Global Markets Stabilize Following Thursday Meltdown

Tyler Durden's picture

After Thursday night's global liquidation fireworks, the overnight trading session was positively tame by comparison. After opening lower, the Nikkei ended up 1.7% driven by a modest jump in the USDJPY. China too noted a drop in its ultra-short term repo and SHIBOR rate, however not due to a broad liquidity injection but because as we reported previously the PBOC did a targeted bail out of one or more banks with a CNY 50 billion (or more, or less - ICBC came out a few hours ago and denied all media rumors and speculation there even had been a 50 billion cash transfer so maybe the PBOC did nothing at all!) injection.

Overnight, the PBOC added some more market and liquidity color telling banks to not expect that liquidity will always be plentiful as the well-known transition to a slower growth frame continues. The PBOC also reaffirmed that monetary policy will remain prudential, ordered commercial banks to enhance liquidity management, told big banks that they should play a role in keeping markets stable, and most importantly that banks can't rely on an expansionary policy to solve economic problems. Had the Fed uttered the last statement, the ES would be halted limit down right about now. For now, however, communist China continues to act as the most capitalist country, even if it means the Shanghai Composite is now down 11% for the month of June.

Elsewhere, Greek bonds continue to get pounded in the aftermath of the report that the IMF may halt bailout payments until Greece plugs its deficit holes which, according to the joyous media reports over the past year, should not have existed, yet which materialized just over the past week. Additional news that the Greek former coalition member Democratic Left will withdraw ministers from the cabinet is not helping prospects of Greek stability and means snap elections may be imminent.

Aside from this, as SocGen observes, there isn't a lot of data or many events scheduled for today that are capable of stealing the limelight and, with most asset classes adjusting to the changed dynamics for US yields, we doubt that headlines today from the EU finmin meeting, LTRO repayments stats, UK public finances or Canadian CPI data will have the slightest bearing on the final trading session of a momentous week. With traded volumes in bonds particularly huge vs recent norms, participants will keep a close eye on the closing levels tonight to extract possible ranges in which prices will fluctuate before the next payrolls report is released in July. Buying USD dips and selling rallies in bonds is likely to be common practice until then.

The overnight highlights in bulletin format:

  • Treasuries steady, 5Y-30Y yields holding near highest since August 2011; 10Y notes poised for their biggest weekly loss in 15 months amid prospects Fed will start to taper bond purchases.
  • Fed will trim its monthly bond purchases to $65b in September and end buying in June 2014, according to the plurality of estimates by economists in a Bloomberg survey
  • Developing nations around the world are scaling back or canceling billions of dollars of bond sales as borrowing costs climb the most since 2008, just as spending needs increase amid slowing economic growth
  • China may be approaching a “Minsky moment” as credit growth in the world’s most populous country has outstripped economic expansion for five quarters, raising the question of where the money has gone, SocGen analyst Yao Wei wrote in two recent reports
  • China’s benchmark money-market rates tumbled from record highs after the central bank injected funds to alleviate the worst cash crunch in at least a decade; cash squeeze over the past two weeks is testing the management skills of the new Communist Party leaders
  • The Bank of Japan will continue easing to achieve stable price growth, Governor Kuroida said in Tokyo; financial markets will settle down as they start to reflect Japan’s economic recovery
  • ECB probably won’t take over as euro-area bank supervisor until the final months of 2014, further delaying the banking union that leaders wanted in place quickly to stem the sovereign debt crisis
  • U.S. regulators are considering doubling a minimum capital requirement for the largest banks, which could force some of them to halt dividend payments
  • Greek yields surge as Prime Minister Samaras may lose a coalition partner over his closure of the country’s state broadcaster ERT, heightening concern about his government’s stability
  • Sovereign yields higher, led by Greece and Australia. While Nikkei gains 1.7%, most other Asian stock markets fall. European stocks and U.S. index futures rise. WTI crude, copper and gold higher

* * *

SocGen recaps the macro highlights:

The moves registered across different securities have been significant to the point where we are asking ourselves if the new information that emerged on Wednesday night is now fully discounted or not. In terms of bond market reaction, the pullback in yields and swaps from intra-day highs yesterday, despite a brace of solid Philly fed and existing homes sales data, suggests that the worst of the storm has passed. This is not to say that the uptrend has stalled. The price action is a means of articulating that the news from the Fed has been priced in so far as the new unemployment metrics and the timing of the tapering. However, if a 7.5% unemployment rate is a condition to start dialling back asset purchases and 7% or thereabouts is required for QE3 to cease, there is scope for the market to speculate over the pace of employment growth and the number of new people entering the labour market (required to calculate the unemployment rate). If the data over the coming months points to a faster reduction in unemployment, then 7% could be hit before the middle of next year. Debating the length of the tapering cycle thus is set to become the markets' next obsession.

While investors concentrate on the fallout from the Fed for risk assets (S&P violating a 7-month trendline), the other theme that needs considering is the situation in China. The HSBC manufacturing PMI surprised negatively again yesterday (below 49.0) and wire reports midweek of industrial output data fudging in the country's provinces have again highlighted the ongoing statistical malpractices. The Shanghai composite does not lie: it is down 11% this month alone. Credit growth has been outpacing economic growth for five quarters, raising questions over debt servicing of the corporate sector. Separately, the ending of QE in the US next year is likely to result in capital outflows and a weakening yuan. Will this boost inflation?

* * *

Finally, here is Jim Reid's recap via DB:

Investors have continued to take backseat overnight with credit and equity markets lower again in Asia. The iTraxx Asia index is 3bp wider and is looking to finish the week about 30bp wider at 168bp, its weakest weekly performance since September 2011. The technical picture for EM Debt continues to deteriorate with EM debt funds (including both local and hard currency) bleeding an additional $2.6bn (1.0% AUM) in the latest week, marking the third consecutive week of $1.5bn+ of outflows this year. Away from Asia, the CDS spreads of a number of LATAM sovereigns including Brazil, Mexico and Columbia pushed out by around 20bp yesterday though liquidity was reportedly low.  Meanwhile, 10yr government bond yields of a number of EM issuers including Brazil and Mexico hit one year highs. The EM carry trade continues to remain under pressure.

In Asian equities, the weakness in China is showing few signs of easing with the Shanghai Composite (-0.9%) down for its third successive day. The focus in China remains on the constrained liquidity in the interbank funding market. Interbank rates have eased substantially today after the PBoC yesterday finally injected RMB50bn of liquidity through short-term market operations. The funds were reportedly applied to just a single lender. DB's Jun Ma is hopeful that the PBoC will inject more liquidity via reserve repos and possibly cut the reserve requirement ratio in the coming weeks. He thinks that if Q3's economic growth continues to decelerate due to a delay in policy response, then the government may have to relax policies in a bigger way at end-Q4. On a related note, HK’s South China Morning Post is reporting that a number of Shanghai-based branches of mid-sized Chinese banks have seen a sharp increase in bad loans this year. The article says that the Shanghai branch of Beijing-headquartered China Citic Bank has seen NPLs jump to 5% of loans this month. Similar increases in NPLs were seen at the Shanghai branches of China Minsheng Bank and China Everbright Bank, according to an unnamed source.

In EM equities, the MSCI Emerging Markets index fell 4% yesterday in its weakest day since September 2011. The selloff was most acute in the Turkish (-7%), South African (-3.3%) Mexican (-3.9%) and Peruvian (-4.9%) bourses. Softness in the commodities sector also worsened sentiment in EM. Brent (-3.7%), Copper (- 2.5%) and Nickel (-3.5%) were softer across the board. Gold (-4.9%) broke through the $1300/oz level to close at a near 3yr low of $1284/oz. Gold is now down more than 30% from its 2011 peak of around $1900/oz. This led to further weakness in gold mining stocks including Newmont (-6.8%) and Barrick (-7.8%). The CME group announced a 25% hike in initial margins for the gold futures contracts, in response to the increased volatility. In the DM world, the S&P500 (-2.5%) closed below 1600 for the first time since the 2nd May. US REITs (-4.3%), utilities (-2.9%) and resources (-3.9%) were amongst the softest industry sectors. DM credit continued to march wider with the US and European IG indices closing 7bp and 12bp wider yesterday. The UST 10-year yield is steady at 2.41% in Asia overnight after having risen 2bp in the US session last night. The UST 10-year yield has reversed all of this and last year’s gains to be back to levels last seen in August 2011

In terms of data flow, it was safe to say that the better than expected PMIs in the Euroarea were largely swept aside in yesterday’s price action. But we did note that the composite PMI surprised to the upside, increasing for the third month in a row to 48.9 (vs 48.1 expected). The trend in PMIs was strong enough to prompt our European economists to remove their call for a refi rate cut later this summer. However will this be overtaken by events? The German flash composite PMI rose 0.7 points to 50.9 with a weakening in the manufacturing PMI (48.7 vs 49.9 expected) offset by strength in services (51.3 vs 50.0). The French flash composite PMI surprised to the upside, rising 2.2 points to 46.8. Both French manufacturing (48.3 vs 47.0) and services PMIs (46.5 vs 44.8) were above consensus. In US, markets took little comfort from the sharply better than expected Fed Philly print (+12.5 vs -2.0 expected). Initial jobless claims for the week of June 15th trended upwards to 354k.

Turning to the day ahead, there is very little on the data calendar today to move markets, meaning the focus remains solely on the market volatility.

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diogeneslaertius's picture

Global Economy Holographic Simulation Normalized Post Latest Incremental Sheep Shearing

GetZeeGold's picture

 

 

That was freakin awesome......can we do it again?

disabledvet's picture

"Ben Bernake rams his you know what up your golden sphincter." Don't fight the Fed Tyler's Durden and Wall Street! (On the second thought...

fonzannoon's picture

everybody take the day off and get ready for next week's kabuki theatre performance of "the 10yr touches 2.5% - chaos ensues".

 

EclecticParrot's picture

Perhaps good advice after one of the toughest 2 weeks to trade I've ever seen.  Even yesterday's bloodbath in equities didn't really start until 2:20, so daytraders starting each day 100% in cash had to stare at the screen for 5 hours before being really rewarded.  

The interesting question will be, going forward (not just today's dead cat witching day), will BTFD morph into STFR, and how quickly.  Given most that need to get out are not individuals, I'll bet we get false mid-day ramps that mysteriously fizzle, sawtooth hourly patterns to VWAP and back, and strange post 3:35 plummets, indicating the big boys are unloading the turnip truck.

gatorengineer's picture

gonna play today like it a nice consistant 10 degree up bubble... they gonna push her hard on op ex......

gatorengineer's picture

scratch that somethings not right.....

ThunderingTurd's picture

Seems like smalls are calling bullshit on this ramp via IWM premarket. I'm with you EP, ramps fizzle for a while. What is humorous is how hard the blabbering heads are trying to bid this up. Rowing upstream.

disabledvet's picture

How 'bout that stick save tho!

gatorengineer's picture

I think the muppet masters are going the other way...... looking for sub 2.20 before 2.50.....  they will avoid your headline at all costs....

fonzannoon's picture

gator you may see the ten year head down towards 2.35% which will give people the opportunity to unload more.

Wait till those statements come out next month. Oh boy.

disabledvet's picture

Oh girl! "The Fed rules the world" and not even a sigh? From Ben "shalom" Bernanke to Ben "axe murderer" Bernanke in just one week. Even Larry Kudlow is terrified! Run away! Run away! The Fed Chairman is a madman!

gatorengineer's picture

not liking what I am seeing this morning.....  I sense a true disturbance in the force..... scratch what I said earlier.

fonzannoon's picture

Trust me. There is no true disturbance anywhere. This is all by design.

firstdivision's picture

Would you look at that, markets up 1% overnight. Must have been some good economic news that came out to drive the "free" markets.

disabledvet's picture

Sound money dipshit. "This guy knows how to pay for a war too." Love it.

francis_sawyer's picture

Global [rigged] 'Markets'...... 'Stabilize'............

~~~

BWAHAHAHAHAAHAHAHAAHAHAAHAAHAAHAHA!...

I'm trying to put a number of how many of the 7 billion people on this planet really give a FF [save for a few shitty bankers]... I mean hell ~ I read ZH every day & I don't give a FF...

As I've said a million times... I just come here for the comedy...

Dr. Engali's picture

I come here to give my life meaning.

francis_sawyer's picture

I tried to give my life meaning once... But all that came out were punchlines... 'Gladhandling', as it turns out, is a spectator sport [who knew]?...

RSloane's picture

I come here to say good morning Doc, Fonz, and Francis.

francis_sawyer's picture

Until the day, that is, that francis_sawyer accidentally misspells a word... Then it'll be down to Doc & Fonz...

Dr. Engali's picture

You can never let that go can you? :)

francis_sawyer's picture

Explain to me why I should ever 'let it go'?...

~~~

It's as fundamental as the 'Declaration of Independence' to me [being told what you shall & shall not say]... WORSE ~ It's sickening to me that people, especially HERE, would simply shrug that one off...

Look ~ I "get", the whole SLAVE~MASTER dynamic..."Row well & LIVE #41"...

fonzannoon's picture

I was wrong to tell you to give it up. I apologized. I often wonder what "watering hole" hedgeless was able to find where he does not encounter the same issue.

 

francis_sawyer's picture

don't worry about it fonz... I've said it before, I have nothing against you, doc, kito...

~~~

Strangely ~ this whole episode has had a curious dynamic [akin to the 'Conspiracy Theory becoming Conspiracy Fact' dynamic ~ unless one believes in things like 'Luciferian Anti-Defamation Leagues']...

That's partly why I still hang around... It's a lot more fun 'TO MAKE FUN' of idiots who contradict themselves... That's what happens in the realm of 'political correctness' [when someone decides to substitute 'truth' with 'decorum' & justify debating points in that way]... Eventually, what seemed to be defensible arguments bump into one another & something then needs to be sacrificed at the altar... Either that, or the persons head just explodes like that dude in 'Scanners'...

I can't speak for h_h...

All I can say is that I miss his comments & fotos... I certainly don't blame 'him'... Anyone that does miss him should REFLECT on the 'principles' that are likely responsible for the exodus... Hell ~ 'Crockett' admitted one time that francis_sawyer singlehandedly chased him away for awhile... But he's back [probably disapproving of this comment as we speak]...

i-dog's picture

+1 for scaring Crockett away. "If we can save just one child..."

disabledvet's picture

"Modern Problems" bitchez. Gotta change with the times too. There is no "Sure Thing" in this world no matter the boyz tell us so. We should be old enough to understand that by now but we never learn do we. Slavery?! Slave to love maybe...but as the resident "weeping man" here I laugh at the absurdity too. "Tis not that we reach too far but that we actually achieve the impossible." Only crazy people even bother to FEIGN understanding of it all.

Dr. Engali's picture

I must have missed something here. I don't think we are talking about the same thing. If you are talking about Zero Hedge's new policy we are in agreement. I don't believe speech should be regulated like that. If the reader has an issue with what is said then that is their problem and its a sign of weakness in them. They either have the balls to challenge what is said or they read it and move on, but to cry about it just goes to show how intellectually stunted they are.

RSloane's picture

I obviously missed something because I don't understand what you are talking about. Misspell.....?

Edit: To Francis

francis_sawyer's picture

Inside joke... If I told you... They'd have to kill me...

Dr. Engali's picture

Top of the morning to you Sloan. Yesterday was fun.. I look forward to the real chaos when we lose a couple thousand points in a nanosecond. That should make some people crap their pants.

Bearwagon's picture

That should also make some people clap their hands: ;-)

fonzannoon's picture

Good morning RSloane and everyone else. I come here to post Jack Handy quotes.

"I hope that after I die, people will say of me: "That guy sure owed me a lot of money."

RSloane's picture

I am fairly certain that the NYSE will be distributing Depends soon to keep the stench of shit from disturbing God's work done on its floor.

stant's picture

i come here to read the post. learn more from that than anything. also to be humbled, there are smarter smart asses than me

francis_sawyer's picture

My ass is really REALLY smart[in]... [That's what happens when it gets whipped all day long]...

bdub2's picture

Glad that's over. Now back to crime based all-time highs!

Doubleguns's picture

Roller coaster rides always start with that really big drop and thrill. Not thinking this ride is over yet. 

Dr. Engali's picture

Nothing to see here folks. The robots have everything under control. You will be alerted after the next crisis hits. Until relax, kick your feet back, flip on the teevee, and feel free to scratch when necessary.

new game's picture

two questions: what if you flushed the toilet and the shit just swirled? Hint to answer-bens mop.

What if ya had a fire and nobody showed up? hint to answer-bens firehose.

jubber's picture

DAX melting from spike high, just dropped 60 points in 10 minutes, 10y US treasury futures turn negative

buzzsaw99's picture

Fed will trim its monthly bond purchases to $65b in September and end buying in June 2014...

Sure they will. [/sarc.]

In other news: The afghanistan war will end in 2010, no, 2011, no, 2012, no, 2013, no, 2014, no, 2015, no, 2016, no, 2017, no, 2018, no, 2019, no, 2020, no, 2021, no, 2022, no, 2023, no, 2024...

valley chick's picture

<------ thinks it is all an illusion and believe they will increase the monthly bond purchases.  I do not see a recovery thus the printing will continue.  Now back to work...canning and stacking!

Dr. Engali's picture

Now that that's over can we go back to talking about the NSA?

NSA to use data without a warrant.

http://www.guardian.co.uk/world/2013/jun/20/fisa-court-nsa-without-warrant