines. On Thursday, we will get Industrial Production stats and the Philly Fed Survey from the US on top of the usual weekly jobless claims. European CPI will also be released on Wednesday. We have the first reading of October’s UofM Consumer Sentiment on Friday along with US building permits/housing starts. Yellen’s speech at the Boston Fed Conference on Friday (entitled “Inequality of Economic Opportunity”) will also be closely followed.
- Privately, Saudis tell oil market: get used to lower prices (Reuters)
- OPEC Members’ Rift Deepens Amid Falling Oil Prices (WSJ)
- Russia Spending $6 Billion Not Enough to Stop Ruble Rout on Oil (BBG)
- Deutsche clampdown on bad behaviour prompts exodus of traders (FT)
- Can't beat the spin: China trade data eases slowdown fears, more stimulus may still be needed (Reuters)
- China’s Exports Buoy Growth as IPhone Inflates Imports (BBG)
- Italy on Sale to Chinese Investors as Recession Bites (BBG)
- Hong Kong Protesters, Antiprotest Activists Clash (WSJ)
- Turkey Offers Military Bases to U.S.-Led Coalition (BBG) ... and the price is a small piece of post-Assad Syria
- Passenger With Flu-Like Symptoms Causes Ebola Scare At LAX (CBS)
- Boston patient deemed unlikely to have Ebola virus (Boston Globe)
Late into Friday's major market selloff, a completely unfounded rumor emerged out of nowhere, seeking to rekindle the BTFD spirits, that with central bank intervention from both the BOJ and ECB already priced in, and with the Fed still in taper mode (if not for much longer should the S&P dump accelerate), that the last central-planner wildcard, China, would join the fray and a major monetary gusher would come out of Beijing over the weekend to halt the slide. Alas, we have bad news for said BTFDers: just hours before futures are set to open on Sunday afternoon, the chief economist at China’s central bank said Saturday that he doesn’t see any reason for large-scale fiscal or monetary stimulus “in the foreseeable future” despite slowing growth in the world’s second-largest economy and disagreements about the depth and timing of economic overhauls.... Part of China’s “new normal,” he said, is that “big stimulus” won’t be called for every time growth decelerates. “And secondly, the new norm will involve a lot of rebalancing in terms of changing the economic structure.”
What if there was some degrees of freedom in the centrally planned capital markets that rational, non-emotional and non-ideologically-laden thinking could shed light on ? Here is such an attempt