Dow futures are down 100 points and Chinese stocks are pressing new 14-month lows, extending last night's carnage after Chinese Industrial Profits tumbled. With a dismal 4.7% drop year-over-year, led by a near 60% collapse in the mining industry, early strength (after some jawboning from Abe) gave way to fresh lows and US equity futures are also responding. Offshore Yuan refuses to drop since Xinhua wrote a 3rd hit piece against George Soros and his "speculative snap profits."
“Soros’s war on the renminbi and the Hong Kong dollar cannot possibly succeed — about this there can be no doubt. Reckless speculations and vicious shorting will face higher trading costs and possibly severe legal consequences. And just as proved in the yuan exchange rate case, the Chinese government has sufficient resources and policy tools to keep the overall economic situation under control and cope with any external challenges.”
What does the world really want from oil prices?
China's demand for gold is back: as China's equities slumped and its yuan currency finished 2015 with a record yearly loss, "people looked at other investment alternatives that's why there was huge demand for gold," said Brian Lan, managing director at gold dealer GoldSilver Central in Singapore.
It has been another volatile, illiquid, whipsawed session, driven by the only two things that have mattered so far in 2016, China and oil.... and stop-hunting algos of course.
Following the afternoon weakness in US equities, Offshore Yuan has been limping lower into the fix, not helped by comments from a MOFCOM researcher that "China is able to withstand currency fluctuations" implicitly warning carry traders to stay away and suggesting the dollar's dominance would not last long. CNH is now at 3-week lows against CNY, over 300pips cheap - which prompted the major short squeeze last time. Chinese stocks are modestly lower but more worrying is the 7-day slide in Chinese corporate bond yields - the most in 2 months - hinting perhaps that the last bubble standing is bursting.
When the RMB deval dust settled, some $1 trillion in capital fled China in 2015 as Chinese rushed to move money out of the country ahead of what many expect will be a much larger yuan depreciation. Estimating capital flight out of China isn't an exact science and different analysts look at different proxies to determine just how leaky the ship is, so to speak. For their part, Goldman has endeavored to break down the numbers on the way to shedding some light on where to look to assess the pace of the flows.
"There is some truth to the phrase that the stock market has predicted nine of the last five recessions... but that is a much better track record than the consensus of economists. Every time the financial markets get volatile and messy like this it deserves attention because the markets are trying to tell us that there is a severe issue out there."
"While the worst of the U.S.’s epic winter blizzard has officially passed, it’s less likely that the storm in financial markets can also be said to have ended."
What would the world look like the day following a “truth bomb” dropped by Mr. Putin and the Chinese.
The People’s Bank of China is reluctant to further reduce the required reserve ratio for fear of such a move resulting in the weakening of the yuan, according to a leaked document. The information, reportedly leaked from minutes of Tuesday’s meeting between the central bank and commercial lenders, was shared widely after it was published on major mainland online portals including Sina.com and Netease.com.
What will bring down the Chinese and Saudi pegs, along with a long list of other pegs, is, how appropriately, the very same markets they’ve been relying on to NOT function. The bets against Hong Kong’s ability to maintain its USD peg have already started, and China is next, along with the House of Saud (the latter two just take more fire-power). Which of course is exactly why they speak their soothing ‘confident’ words. Words that are today interpreted as the very sign of weakness they’re meant to circumvent.
If you were wondering how much US debt Saudi Arabia holds, you're out of luck because as it turns out, that's a state secret protected by a decades old "unusual Treasury blackout." “It’s mind-boggling they haven’t undone it. The Treasury didn’t want to offend OPEC [but] it’s hard to justify this special treatment at this point.”