Nikkei

After the worst week for stocks in years, and following a significantly oversold condition, it will hardly come as a surprise that the mean reversion algos (if only to the upside), as well as the markets themselves (derivative trading on the NYSE Euronext decided to break early this morning just to give some more comfort that excessive selling would not be tolerated)  are doing all they can to ramp equities around the globe, and futures in the US as high as possible on as little as possible volume. And sure enough, having traded with a modestly bullish bias overnight and rising back over 2000, the E-Mini has seen the now traditional low volume spike in the last few minutes, pushing it up over 15 points with the expectation being that the generic algo ramp in USDJPY ahead of the US open should allow futures to begin today's regular session solidly in the green, even if it is unclear if the modest rebound in the dollar and crude will sustain, or - like on every day in the past week - roll over quickly after the open. Also, we hope someone at Liberty 33 tells the 10Y that futures are soaring: at 2.13% the 10Y is pricing in nothing but bad economic news as far as the eye can see.

The Japanese economy may well be getting crushed under the weight of Abenomics (courtesy of an unprecedented in history quadruple-dip recession and a record number of Japanese corporate bankruptcies due to the plunging Yen), but as we wrote previously, Abe has effectively hijacked the nation to his (and Paul Krugman's) stock-market levitating policies and has given Japan a simple choice: either you let us see this disastrous experiment in trickle-down monetarism to its tragic end, or all your pensions are toast.  Not much of a choice for a population which has more retirees than any developed nation. And it's not like Japan has much a chance anyway. Which is why the outcome of tomorrow's vote for Abenomics is completely irrelevant, and which the local press says will "unquestionably" be won by Abe in an absolute majority.

The president of the Japan's, and the world's largest, pension fund has a warning for Japan's citizens: “I have no doubt that the economy is in a recovery trend if you look at the long run,” GPIF President Takahiro Mitani said in an interview Friday. Actually, no, it isn't, unless you call a quadruple-dip recession a "recovery." But where it gets bad is what happens when not even Japan's corrupt apparatchiks can deny reality. Because, said otherwise, "Abenomics better work, or else all your pensions are toast."

Anyone who was hoping the market would rebound on last-minute news that the US government has gotten funding for another 9 months, will be disappointed this morning, when futures are finally starting to notice the relentless decline in crude, and with Brent down another 1% as of this writing following yet another cut in the forecast of Global oil demand by the IEA (the 4th in the last 5 months) and with Chinese industrial production also missing estimates (recall that the Chinese slow-motion hard landing has been said by many to be the primary catalyst for the crude collapse) which however pushed Chinese stocks higher on hopes of even more stimulus, the S&P is trading lower by some 14 points, the 10 Year is in the red zone at 2.12%, and the USDJPY is close to session lows. In short: Kevin Henry's "ETF" desk at the NY Fed will have its work cut out to generate one of the now traditional pre-weekend feel good, boost confidence stock market ramps.

Two months ago, when looking at the US Import Price Index (by origin), we showed Where The US Is Importing All The "Evil" Deflation From. The answer, courtesy of Abenomics, was simple: Japan. Earlier today we got further evidence that while the Fed is banging its head over how to halt America's deflationary spiral further away from the Fed's 2% target (at least as measured by the BLS), what it should do - if it really cares - is get on the phone with Abe and tell him to end Abenomics and Japan's unprecedented exporting of deflation (and importing of inflation).

Not quite as many fireworks overnight, in another session dominated by central banks. First it was revealed that China had injected CNY400 billion into the banking system to add liquidity as the economy slows, which is ironic because on the other hand China is also seemingly doing everything in its power to crash its nascent stock market bubble mania, following the latest news that China’s CSRC approved 12 IPOs ahead of schedule which is seen as a pre-emptive step to tighten interbank liquidity amid the recent rise in margin trading. Another central bank that was busy overnight was Russia's, which proceeded with its 5th rate hike of the year, pushing the central rate up by 100 bps to 10.50% as expected. Elsewhere, the Bank of England wants to move to a Fed-style decision schedule and start releasing immediate minutes as Governor Mark Carney overhauls the framework set up more than 17 years ago. The Swiss National Bank predicted consumer prices will drop next year and said the risk of deflation has increased as it vowed to defend its cap on the franc. Finally Norway’s central bank cut its main interest rate for the first time in more than two years and signaled it may ease again next year as plunging oil prices threaten growth in western Europe’s biggest crude exporter.

The attention being brought to bear upon Greece highlights once again the hollow nature of the “recovery” in Greece, Europe and the western world. The crisis is far from resolved - merely to use the very true cliche - kicked down the road. Well we appear to be coming towards the end of the road in Greece and this could set the stage for the next stage of the Eurozone debt crisis.

• New Normal headlines: Global stocks up on hopes of China policy easing (Reuters)
• China inflation eases to five-year low (BBC)
• U.S. Lawmakers Agree on $1.1 Trillion Spending Bill (WSJ)
• U.S. Braced for Blowback as CIA Report Lays Bare Abuses (BBG)
• CIA tortured, misled, U.S. report finds, drawing calls for action (Reuters)
• CIA Made False Claims Torture Prevented Heathrow Attacks (BBG)
• Oil Resumes Drop as Iran Sees $40 If There’s OPEC Discord (BBG)
• OPEC Says 2015 Demand for Its Crude Will Be Weakest in 12 Years (BBG)
• Greek yield curve inverted as politics raise default fears (Reuters)

Now that China is on the same boat as the rest of the world, and its stock market is a direct reflection of hopes for constant liquidity injections by the central banks, nothing could be better for stocks than bad news, which is precisely what it got. After the biggest crash in the Shanghai Composite in 5 years, what China got just the bad economic update it needed, when it reported a PPI of PPI (-2.7%, Exp. -2.4%), the 33rd consecutive decline and a  CPI (1.4%, Exp. 1.6%), lowest since November 2009, when the big banks’ RRR rate stood at 15.5% vs. current 20%. And so hope of yet more PBOC interventions to halt China's deflation promptly reversed SHCOMP losses of over 4% on the session (at which point it was just shy of correction territory from recent highs hit just this week), and stocks surged to close up almost 3%, erasing half of yesterday's losses. This spike came despite reports Chinese regulators may limit brokerages' interbank borrowing.

The Nikkei 225 has fallen over 300 points from the v-shaped recovery close at the end of the US day session and is now trading below the lows of the day at 2-week lows. USDJPY has plunged over 100 pips having briefly neared 120.00, now back below 119.00. JGB Futures are trading near record highs prices as yields collapse to near-record lows (30Y -23bps since QQE, 20Y -15bps) only seen during last year's yield-crash. No surprise then with the bond market "dead" according to market participants and yields negligible, that RBS has decided to exit the Japanese fixed-income business, slashing 200 jobs, and surrendering its primary bond dealership.

China's overnight destruction of $80 billion of eligible collateral from the great global carry trade has had destructive consequences on the massively crowded short JPY (long USDJPY) trade. Haviung already lost ground following the dismal downward revisions in GDP, USDJPY is down 350 pips from yesterday morning's highs (This is the biggest 2-day drop in USDJPY in 18 months.) and the Nikkei 225 is down over 700 points in the same period... Abe approval ratings are plunging-er.  Did the downward revision to Japanese GDP straw finally break the back of the Central Bank Omnipotence camel?

Gold prices have surged this morning to their highest since October (over $1221) as leveraged hot money greatly rotates its repo-driven way out of risk assets and into Greenspan's alternative currency. However, there is a bigger problem for the biggest pairs trade that no one is discussing - apart from us - the decoupling of the long Nikkei, short gold trade as the repo market folds in on itself from the suck out of $80 billion in collateral by China...

Those who have been following the ridiculous moves in the Shanghai Composite in recent months, knew it was only a matter of time before yet another major stock market (one which recently surpassed the Nikkei for the second largest spot in the world) crashed violently, further eroding faith in the centrall-planned "price discovery" process. The only question was when. Tonight we got the answer.

It wasn't just China's long overdue crash last night. In addition to the Shanghai Composite suffering its biggest plunge since August 2009, there has been a sharp slide in the USDJPY which has broken its uptrend to +∞ (and hyperinflation), and around the time Chinese gamblers were panicking, the FX pair tumbled under 120, although since then the 120 tractor beam has been activated. Elsewhere, the Athens stock exchange is also crashing by over 10% this morning on the heels of news that the Greek government has accelerated the process to elect the next president and possibly, a rerun of the drama from the summer of 2012 when the Eurozone was hanging by a thread when Tsipras almost won the presidential vote and killed the world's most artificial and insolvent monetary union. And finally, the crude plunge appears to have finally caught up with ground zero, with ADX General Index in Abu Dhabi plunging 3.5%, also poised for the biggest drop since 2009. In fact the only thing that isn't crashing (at least not this moment), is Brent, which did drop to new 5 year lows earlier under $66, but has since staged a feeble rebound.

Without doubt, the most memorable line from the latest quarterly report by the BIS, one which shows how shocked even the central banks' central bank is with how perverted and broken the "market" has become is the following: "The highly abnormal is becoming uncomfortably normal.... There is something vaguely troubling when the unthinkable becomes routine." Overnight, "markets" did all in their (central banks') power to justify the BIS' amazement, when first the Nikkei closed green following another shocker of Japanese econ data, when it was revealed that the quadruple-dip recession was even worse than expected, and then the Shanghai composite soaring over 3000 or up 2.8% for the session, following news of the worst trade data - whether completely fabricated or not - out of China in over half a year.