Price Action

The long awaited day is finally here by which we, of course, mean the day when nobody has any idea what the Fed will do, the Fed included. Putting today in perspective, there have been just about 700 rate cuts globally in the 3,367 days since the last Fed rate hike on June 29, 2006, while central banks have bought $15 trillion in assets, and vast portions of the world are now in negative interest rate territory.

Almost two weeks after we explained why any hope for a QQE boost by the BOJ is a myth, and that any increase in monetization will simply lead to a faster tapering and ultimately halt of Kuroda's bond purchases the market finally grasped this, when overnight the BOJ not only did not easy further as some - certainly the USDJPY - had expected, but kept its QE at the JPY80 trillion level and failed to offer any hints of further easing that many had hoped for, pushing the Nikkei down from up almost 400 point intraday to virtually unchanged and sending the USDJPY back under 120. JGBs also traded lower on concerns there may not be much more QE to frontrun.

Perhaps after intervening every single day in the past week (remember that FT piece saying the PBOC would no longer directly buy stocks... good times) in either the stock or the FX (both on and offshore) market, China needed a day off; perhaps even the algos got tired of constantly spoofing the E-mini and inciting momentum ignition, but for whatever reason the overnight session has been oddly uneventful, with no ES halts so far, few USDJPY surges (then again those come just before the US open), and even less violent CNY or CNH moves, leading to virtually unchanged markets in Japan (small red) and China (small green). And while the initial tone in Europe has been modestly "risk off", it is nothing in comparison to the massive gyrations that have become a stape in the past few weeks.

It has become virtually impossible to differentiate between actual central bank intervention, hopes of central bank intervention, and how the two interplay on what was once the "market" but is now merely the place where money printers duke it out every day in some pretense of price discovery set by those who literally print money.

And to think all it took was Gartman going short of stocks in 25% correction terms yesterday...

Chinese stocks opened with a bang, and as we previously noted soared higher at the open after China's long 4-day holiday weekend, which however subsequently slowly (but very surely) fizzled, eating away at the hope that the 3-day drop in the Shanghai Composite would finally come to an end following comments from PBOC governor Zhou that the recent rout in Chinese stocks is almost over, and result in a relief rally in Europe and the US. Alas, all that was promptly swept away at the end of trading in China when the Shanghai Composite tumbled at close of trading to confirm just how unpleasant a "death cross" is coupled with loss of central bank control, and to push the Shanghai Composite down 2.5% for the day and 3.4% for the year.

This was a fairly quiet week in the market for the metals. The price action was elsewhere (e.g. equities and currencies).

Keys in the week ahead:  equity markets--still look lower; China--volatility likely to continue; Fed--market says no Sept hike

Divegence driver of the dollar was never predicated on a particular time frame for the Fed's lift-off.  Others are easing.  Trajectory is the key.  Here is my sense of the near-term dollar outlook, wiht a look at some other asset markets as well.  

Three words - retest the lows!

Moments ago, US equity futures tumbled to their lowest level in the overnight session, down 22 points or 1.1% to 1924, following both Europe (Eurostoxx 600 -1.8%, giving up more than half of yesterday's gains, led by the banking sector) and Japan (Nikkei -2.2%), and pretty much across the board as DM bonds are bid, EM assets are all weaker, oil and commodities are lower in what is shaping up to be another EM driven "risk off" day. Only this time one can't blame the usual scapegoat China whose market is shut for the long weekend.

"... we estimate that only about half (or slightly more than half) of total technical selling was completed to-date (mostly completed by VT funds, half by CTAs, and a smaller fraction by RPs). We estimate that a further ~$100bn of selling remains to be completed over the next 1-3 weeks. As a result, we expect elevated volatility and downside price risk to persist."

Since today was the last day of trading for Chinese stocks this week ahead of the 4-day extended September 3 military parade holiday to mark the 70th anniversary of the allied victory over Japan, and since Chinese stocks opened to yet another early trading rout coupled with the PBOC's biggest Yuan strengthening since 2010 as we observed earlier, there was only one thing that was certain: massive intervention by the Chinese "National Team" to get stocks as close to green as possible. Sure enough they tried, and tried so hard the "hulk's" green color almost came through in the last hour of trading and yet, despite the symbolic importance of having a green close at least one day this week ahead of China's victory over a World War II foe, Beijing was unable to defeat the market even once in the latest week which will hardly bode well for Chinese stocks come next week.

Llast week, during which the S&P 500 was up 0.9% as the market rebounded off of Tuesday’s lows, BofAML clients were net buyers of $5.6bn of US stocks—the biggest inflow in our data history (since ’08) following five weeks of selling. The last time  flows were close to these levels was during the (less extreme) volatility in early January of this year, as well as following the Tech/Biotech sell-off in early 2014 (see chart below). Net buying last week was broad based—while no client group saw record flows relative to its own history, hedge funds, institutional clients and private clients were all big net buyers which led to record inflows when combined.

Just like the last time when Chinese flash PMI data came out at the lowest level since the financial crisis, so overnight when both the official Chinese manufacturing and service PMI data, as well as the Caixin final PMI,s confirmed China's economy has not only ground to a halt but is now contracting with the official manufacturing data the lowest in 3 years and the first contraction in 6 months, stocks around the globe tumbled on concerns another major devaluation round by the PBOC is just around the corner with the drop led by the Shanghai Composite which plunged as much as 4% before, the cavalry arrived and bought every piece of SSE 50 index of China's biggest companies  it could find, and in a rerun of yestterday sent it to a green close, with the SHCOMP closing just -1.23% in the red. So much for the "no interventions" myth. We wonder which journalist will take the blame for today's rout.