Asian Equities Tumble On Commodity Fears; US Futures Rebound After India "Unexpectedly" Eases More Than ExpectedSubmitted by Tyler Durden on 09/29/2015 06:52 -0400
It was a tale of two markets overnight: Asia first - where all commodity hell broke loose - and then Europe (and the US), where central banks did everything they could to stabilize the already terrible sentiment.
Personal income rose at 0.3% MoM in August, the weakest growth and biggest miss since March's tumble. At the same time spending rose 0.4% MoM, slightly more than expected. Of course this relative shift means the savings rate declined from 4.7% to 4.6%, which is to be cheered by economic models the emphasize spending over saving.
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 reality is that while most folks who are reading this may find it difficult to empathize, the vast majority of Americans are scratching for any extra $0.75 an hour they can find. At the same time CEO’s and highly paid bureaucrats continue to tout policies that have enriched themselves beyond the wildest dreams and comprehension of the average American. Yet they promote these policies as being in the best interest of the working class.
With Treasury Secretary Jack Lew sending a letter to Congress this evening demanding they raise the debt limit as soon as possible, warning that cash balances have dropped below the "minimum target," it is perhaps less than surprising that Goldman Sachs is warning that a government shutdown at the end of the month has become much more likely over the last several weeks. While out-months in VIX (beyond the prospective shutdown) remain elevated, Goldman finds a silver-lining claiming that the effect of a potential shutdown on financial markets and the real economy would probably be modest if it did occur. We shall see...
What the pundits attempt to do is have you focus on the forest from an inch away. While the endless optimism of the talking-heads, most recently that the selloff in developed equity markets has gone too far, each offering up various 'narrative' reasons to support their claim; simply put, they are full of tragic flaws. Allow us to color-code this for all those market "pros" and PhD "economists" who haven't been able to follow the premise over the past several months...
Banks in the US and Europe are trying to develop a cashless transactions system. The concept is to establish a comprehensive ledger for a business or a person that records everything received and spent, and all of the assets held – mortgages, investment portfolios, debts, contractual financial obligations, and anything else of market value. There would be no need for cash because the ledger would tell you and anyone you were considering a transaction with how much is available and would be transactable at any specific moment. This is not a dreamy idea. Blythe Masters is leading a new business effort to develop a universal cashless system. Not only is she gathering significant investor interest, but the Federal Reserve and various US Government agencies have become keenly interested in the potential usefulness and efficiencies of a universal cashless system
Yesterday, the FT triumphantly proclaimed: "Beijing abandons large-scale share purchases", and that instead of manipulating stocks directly as China did last week on Thursday and Friday, China would instead focus on punishing sellers, shorters, and various other entities. We snickered, especially after the Shanghai Composite opened down 2% and dropped as low as 4% overnight. Just a few hours later we found out that our cynical skepticism was again spot on: the moment the afternoon trading session opened, the "National Team's" favorite plunge protection trade, the SSE 50 index of biggest companies, went super-bid and ramped from a low of 2071 to close 140 points higher, ending trading with a last minute government-facilitated surge, and pushing the Composite just 0.8% lower after trading down as much as -4.0%.
News That Matters
Earlier today, following the disappointing July personal spending data and yesterday's record surge in inventories as part of the spike in Q2 GDP, we predicted that the Atlanta Fed would cut its already painfully low Q3 GDP forecast of 1.4%. Moments ago, it did just that, when the Atlanta Fed GDPNow "nowcast" was revised lower to just a 1.2% annualized growth rate, more than two-thirds below the BEA's first revision of Q2 GDP.
The private economy and its millions of savers exist for the convenience of the apparatchiks who run the central bank. In their palpable fear and unrelieved arrogance, would they now throw millions of already ruined retirees and savers completely under the bus? Yes they would.
While the headline spending and income data consists of marginal moves, personal spending missed expectations by the largest amount since the dismal weather-strewn days of January. Consumption rose 0.3% in July, less than the 0.4% expectation and flat from the 0.3% June print. Income rose 0.4% - in line with expectations - ticking up YoY to 4.3% 0 juiced by a $13 billion government transfer receipts print - the most since March. The savings rate ticked up once again as those darned consumers refuse to spend as the elite demand.
Overnight's start attraction was as usual China's stock market, where trading was generally less dramatic than Thursday's furious last hour engineered ramp, as stocks rose modestly off the open only to see a bout of buying throughout the entire afternoon session, closing 4.8% higher, and bringing the gain over the last two days to over 10%. This happens as China dumped a boatload of US paper to push the CNY higher the most since March, strengthening from 6.4053 to 6.3986, even as Chinese industrial profits tumbled 2.9% from last year: this in a country that still represents its GDP is rising by 7%. Expect much more Yuan devaluation in the coming weeks.
Over the weeks, months, and years ahead we’ll begin to understand more about the fallout from the death of the petrodollar and nowhere is it likely to be more apparent than in Saudi Arabia where widening fiscal and current account deficits have forced the Saudis to tap the bond market to mitigate the FX drawdown that's fueling speculation about the viability of the dollar peg. As Bloomberg reports, the current situation mirrors a "very scary moment" in Saudi Arabia’s history.
After a lukewarm start by the Chinese "market", which had dropped for the past 6 out of 7 days despite ever escalating measures by Beijing to manipulate stocks higher, finally the Shanghai Composite reacted favorably to Chinese micromanagement of stock prices and closed 3.7% higher as Chinese regulators stepped up their latest measures by adjusting rules on short-selling in order to reduce trading frequency and price volatility, resulting in several large brokerages suspending short sell operations. At this pace only buy orders will soon be legal which just may send the farce of what was once a "market" limit up.