That last meeting didn’t end well...
We've all seen Chinese stocks explode in the last year; we've all seen margin lending soar to fund this exuberance; we've all read the dominant buyer in this trading frenzy is high-school-educated housewives; and we've all seen the analogs to the 2000 dotcom bubble. But, we guarentee you have never - ever - seen anything like this...
Belarus In Full-Blown Hyperinflation Panic: Blocks News, Online Stores; Bans All FX Trading For 2 YearsSubmitted by Tyler Durden on 12/22/2014 16:33 -0400
"Solutions to the world's problems are not produced in a meeting between Bill Gates and George Soros... Renewal has to come from below... Limiting the influence [of the richest] is of the utmost importance... so that today's upper-class, high-finance capitalism can once again revert to being a capitalism of the real economy and the societal center."
It's the same old story: in order to make its economy appear healthier than it is, India attempted to centrally-plan and force a country of 1.2 billion to stop buying gold, going against centuries of, pardon the pun, tradition. It failed, and the result was an epic surge in gold smuggling. So now, with a new government in place, India is considering lifting the world's most draconian gold capital controls since FDR issued Executive Order 6102. Will it? And what will that mean for the price of gold? Find out soon enough.
In this brave New Normal world, a Chinese contraction is somehow expected to be offset by a rebound in Europe's worst economies, because following China's latest PMI miss, overnight we were told of beats in the Service PMI in Spain (56.5, vs Exp. 54.0, a 7 year high sending the Spanish 10 Year to fresh sub 3% lows), Italy at 51.1, vs Exp. 50.5, also pushing Italian yields to record lows, and France 50.4 (Exp. 50.3). We would speculate that macro events such as these, as fabricated as they may be, are relevant or even market-moving, but they aren't - all that matters is what the JPY and VIX traders at the NY Fed do in a low volume tape, usually in the last 30 minutes of the trading day. And since the trading day today happens to be a Tuesday, and nothing ever goes down on a Tuesday, the outcome is pretty much clear, and not even the absolutely abysmal Barclays earnings report has any chance of denting the latest rigged and manufactured low-volume levitation.
Some thoughts about the price action, or lack thereof, in the foreign exchange market.
A dispassionate look at next week's events and data.
"I don’t think they’ve solved anything. I think they’ve compounded the underlying problems that caused the last crisis, and so now the next crisis will be that much worse because of what the central banks did, in particular the Federal Reserve...The Fed is building an economy that is completely dependent on that cheap money. And so if you take it away, the economy implodes, but if you don’t take it away, then it’s worse." The idea is to preempt capital controls - "get out the window before it slams shut!"
Two weeks ago, gold jumped to a then-2014 high, following reports out of India that the head of India's Congress Party, Sonia Gandhi was pushing the government to cut its duty on gold and other restrictions. Today, now that the upward move in gold has finally resumed, it appears that the nation with the world's most draconian gold capital controls, is finally starting to crack under pressure from the people, as well as a surge in gold smuggling via illegal channels to unprecedented levels. Reuters reports that India "will look into relaxing gold imports curbs, but won't let its current account deficit (CAD) balloon, Finance Minister P. Chidambaram said on Monday."
Hinting that the worst is yet to come, was none other than India's Central Bank governor Raghuram Rajan himself, who yesterday in an interview in Mumbai with Bloomberg TV India, said that "international monetary cooperation has broken down." Of course, when the Fed was monetizing $85 billion each and every month and stocks could only go up, nobody had a complaint about any cooperation, be it monetary or international. However, a 4% drop in the S&P from its all time high... and everyone begins to panic.
US and European stock markets (and European sovereign bond markets) have been sliding since early in the European morning overnight. The blame for the weakness appears to be coming from a double-whammy in Germany. First the German government resolved to push for the financial transaction tax (despite banks rejection of the proposal - well they would wouldn't they) and then later in the day when Germany's emerging coalition rejected the last-best-hope for shared sacrifice (or using more of Germany's balance sheet) - The Debt-Redemption Fund - leaving more pressure back on Draghi to save the day. Anxiety in the US is clear with VIX (and credit spreads) rising as hedgers are active - and of course, markets are broken with NASDAQ options prices 'crossed' acording to some sources.
Just as it is easy being a weatherman in San Diego ("the weather will be... nice. Back to you"), so the same inductive analysis can be applied to another week of stocks in Bernanke's centrally planned market: "stocks will be... up." Sure enough, as we enter October's last week where the key events will be the conclusion of the S&P earnings season and the October FOMC announcement (not much prop bets on a surprise tapering announcement this time), overnight futures have experienced the latest off the gates, JPY momentum ignition driven melt up.
While the US economic data reporting machinery slowly starts churning again following the "reactivation" of government, last night it was China 's turn to report a slew of goalseeked economic items. Q3 GDP (+7.8% yoy), Industrial Production (+10.2% yoy), Fixed Asset Investments (+20.2% YTD yoy) and Retail sales (+13.3% yoy) for September all came in broadly in line with market consensus. The economy grew at a faster pace on a sequential basis with Q3 growth being 0.3ppts higher than Q2. Nonetheless, many observers forecast yoy Q4 GDP growth to decline due to the end of inventory restocking and the fade out of a major credit stimulus in the prior quarter, even as total Chinese debt continues to push ever higher into bubble territory.Speaking of China, however, it is worth noting that overnight the Chinese Yuan rose to the highest level against the dollar in 20 years. This happens as the USD tumbles to nearly a year low, which incidentally is the theme of the overnight session: the ongoing dollar poundage is reverberating across the globe, and the resulting unleashing of global funding carry trades looks set to take the S&P (and everything else) to fresh record highs on the back of even more generous Fed Kool Aid expectations.
Over the past year, India has unleashed the most unprecedented series of gold "capital controls" ever seen in a modern nation, shy of confiscation (and even that may be imminent). Today, India added yet another more measure to its list of prohibitions that seek to minimize the size of the gold market available to citizens, yet which will only result in even more interest and demand in the yellow metal. As Reuters reports, India increased its import duty on gold jewellery from 10 percent to 15 percent, setting it higher than the duty on raw gold in a move to protect the domestic jewellery industry. Why is the government doing this? Simple: "To protect the interests of small artisans, the customs duty on articles of jewellery ... is being increased," the ministry said.