Yen

As all eyes, ears, and noses anxiously await the scantest of dovishness from Kuroda and The BoJ tonight (despite numerous hints that they will not unleash moar for now), the data that was just delivered may have helped the bad-news-is-good-news case. Most notably Japanese household spending dropped 0.4% YoY (with tax hike issues out of the way) missing expectations by a mile as the 'deflationary' mindset remains mired in Japanese heads. AsiaPac stocks are hovering at the week's lows unable to mount any bid as China fixed the Yuan notably stronger and instigated a new central pricing plan for pork prices (which suggests concerns about inflation domestically). Once again Chinese margin debt reaches a new 8-week high as 'stability' has prompted releveraging among the farmers and grandmas.

Haruhiko Kuroda owns 52% of all Japanese ETFs. And now he wants more. Facing a lack of willing JGB sellers, the BoJ now faces the possibility that ramping up its easing efforts will entail expanding the bank's already elephantine equity portfolio. "At a fundamental level, I don’t support the idea of central banks buying ETFs or equities. Unlike bonds, equities never redeem. That means they will have to be sold at some point, which creates market risk."

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The weakness seen in world economic activity is partly the result of the lack of a real purge of the financial system in 2008. It has become unimaginable to let entire parts of the system collapse, and the titling of some financial institutions as “systemic” is part of this logic. Policymakers attempting to keep unhealthy economic and financial institutions alive are making a mistake. The very essence of capitalism lies in the process of creative destruction. What we see here is not a way out of the crisis. Instead, we are on the edge of a new financial disaster.

Two biggest move overnight came from everyone's favorite carry pair, the USDJPY, which may have finally read what we said yesterday, namely that with the Fed and ECB both doing its job, there is little need for the Bank of Japan to repeat its Halloween massacre for the second year in a row, and as a result will keep its QQE program unchanged. It promptly tumbled from its 121 tractor level, to just above 120.25, where BOJ bids were said to be found. With the FOMC October meeting starting today, the other overnight catalyst was not surprisingly the latest Hilsenrath scribe in which he removed any uncertainty about a Wednesday hike, "leaving mid-December as the central bank’s last chance to raise rates this year."

There are two general schools of thought amongst noted contrarians and libertarians regarding China’s overriding objectives. One school has it that China is very much a part of the One World Government philosophy and their primary goal is to acquire a more powerful seat at the IMF. Having done so, they will settle in and be content to be one of the leading jurisdictions that run the world collectively. The other school suggests that China means to become the most powerful nation in the world - to replace the US in every way as the world’s dominant nation. And that’s the case here. The world’s most powerful (and most oppressive) political/economic power structure has begun to go under the bulldozer. Its replacement will hopefully be a better one.

It was only a couple of months ago that a rapidly rising dollar was pushing the global economy closer to a new crisis. It seems unlikely that the conditions that made a rapidly rising dollar a problem in August have all been resolved by October. Those who bought stocks last week in response to hints of more easing from Draghi – and the rate cut in China – may find themselves in the same position as Pavlov’s dogs, wondering why no meal follows the ringing of the bell.

"Investors should (and most don't) realize China is a credit bubble of epic proportions," warns an anxious Marc Faber during a brief Bloomberg TV interview. "China is not just a country, it's an empire," Faber adds, and warns that while some sectors may have growth ("just ask Yum Brands" he jokes), "but other very important sectors like industrial production aren't  growing at the present time." In fact, Faber warns "I don't think China's economy is growing at all," and while policy-makers may be able to "cushion the downturn somewhat," he warns that achieving any soft-landing will be "very difficult," even as he expects China to continue devaluing the Yuan.

Last week it was all about central banks, when both the ECB and the PBOC unleashed a massive market rally. This week it will be about even more central banks, this time the Fed, which won't hike, and the BOJ, which may but most likely won't as the Fed and the ECB already did its work for it, sending the Yen tumbling with their actions and/or jawboning.

Having soared 175 pips in two days, on the back of ECB and PBOC actions, USDJPY is rolling over this morning as a senior adviser to Japanese PM Shinzo Abe tells Reuters that The Bank of Japan "can wait a while" before easing more. This follows another adviser's comments on Friday that "further easing wasn't necessary." With a trail of broken markets (bonds first and now stocks), and broken promises (only 25% of Japanese now believe Abenomics will boost the economy), Abe faces an uphill battle in winning the fight against the "deflationary mindset" that officials have been so adamant they have already won.

In our Chinese stock market wrap following Friday's unexpected rate cut, which saw the Shanghai Composite storm out of the gate, we said that "we would not be surprised to see China's stocks sliding back into the red very shortly as "sell the news" concerns return, and as the increasingly more addicted "markets" demand even more liquidity from central banks just to stay unchanged, let alone rise to new all time highs." Sure enough, with just minutes to go before the close, the SHCOMP wiped out all its daily gains and was set for a red close had it not been for the "national team" miraculous last minute intervention which was inevitable after Friday's PBOC rate cut, and which lifted the composite 0.5% into the green as the euphoria was rapidly evaporating.

China's key index, the Shanghai Composite, was is up over 1%, or 40 points in early, to just under 3,500 - the highest in 2 months, a gain which however is well below Friday's pre-rate cut gain and if prior rate cut history is any indication, not to mention the weak reaction by commodities on Friday (continuing into today, where WTI turned green by the smallest of margins just seconds ago we would not be surprised to see China's stocks sliding back into the red very shortly as "sell the news" concerns return, and as the increasingly more addicted "markets" demand even more liquidity from central banks just to stay unchanged, let alone rise to new all time highs.

How governments all around the world resort to absurd marketing to finance largesse

With a birth-rate at record-lows and death-rate at record-highs, Japanese PM Shinzo Abe unveiled a new set of 'arrows' a few weeks ago to 'fix' the demographic disaster the nation faces. At the time, Abe was long of "bold proposals" but short of actual policies to encourage the nation to make more babies (despite dwindling interest in sex). As Bloomberg reports, here are a number of options that Abe's new minister for demographics Kato could introduce to slow the downward spiral of population...