Volatility

This is the story of a veteran NYSE specialist who noticed manipulation in the NYSE market open Imbalance, loudly complained to the NYSE, was ignored, then decided to profit from said manipulation himself... and got busted.  And that's where the story begins...

"During their discussion of economic conditions and monetary policy, participants indicated that they did not see the changes in asset prices during the intermeeting period as bearing significantly on their policy choice except insofar as they affected the outlook for achieving the Committee’s macroeconomic objectives and the risks associated with that outlook."

Given the tumble and stock save since September's infamous "chickening out" FOMC Meeting, investors hope today's minutes will provide some color on just how close Janet and her merry men were to pulling the trigger:

• *FED OFFICIALS SAID `PRUDENT' TO WAIT FOR CLARITY ON OUTLOOK
• *FOMC MINUTES: MOST PARTICIPANTS SEE LIFTOFF CONDITIONS MET THIS YR
• *FOMC MINUTES: ALL BUT ONE MEMBER SAID ECON COND DIDN'T WARRANT HIKE

With all the blame pinned on global turmoil (which has now "calmed" apparently) the S&P 500 has roundtripped to unchanged post-FOMC and given these minutes which suggest this was not a close-call at all. However, this was before the Sept payrolls data.

Pre-FOMC Minutes: S&P Futs 1988.25, 10Y 2.095%, Gold $1145, EUR 1.1285

Following yesterday's flip-flop on TPP, Hillary Clinton has unleashed some new financial system 'policies' this morning, the most crucial of which includes the provision of a transaction tax which will dramatically penalize high-frequency traders (gratifying critics of HFT's instability-creating market structure). The question is, who is she trying to appease with this 'policy'? The answer is simple - Follow the money... once again.

Moments ago, as part of its quite stale and otherwise irrelevant minutes of its September 2-3 governing council meeting, the ECB did precisely the same, announcing that as part of its ongoing open-ended QE program (which the ECB expects will be implemented fully by September 2016 "or beyond") it would frontload purchases between September and November because, you guessed it, volatility once again declines in December.

It was supposed to be the day China's triumphantly returned to the markets from its Golden Holiday week off, and with global stocks soaring over 5% in the past 7 days, hopes were that the Shanghai Composite would close at least that much higher and then some, especially with the "National Team" cheerleading on the side and arresting any sellers. Sure enough, in early trading Chinese futures did seem willing to go with the script, and then everything fell apart when a weak Shanghai Composite open tried to stage a feeble rebound into mid-session, and then closed near the day lows even as the PBOC injected another CNY120 bn via reverse repo earlier.

After a "no change" statement from The BoJ, today's dismal Japanese data was terrible enough to be great news in the new normal as August machine orders drop the most in at least a decade and stocks, USDJPY dipped and ripped. However, it was the China open that investors waited for (after China shares rising 10% in US trading, and CNH strengthening on lower than expected reported outflows) as Goldman slashed its 12m target for Chinese stocks, and Bocom's chief strategist (who called the boom and the bust) says "rally is mirage of new dawn, volume is dying, sell the rallies." PBOC fixed the Yuan at its strongest in 2 months and while Chinese stocks opened up notably it was less than US ADRs suggested (CSI +4% vs ASHR +9.5%).

"The collapse in inflation expectations tells us that the market believes the central banks, despite their monetary profligacy, are failing to prevent the western economies from turning Japanese, and thus at risk of repeating their devastating slide into outright deflation in the 1990s."

News That Matters

Mortgage applications rose 25.5% week-over-week - the 2nd largest surge since 2009 - to the highest level (for this time of year) since 2012. Both refis and purchases soared, and exuberance immediatoley extrapolated this surge as 'proving' the housing recovery is healthy. However, as MBA admits, "many applications were filed prior to the TILA-RESPA regulatory change," strongly suggesting this is anything but sustainable.

As the following org chart of Glencore shows, the company - at least on the surface - appears to be far "simpler" than Enron was in the days preceding its biggest, for the time, and quite unexpected, bankruptcy.

"We are still in a very cautious environment for emerging-market currencies and unless there is a sharp turnaround in commodity prices or capital flows, I still think there’s going to be pressure on the ringgit and the rupiah."

In a furious race to shore up as much liquidity as possible, Glencore - which a month ago announced a dramatic deleveraging plan - and its peers have been quietly scrambling to raise billions in secured funding. Case in point none other than Glencore's biggest competitor and the largest independent oil trader in the world, Swiss-based, Dutch-owned Vitol Group, whose Swiss unit Vitol SA earlier today raised a record $8 billion in loans.

News That Matters

"Our model indicates the US equity market could potentially drop by 30% in the event of an ‘EM lost decade’ and by 60% in the event of a China hard landing (i.e. S&P 500 back to its lows)."