Following Friday's disastrous payrolls report, which confirmed all the pre-recessionary economic data and signaled that instead of approaching "lift-off" and decoupling from the rest of the world, the US economy is following the emerging markets into a slowdown in what may be the first global, synchronized recession since 2008, the market saw its biggest intraday surge since 2011 and the sharpest short covering squeeze in history, we are happy to announce that the "market" is now solidly back in "bad news is good news" mode.
From time to time, the data (from economic activity, inflationary pressure, risk appetite and asset valuations) points unambiguously in a single direction and experience tells us that such confluences are worth watching. We are today at such a point, and the worry is that each indicator is flashing red.
With China markets closed for holiday until the middle of next week, and little in terms of global macro data overnight (the only notable central banker comment overnight came from Mario Draghi who confidently proclaimed that "economic growth is returning" which on its own is bad for risk assets), it was all about the USDJPY which has seen the usual no-volume levitation overnight, dragging both the Nikkei higher with it, and US equity futures, which as of this moment were at session highs, up 7 points. The calm may be broken, though, as soon as two hours from now when the September "most important ever until the next" payrolls report is released.
The Fed’s policy of forward guidance and radical transparency is not working. It turns out that letting the market peer over its shoulder as it makes monetary policy sausage is, in some ways, worse than the opaque process that existed prior to the arrival of Bernanke and Yellen. It pulls back the curtain and shows the human, error prone side of the Fed. Every time the Fed’s dots move, it is an admission of failure and undermines the very confidence it was trying to inspire.
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.
The divergence theme is likely to strengthen in the week ahead.
Market participants, be they lenders or borrowers, know that “easy money” has an expiry date. If The FOMC raises rates, "we foresee negative effects on world GDP in the medium term, not only for emerging markets but also for industrialized economies." In other words, though emerging markets – through their dependence on capital inflows – will be at risk when America’s monetary policy eventually returns to “normal,” the same will be true for advanced economies.
US & China Stocks Are Plunging After PMI Hits 6.5-Year Low, PBOC Strengthens Yuan Most Since Nov 2014Submitted by Tyler Durden on 08/31/2015 23:21 -0400
Following China's official PMI print at a 3-year low, Caixin's PMI collapsed to 47.3 - the lowest sinec March 2009. Despite another CNY150bn liquidity injection (but the biggest strengthening of Yuan since Nov 2014 and a financial conditions tightening in FX trading), China, US, and Japanese stocks are plunging... SHCOMP -4%, Dow -280, NKY -340
"In the meantime, in our (un)beloved country, there is something scarier than Freddy Krueger: our growth / fiscal outlook."
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...
The week's weakness started with the surprise yuan devaluation, but the moves in everythingfrom crude oil to U.S. government debt signal that investors and traders are telling the Fed to hold off for now. Will U.S. policymakers listen? Make no mistake: the Fed marches to its own data-dependent drum. These indicators will only tell you if the central bank has the right tempo to support markets.
The headlines are dramatic, ugly and depressing to anyone who holds gold right now. Broad market sentiment has shifted from disdain and dismissive to highly negative. Hedge funds are shorting gold aggressively, hedge funds that own gold are being "outed". The market pundits are are sticking the proverbial knife in and twisting it with glee.
Back in the 1960s, Alan Greenspan wrote a well-known essay that to this day is an essential read for anyone who wants to understand the present-day monetary and economic system (which is a kind of “fascism lite” type of statism, masquerading as capitalism) and especially the almost visceral hate etatistes harbor toward gold. Greenspan’s essay is entitled “Gold and Economic Freedom”, and as the title already suggests, the two are intimately connected.
"I have lost everything. I don't know what to do... I trusted the government too much... I won't touch stocks again, I have ruined everyone in my family." "I will sell all my shares tomorrow if there is a chance." ... "I am pretty sure that if the government does not come to rescue us, the situation will get much worse," ... "I managed to sell them all at a loss today, and so I lost 320,000 yuan in two days. I don't have confidence on the market any more. I don't want to get into the market again."
Update: CHINA TO CONTINUE STABILIZING MARKET, SENTIMENT, PREVENT RISKS, CSRC SAYS
As Beijing pledges to remain supportive amid a harrowing decline in Chinese stocks, China may find itself with no exit strategy for its plunge protection program. As BofAML notes, "An 'indefinite' holding period is certainly possible – it’s how the government had dealt with the last round of bad debts in the banking system, i.e., by shifting them to bad banks and never crystalizing the losses. But even under such a scenario, there may be unintended consequences."