The most prominent market event overnight was once again the action in China's penny-index, which after tumbling at the open and briefly entering a 10% correction from the highs hit just two days ago, promptly saw the BTFDers rush in, whether retail, institutional or central bankers, and after rebounding strongly from the -3% lows, the SHCOMP closed practically unchanged following a 2% jump to complete yet another 5% intraday swing on absolutely no news, but merely concerns what the PBOC is doing with liquidity, reverse repos, margin debt, etc. Needless to say, this is one of the world's largest stock markets, not the Pink Sheets.
Courtesy of central planning, virtually every single capital market has become an illiquid penny stock, with wild swings from one extreme to the other, the latest example of this being the Shanghai Composite, which after soaring 10% in the past ten days, crashed 6.5% overnight tumbling 321 points to 4620 after it briefly rose just shy of 5000. This was the biggest drop since January 19 when the Composite dropped 7.7% only to blast higher ever since. Putting the "plunge" in perspective, now the SHCOMP is back to levels not seen in... one week.
"Japanese day traders, colloquially and collectively known as 'Mrs Watanabe', are buying the yen as it nears eight-year lows," Nikkei reports. For their part, private equity firms are cashing out at what they figure may be the top for Japanese stocks.
It had been a painfully quiet session in Asia (where Chinese levitation continues with the Shanghai Composite up another 0.6% oblivious of yesterday's rout in the US, because as we explained for China it is now critical to blow the world's biggest stock bubble) and Europe, where the only notable news as that for the first time in months the ECB had not increase the Greek ELA, keeping it at €80.2 billion on conflicting reports that Greek deposit withdrawals had halted even as Kathimerini said another €300MM had been pulled just yesterday, suggesting the ECB has reached the end of its road when it comes to funding nearly two-thirds of what Greek deposits are left in local banks. But the punchline came moments ago when Bloomberg reported that "Greece will likely miss a deadline for a deal with creditors by the end of the week as the two sides have made little progress during talks in recent days."
While yesterday most markets were closed and unable to express their concerns at the very strong showing of "anti-austerity" parties in Spain's municipal election from Sunday, then today they have free reign to do just that, and as a result European stocks are broadly lower, alongside the EURUSD which dripped under 1.09 earlier today, with Spanish banks among the worst performers: Shares of Banco Sabadell, Bankia, Caixabank and Popular were down 1.8 to 2.3% earlier this morning, and while the stronger dollar was a gift to both the Nikkei and Europe in early trading, after opening in the green, Spain's IBEX has since slid into the red on concerns of what happens if the Greek anti-status quo contagion finally shifts to the Pyrenees.
With US markets closed for the Memorial Day holiday, and some of the key European markets likewise shuttered for public holiday including the UK, Germany and Switzerland, it is difficult to find where one can observe or trade the weekend's newsflow, which is once again centered on developments in Europe, where on Sunday Spanish Prime Minister Mariano Rajoy’s People’s Party suffered its worst result in a municipal election in 24 years while Greece continues to threaten with default 5 some years after it should have officially pulled the plug.
Chinese Stock Bubble Frenzy Returns; US Futures Flat Ahead Of Today's Pre-Holiday Zero Volume Melt UpSubmitted by Tyler Durden on 05/22/2015 06:51 -0400
The highlight of the overnight newsflow may have been the BOJ's preannounced statement that it is keeping its QE unchanged (which comes as no surprise after a few weeks ago the BOJ adimitted it would be unable to keep inflation "stable" at the 2% in the required timeframe), but the highlight of overnight markets was certainly China, where the Banzai Buyers have reemerged, leading to another whopping +2.8% session for the Shanghai Composite which has now risen to a fresh 7 years high.
The big news overnight was neither the Chinese manufacturing PMI miss nor the just as unpleasant (and important) German manufacturing and service PMI misses, but that speculation about a rate hike continues to grow louder despite the abysmal economic data lately, with the latest vote of support of a 25 bps rate increase coming from Goldman which overnight updated its "Fed staff model" and found surprisingly little slack in the economy suggesting that the recent push to blame reality for not complying with economist models (and hence the need for double seasonal adjustments) is gaining steam, and as we first suggested earlier this week, it may just happen that the Fed completely ignores recent data, and pushes on to tighten conditions, if only to rerun the great Trichet experiment of the summer of 2011 when the smallest of rate hikes resulted in a double dip recession.
Futures Flat With Greece In Spotlight; UBS Reveals Rigging Settlement; Inventory Surge Grows Japan GDPSubmitted by Tyler Durden on 05/20/2015 07:00 -0400
The only remarkable macroeconomic news overnight was out of Japan where we got the Q1 GDP print of 2.4% coming in well above consensus of 1.6%, and higher than the 1.1% in Q4. Did it not snow in Japan this winter? Does Japan already used double, and maybe triple, "seasonally-adjusted" data? We don't know, but we do know that both Japan and Europe have grown far faster than the US in the first quarter.
Less than a week ago, fresh from the aftermath of the recent dramatic six-sigma move in German Bunds, one of Europe's largest banks openly lamented that so far the ECB's QE had done absolutely nothing: "two months of QE for nothing." And lo and behold, as if on demand, overnight the ECB confirmed it had heard SocGen's lament when just before the European market open, ECB executive board member Benoit Coeure delivered a speech at the Brevan Howard Centre for Financial Analysis (appropriately named after a hedge fund) at Imperial College Business School (not to be confused with the July 26, 2012 Mario Draghi "whatever it takes" speech which also took place in London) in which he said that the ECB intends to "frontload" i.e., increase, its purchases of euro-area assets in May and June ahead of an expected low-liquidity period in the summer.
With equities having long ago stopped reflecting fundamentals, and certainly the Eurozone's ever more dire newsflow where any day could be Greece's last in the doomed monetary union, it was up to gold to reflect that headlines out of Athens are going from bad to worse, with Bloomberg reporting that not only are Greek banks running low on collateral, both for ELA and any other purposes, that Greece would have no choice but to leave the Euro upon a default and that, as reported previously, Greece would not have made its May 12 payment had it not been for using the IMF's own reserves as a source of funding and that the IMF now sees June 5 as Greece's ever more fluid D-day. As a result gold jumped above $1230 overnight, a level last seen in February even as the Dollar index was higher by 0.5% at last check thanks to a drop in the EUR and the JPY.
Explaining all that is wrong with the fraudulent US "jobs recovery" using the case study of Japan.
Was that it for the "reflation" aka Bund-rout trade? One look at German bonds this morning and the sharp, panic selloffs seen in recent days are completely gone making one wonder if the ECB is done selling Bunds the CTAs who were riding the momentum train have all been squeezed out of their long positions and now the trend back to -0.20% can resume only to be followed by another abrupt 6-sigma move as the ECB once again sells inventory to buy itself more monetization runway. As a reminder, the ECB has to buy debt until September 2016 and it won't be able to if the 30-Year Bund is at -0.20% in a few months (or weeks).
It has gotten to where just the lack of a rout in Bunds or any other government issue is enough to activate the "bullish" outside stop hunting algo, which is probably why ES has jumped overnight in another illiquid, newsless session. Curiously, Bunds shave not sold off even though the EUR has jumped sharply by almost 100 pips overnight to a 3 month high also on no news (with some amusing acrobatics by the USDJPY alongside) traditionally a bearish indicator for the Dax and thus the S&P. Perhaps the algos are just late, or maybe the "weak dollar is good for stocks" thesis has been activated, but in any event this morning's ramp higher in the ES will continue until all upside stops are hunted down by Virtu and crushed mercilessly.
Marc Faber Contrarian Bet Against Market Consensus - US Treasuries
Special thanks to Dr. Marc Faber for giving us permission to publish excerpts from his May Gloom Boom & Doom Report.