US & China Stocks Are Plunging After PMI Hits 6.5-Year Low, PBOC Strengthens Yuan Most Since Nov 2014Submitted by Tyler Durden on 08/31/2015 23:21 -0400
Following China's official PMI print at a 3-year low, Caixin's PMI collapsed to 47.3 - the lowest sinec March 2009. Despite another CNY150bn liquidity injection (but the biggest strengthening of Yuan since Nov 2014 and a financial conditions tightening in FX trading), China, US, and Japanese stocks are plunging... SHCOMP -4%, Dow -280, NKY -340
China has just cornered the Fed: not just diplomatically, as observed when China's PBOC clearly demanded that Yellen's Fed not start a rate hiking cycle, but also mechanistically, as can be seen by the acute and sudden selloff across all asset classes in the past 3 weeks. Now Yellen has about 365 days or so to find a solution, one which works not only for the US, but also does not leave China a smoldering rubble of three concurrently burst bubbles. Good luck.
- Hilsenrath: Fed Appears to Hold Line on Rate Plan (WSJ)
- Europe, Asia stocks set for worst monthly drop in three years on China, Fed (Reuters)
- Beijing abandons large-scale share purchases (FT), if only for a few hours
- China’s Next Problem: Paying for Its Stock-Market Bailout (WSJ)
- Crises Put First Dents in Xi Jinping’s Power (WSJ)
- Man Group’s China Chief Said to Assist Police in Probe (BBG)
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%.
Update: So much for the "no more intervention" - CHINA SAID TO ORDER BROKERAGES TO BOOST STOCK MARKET SUPPORT
A busy weekend in Asia was dominated by mayhem in Malaysia, and witch-huntery in China. Chinese authorities began a wide-scale crackdown on rumor-mongerers, arrested journalists, and even detained a regulator for insider trading, as they lifted loan caps on the banking system at the same as withdrawing (verbally) support for the stock market. China strengthen the Yuan fix by 0.15% to 6.3893 - this is the biggest 2-day strengthening of the Yuan fix since Nov 2014. Then just to rub some more salt in the wounds, Goldman cut China growth expectations to 6.4% and 6.1% respectively for the next 2 years. Chinese stocks are opening modestly lower (SHCOMP -3.3%).
The economic slowdown in China was set in motion a long time ago when the yearly rate of growth of the money supply fell from 39.3 percent in January 2010 to 1.8 percent by April 2012. The effect of this massive decline in the growth momentum of money puts severe pressure on bubble activities and in turn on various key economic activity data. Any tampering with the currency rate of exchange can only make things much worse as far as the allocation of scarce resources is concerned.
In the latest example of Beijing attempting to deleverage and re-leverage all at once, China has lifted a cap on loan-to-deposit ratios for banks while simultaneously capping local government debt issuance for 2015. Meanwhile, bad loans are still on the rise at China's "big four" banks, underscoring the extent to which China's economy is rapidly deteriorating and drawing a line under the risk the PBoC is running by forcing banks to lend into an extraordinarily uncertain environment.
A defensive trading idea that appreciates during a sell-off and is even better than holding extra cash!
The virtuous circle that has sustained the dollar and buoyed USD assets for decades has definitively been broken. Now, with China's Treasury liquidation serving to exacerbate the pressure from the demise of the petrodollar, it's critical to take stock of accumulated petrodollar reserves in order to understand how large the unwind could ultimately be in a worst case scenario. As it turns out, narrowly focusing on official FX reserves could understate the size of petrodollar accumulation by some $2.5 trillion.
"The [Chinese] slowdown was predictable, predicted, unavoidable," Lagarde was quoted as saying." Well, yes, it was... by everyone but the IMF. Here is the history of the IMF's Chinese GDP growth forecasts taken straight from its World Economic Outlook quarterly pieces. The graph needs no explanation.
Political turmoil isn’t Malaysia’s only problem. Two weeks ago, in the wake of the yuan devaluation, a $10 billion bond maturity sparked the largest one-day plunge for the ringgit in two decades, serving notice that whispers about a replay of the currency crisis that gripped the country in 1997/98 were about to become shouts. Because it appears the situation is set to deteriorate meaningfully in the near term, and because the country’s political situation could serve to undermine already fragile confidence, we thought it an opportune time to revisit exactly what happened two decades ago.
Simply put, a perfect storm of failing trends...
It is undeniable; the final collapse triggers are upon us, triggers alternative economists have been warning about since the initial implosion of 2008. You would think that the more obvious the economic collapse becomes, the more alternative analysts will be vindicated and the more awake and aware the average person will be. Not necessarily... In fact, the mainstream spin machine is going into high speed the more negative data is exposed and absorbed into the markets. If you know your history, then you know that this is a common tactic by the establishment elite to string the public along with false hopes so that they do not prepare or take alternative measures while the system crumbles around their ears. At the onset of the Great Depression the same strategies were used.
"The PBoC’s actions are equivalent to an unwind of QE, or in other words Quantitative Tightening. The potential for more China outflows is huge [and] the bottom line is that QT has much more to go. It is hard to become very optimistic on global risk appetite until a solution is found to China’s evolving QT."
After 3 days of carnage and a day of stability, it appears the death of the bond bull market has once again been greatly exagerated. Whether it is China's absence after a strengthenig in the Yuan overnight or month-end rebalancing amid equity vol, Treasury yields are notably lower this morning...