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Chinese Stocks Soar On Terrible Economic Data; US Futures Levitate; Brent Drops To 6 Month Lows

Tyler Durden's picture




 

Following last week's bad news for the economy (terrible ADP private payrolls, confirmed by a miss in the NFP) which also resulted in bad news for the market which suffered its worst week in years, many were focused on how the market would react to the latest battery of terrible economic news out of China which as we observed over the weekend reported abysmal trade data, and the worst plunge in Chinese factory prices in 6 years. We now know: the Shanghai Composite soared by 5%, rising to 3,928 and approaching the key 4000 level because the ongoing economic collapse led Pavlov's dog to believe that much more easing is coming from the country which as we showed last night has literally thrown the kitchen sink at stabilizing the plunge in stocks.

And while China has adopted most US market manipulation practices, it had yet to levitate stocks on Merger hopes: this was just the catalyst in the overnight ramp. As Reuters reported, trading in major shipping stocks, including China Shipping Development, China Shipping Container Lines and China COSCO Holdings, was suspended on Monday pending announcements, adding to speculation they may be merged. It remains to be seen if any news will emerge or if the market regulators merely halted them just to create the illusion of an imminent merger. For now the "news pending" gimmick worked: the SHCOMP closed at the highs with 300 stocks ending at the 10% limit up.

Just to show how desperate China is to draw in mom and pop yet again, the Shanghai Securities News reported on Friday that "close to 300 China funds that oversee more than 1 trillion yuan ($161 billion) are waiting to enter the stock markets at any time" in the latest attempt by state media to coax investors back into the market after its recent 25-percent rout. Good luck.

Elsewhere in Asia, Asian equities trade largely firmer despite last Friday's weak close after US NFP missed exp. but was strong enough to keep Sept. viable for Fed rate lift off. Nikkei 225 (+0.1 %) pared losses amid strong earnings from index heavyweight KDDI (+4%), while ASX 200 (+0.3%) was underpinned by strength in financials after big-4 NAB reported a 9% increase in profits. JGB's rose amid tracking gains in UST's coupled with the BoJ also conducting its large JGB purchase program

Stocks in Europe (Euro Stoxx: +0.3%) reside in positive territory this morning, however off their best levels after failing to hold onto initial gains, following the gains over in China which rallied for their biggest gain in a month amid speculation the government will accelerate mergers of state-owned enterprises. Also of note, there has been source reports that a third bailout package for Greece could be decided upon this week if an agreement in principal is reached by Tuesday and voted on in the Greek parliament on Thursday. This has seen upside in Greek banks, which trade among the best performers in Europe.

The FTSE-100 index (-0.65%) underperformed, as financials lead the way lower in the wake of reports that UK banks are bracing for a new wave of multibillion payouts linked to PPI, whereas UK materials are also weak after HSBC downgraded global materials to neutral from overweight.

In fixed income markets, Bunds have tracked movements in equities, initially opening lower amid equity strength before paring some of their early losses as equities came off their highs. T-Notes have been dragged lower in line with Bunds during the European morning ahead of the US coming to market with 3s, lOs and 30s for a total offering size of USD 64b1n later in the week.

And while Chinese stocks may have surged on terrible Chinese data, commodities have yet to follow through and earlier today crude oil futures touched multi-month lows after abysmal China trada data hurt sentiment across the commodities markets. Brent was down 19 cents at $48.42 a barrel at 0854 GMT, after touching $48.24 earlier in the session, the lowest in over six months. U.S. crude was down 18 cents at $43.69 after hitting an intraday low of $43.35 in Asian trading. Both benchmarks have been falling for six weeks, hampered by a supply glut.

"The market is more focused on the general Chinese data which is very weak ... it seems that economic activity in China continues to slow down," said Carsten Fritsch, an oil analyst at Commerzbank in Frankfurt.

"That is weighing on oil prices regardless of the fact that oil imports were very strong."

As a result, the energy complex heads into the US session flat on the day in line with gold prices, which posted its 7th consecutive weekly loss on Friday, with marginal gains seen amid volatility in riskier assets on uncertainty regarding the timing of a Fed rate hike post-NFP. Copper prices are marginally lower following more weak data from China, which showed exports and imports declined larger than expected, while iron ore prices were also lower coinciding with weak rebar prices falling to 2% week lows.

Notable commodity stories from overnight:

  • CFTC said COMEX gold speculators decreased net short positions by 1,041 contracts to 10,293 contracts, COMEX silver speculators decreased net short positions by 2,121 contracts to 8,326 contracts and COMEX copper speculators increased net short positions by 7,801 contracts to 33,547 in week to August 4th. (RTRS)
  • UBS decreases its 1 month Gold forecast to USD 1,050 from USD 1,200, and 3 month forecast decreased to USD 1,125 from USD 1,170. Platinum 1 month forecast decreased from USD 1050 to USD 950. Silver 1 month forecast decreased to USD 14.0 from USD 15.50. (BBG)
  • ANZ forecast that gold will test USD 1,020 in the near future, citing short bets, and decreasing investor holdings. The bank forecasts Iron Ore at USD 50 per ton in the next few months, citing increased supply. (BBG)
  • Barclays have forecast that gold prices will drop to their lowest price this year in Q3. (BBG)
  • China July iron ore imports rose to 86.10mIn tons vs. Prey. 74.96m1n tons in June, steel products imports fell to 1.05mln tons vs. Prey. 1.17mln in June and steel products exports rose to 9.73m1n tons vs, Prey. 8.89m1n tons in June. Elsewhere, China copper imports were unchanged M/M at 350k tonnes. (RTRS)
  • Iron Ore's recent gains will not be sustained, due to rising supply in H1, according to Morgan Stanley. Co. maintain their Q3 forecast of USD 50. (BBG)
    Citi have increased their forecast for

FX markets have seen strength in USD/JPY amid source reports that Japan's Sumitomo Life are in talks to buy US insurer Symetra, who are valued at around USD 3.1 bin, as well as being bolstered by the latest Japanese trade balance figures, which printed at a narrower than expected surplus (558.6bIn vs. Exp. 785.9bIn Prey. 1880.9bIn).

Elsewhere, the USD-index heads into the North American crossover flat on the day ahead of expected comments from Fed's Fischer and Lockhart, while AUD has underperformed today on the back of the lower than expected surplus and PPI in China.

There is no tier 1 macro news out of the US today, however many will be tuning in to listen to Fed's Fischer interview on BLoomberg TV shortly after 7am Eastern.

Bulletin Headline Summary from RanSquawk and Bloomberg

  • Stocks in Europe (Euro Stoxx: +0.3%) reside in positive territory this morning, however off their best levels after failing to hold onto initial gains
  • Bunds have tracked movements in equities, initially opening lower amid equity strength before paring some of their early losses as equities came off their highs
  • Looking ahead, there is no tier 1 data during the US session, however participants will be looking out for comments by Fed's Fischer and Lockhart
  • Treasury yields higher during overnight trading before today’s release of Fed’s Labor Market Conditions Index; U.S. Treasury to auction $64b of debt this week beginning with tomorrow’s $24b 3Y.
  • China’s leaders are increasingly relying on the central bank to help implement government programs aimed at shoring up growth in an adaptation of the quantitative easing policies executed by counterparts abroad
  • Benchmark U.S. 10-year yields fell 60bps even though China pared its U.S. debt holdings between March 2014 and May of this year by $180b, based on the most recent data available from the Treasury Department
  • A third Greek bailout won’t work and will only prolong the difficulties plaguing the euro area, according to Finnish FM Soini, but his party is ready to discuss another rescue package because allowing Greece to fail would only add to Europe’s costs, he said
  • Warnings of a liquidity crisis in the bond market are a myth created by Wall Street in hopes of repealing regulation, said Krishna Memani, the CIO of OppenheimerFunds
  • Ted Eliopoulos doesn’t fret over the meager 2.4% he earned last year for the $300 billion California Public Employees’ Retirement System even though it was a third of what was needed. Time, he says, is on his side
  • No IG or HY deals priced Friday. BofAML Corporate Master Index OAS widens +1 to new YTD wide 160; YTD low 129. High Yield Master II OAS +12 to 552, new YTD wide 549; YTD low 438
  • Sovereign 10Y bond yields mixed. Asian, European stocks mostly higher, U.S. equity-index futures rise. Crude oil, cooper and gold rise

US Event Calendar

  • 10:00am: Labor Market Conditions Index, July (prior 0.8)
  • TBA: MBA Mortgage Foreclosures, 2Q (prior 2.22%)
  • Mortgage Delinquencies, 2Q (prior 5.54%)

Central Banks

  • 7:15am: Fed’s Fischer interviewed on Bloomberg TV
  • 9:00am: Fed’s Lockhart speaks at Atlanta Fed conference
  • 12:25pm: Fed’s Lockhart speaks at Atlanta Press Club

DB's Jim Reid concludes the overnight recap

It was a busy weekend for China too after we got the first of several important data releases this week. The numbers largely disappointed and have seemingly reignited the stimulus debate once again. To recap, yesterday saw the inflation numbers released and was highlighted by a weaker than expected July PPI print (-5.4% yoy vs. -5.0% expected), the lowest reading since October 2009 to mark the 40th straight monthly decline in producer prices. CPI (+1.6% yoy vs. +1.5% expected) did improve from June (+1.4%) however the increase was largely attributed to the already highlighted surge in pork prices and in any case was overshadowed by the PPI number. The data came hot on the heels of soft trade numbers on Saturday where we saw exports fall 8.3% yoy in July (vs. -1.5% expected) in US dollar terms. Imports printed more or less in line (-8.1% yoy vs. -8.0% expected), however the data was enough to see the trade surplus fall to $43bn, a drop of around $3.5bn from June.

It’s a mixed follow up in trading this morning. Equity bourses in China have a had a strong session, supported by the potential for more stimulus and also reports on Bloomberg of industrial M&A activity. The Shanghai Comp (+3.20%), Shenzhen (+2.92%) and CSI 300 (+2.86%) are all higher this morning. Elsewhere, the ASX (+0.62%) and Nikkei (+0.30%) are also off to strong starts while the Hang Seng (-0.30%) and Kospi (-0.36%) are both down. In the FX space, the Yen (-0.10%) is a touch lower after Japan reported a smaller than expected trade surplus (¥103bn vs. ¥120bn expected). The China sensitive AUD is -0.3% meanwhile. Elsewhere 10y Treasuries are 2bps higher in yield in while credit markets are broadly unchanged.

It’s set to be another reasonably heavy data week this week with US retail sales on Thursday one of the highlights. One event worth keeping an eye on today however, particularly in light of his comments last week, will be a session from the Fed’s Lockhart who is due to speak at a Q&A event at the Atlanta Press Club this evening (due 5.25pm BST). Will he pull back on last week's remarks or reinforce them? It will be interesting to know whether Friday's US payrolls report changed anyone's view. The 215k reading print was just shy of expectations of 225k but with a cumulative 14k of upward revisions made to the prior two months. In fact the majority of the associated employment indicators printed broadly in line on Friday. The unemployment rate was unmoved at 5.3% while average hourly earnings came in as expected at +0.2% mom, helping to nudge the annualized rate up to 2.1% from 2.0%. There was a slight improvement in the broader U-6 unemployment rate, falling to 10.4% (down 0.1%) while average weekly hours ticked up 0.1 hours and above expectations to 34.6 hours.

Price action across Fed Funds contracts was fairly mixed following the data, although moves were relatively modest. The Dec15 contract edged up 1bp to 0.340% while the Dec16 (+1.5bps) rose slightly to 1.040%. The Dec17 contract on the other hand dropped 1bp to 1.645%. This was somewhat reflected in a flattening of the Treasury curve on Friday. 2y yields closed up 1.6bps higher in yield at 0.719% having reached an intraday high of 0.745% while 5y (-3.9bps), 10y (-5.9bps) and 30y (-7.2bps) yields fell to 1.572%, 2.163% and 2.819% respectively. The probability of a September move now has ticked up to 54% on the back of the data from 50% at Thursday’s close. Meanwhile, further pressure on Oil prices continues to help suppress yields further out the curve. WTI tumbled another 1.77% on Friday to close at $43.87/bbl (and has fallen another 0.5% this morning) to reach a fresh 5-month low as the latest Baker Hughes data showed that the number of oil rigs operating in the US rose for the third straight week. Brent (-1.84%) also closed lower on Friday at $48.61/bbl, finishing the week down 6.9% for the sixth consecutive weekly decline and the largest one-week decline since early March. Gold had a stronger session on Friday, closing +0.42% higher however Aluminum (-0.22%) and Copper (-0.23%) continue to trade weak. It was a choppy day for the Dollar, with the index initially rising 0.5% only to then pare those gains into the close and finish down 0.28%.

That weakness in Oil once again weighed on US equities on Friday. With energy stocks falling 1.86%, the S&P 500 ended the day -0.29% for its fifth daily decline in the last six sessions. The Dow (-0.27%) and NASDAQ (-0.26%) also ended the week on a down note. Earnings season is slowing down in the US now and updating our latest beat/miss earnings monitor with 444 S&P 500 companies now having reported, earnings beats have ticked down to 71% now, from 74% on Thursday while sales beats have remained unchanged at 49%.

Greece is creeping back onto our screens this morning with the news that we may see an accord struck between Greece and its Creditors this week. According to the FT, Greek officials have been the most positive about the likelihood of a deal, saying that something could be signed as soon as Tuesday and approved through parliament in Athens later this week. This would then allow for Eurogroup finance ministers to meet on Friday to approve the deal in time for European parliamentary approvals next week, potentially resulting in a deal in time for an ECB repayment on 20th August. The article does however suggest that Germany is still patiently holding out for more reforms from Athens and has argued that a two or three week bridging loan could be more appropriate than rushing a deal for now. Having reopened last week, the Greek stock market initially plunged 19% through the first three days of the week, only to bounce back 5% in the last two days of the week.

Wrapping up Thursday’s price action, there wasn’t a whole lot to report in the European session on Friday. Bond yields in the region generally followed the moves in the Treasury market with 10y Bunds closing down 4.7bps and similar maturity yields in the periphery closing 1-4bps lower. Data was largely weak meanwhile. German industrial production for June (-1.4% mom vs. +0.3% expected) was well below consensus, while manufacturing (-0.7% mom vs. +0.2% expected) and industrial (-0.1% mom vs. +0.2% expected) production readings in France were also soft. That helped support a weak day for European equities with the Stoxx 600 (-0.91%), DAX (-0.81%) and CAC (-0.72%) all down. Credit markets also weakened with Crossover closing 6bps wider, although the moves largely came post the US payrolls report with US credit selling off.

On the subject of credit, over the weekend we published our latest HY monthly and with markets winding down into the summer we take a look at some of the recent developing themes in the European HY market. With near-term concerns on Greece having abated the focus for the HY market has swiftly moved to the renewal of commodity price weakness with oil prices falling by more than 20%. We highlight how this has led to an underperformance of USD HY relative to EUR HY even when we look beyond the energy sector. In addition we also highlight that despite the improved performance for EUR HY in July BBs actually saw their first monthly outperformance of single-Bs this year and how this reflects, in our view, the continued need for single-name credit work for HY investors.

For now we maintain our constructive view on EUR HY but remain aware of potential headwinds. Even if Greece is no longer a major issue we still have Chinese growth concerns, the possibility of a negative spillover from the commodity led weakness in USD HY as well as whether the Fed will pull the trigger on rate hikes in September.

Moving onto the week ahead now. It’s a fairly quiet start to the week in the European timezone this morning with just Euro area investor confidence and French business sentiment readings due. Over in the US meanwhile the labour market conditions index for July is sole release this afternoon. Things pick up tomorrow as we start with the August ZEW survey readings for Germany and the Euro area. Italian CPI will also be due before we pass over to the US where we get the NFIB small business optimism survey, nonfarm productivity, unit labour costs and wholesale trade sales and inventories. We start in Asia on Wednesday where we’ll get more important data out of China with retail sales, industrial production and fixed asset investment all due. Over in Japan meanwhile we’ll get PPI, industrial production and capacity utilization. UK employment indicators and Euro area industrial production are the highlights in Europe before we get JOLTS job openings and the Monthly Budget Statement in the US. We’ve got a big day of data due on Thursday starting with the final CPI prints for Germany and France in the morning along with the ECB meeting minutes. US retail sales is the highlight across the pond on Thursday while initial jobless claims and the import price index are also expected. We close out the week on Friday in Europe with Q2 GDP for the Euro area and also for Germany and France. The final July CPI reading for the Euro area will also be closely watched. French employment indicators and UK construction output are also due. It’s a busy end to the week in the US on Friday with PPI, industrial and manufacturing production, capacity utilization and the University of Michigan consumer sentiment reading. As well as the data as already mentioned the Fed’s Lockhart will be due to speak again (today) while earnings seasons draws to close with Cisco and Macy’s the notable highlights.

 

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Mon, 08/10/2015 - 06:59 | 6409151 KingOliver
KingOliver's picture

Wow, is that all?? Pathetic...

Mon, 08/10/2015 - 07:35 | 6409199 VinceFostersGhost
VinceFostersGhost's picture

 

 

Brent Drops To 6 Month Lows

 

And then......reality set in.

Mon, 08/10/2015 - 08:19 | 6409310 EurGold
EurGold's picture

China is currently stock piling Gold so the price is going to sky rocket and because it is a limited resource demand will grossly overweigh supply.

 

Buy now while you can!

 

http://www.eurgold.eu

Mon, 08/10/2015 - 07:01 | 6409153 wmbz
wmbz's picture

When you own the printing press, make the laws, control the market, etc....Anything is possible in make believe-land!

We ain't seen nothing yet!

Mon, 08/10/2015 - 07:08 | 6409163 aint no fortuna...
aint no fortunate son's picture

Let's remember that these are crime scenes, not markets. Traditional price discovery has for all intents and purposes been outlawed.

Mon, 08/10/2015 - 07:13 | 6409172 negative rates
negative rates's picture

When the blind lead the blind, nobody sees anything, ever!

Mon, 08/10/2015 - 07:02 | 6409154 buzzsaw99
buzzsaw99's picture

We now know: the Shanghai Composite soared by 5%...

unpossible. /s

Mon, 08/10/2015 - 07:03 | 6409155 DavidC
DavidC's picture

Absolutely farcical.

DavidC

Mon, 08/10/2015 - 07:09 | 6409165 buzzsaw99
buzzsaw99's picture

Dr. Peter Silberman: You're safe now, they can't hurt you. Kate, my name is Doctor Silberman. I'm a post trauma counselor for the Sheriff's Department. How are you feeling?

Kate Brewster: He's not human... he's really, not human.

Dr. Peter Silberman: I know what it's like to be in a hostage situation, I've been there myself. The fear, the adrenaline, you find yourself imagining things, impossible things, crazy things, insane things... takes years to get over it.

Mon, 08/10/2015 - 07:16 | 6409174 negative rates
negative rates's picture

Slipping away into halucinaions are we, Dr, call the cops there's a mad man around.

Mon, 08/10/2015 - 07:45 | 6409210 VinceFostersGhost
VinceFostersGhost's picture

 

 

Looks like I picked the wrong week to stop sniffin glue.

https://www.youtube.com/watch?v=7WAwuSK36Gw

Mon, 08/10/2015 - 07:47 | 6409223 negative rates
negative rates's picture

Withdrawls are a bitch.

Mon, 08/10/2015 - 07:10 | 6409159 JustObserving
JustObserving's picture

Shanghai Composite rose by 4.92% adding $400 billion to China's market cap.  Or $300 for every Chinese citizen.

Manipulation is the fastest way to wealth as the PPT has demonstrated since January 1988.

Mon, 08/10/2015 - 07:19 | 6409176 Tinky
Tinky's picture

Reminds me of one of my favorite ZH-supplied quotes:

BOJ officials used to be cautious about purchasing ETFs, worried that it could distort market activities and put the central bank’s own financial health at risk. But under pressure from politicians following the global financial crisis, the bank changed its stance in late 2010.

“We led the cows to water, but they didn’t drink it, even though we told them it tasted good,” Miyako Suda, who was a board member then, wrote in a 2014 book discussing monetary easing at that time. “So we thought we should drink it ourselves, showing them it was tasty.”

Mon, 08/10/2015 - 07:35 | 6409202 Wild Theories
Wild Theories's picture

I missed seeing that original quote, but lol that's a good one.

I'll treasure it now with my other favourite

"I've been investing since January and I've never seen anything like this" - HK housewife during the last financial crisis

Mon, 08/10/2015 - 07:24 | 6409184 i_call_you_my_base
i_call_you_my_base's picture

Mondays are hilarious. Everyone forgets last week and it's as if every financial journalist spent the weekend writing an optimistic piece.

Mon, 08/10/2015 - 07:25 | 6409186 Peter Pan
Peter Pan's picture

If nothing seems to make sense you are bound to get twitches and wake up at night in a condition of dyslexia and calling out "Is there are dog?"

The best response is to take joy that the Tower of Babel has added another floor without falling and that money engineers already have more floors on the drawing board for addition.

Look on in wonderment for man is the measure of all things. And truly I say to you that his day's as a thoughtless consumer will end in him being consumed most probably without even realizing it.

Mon, 08/10/2015 - 07:33 | 6409188 nakki
nakki's picture

The central bank lowers rates and prints paper to buy up paper assets because less people receive paper printed by the central bank which causes the economy to slow down so the central bank prints more and more paper to buy paper assets because the economy shrinks because less and less people receive the paper that the central bank prints.

How many shares of Apple does the Swiss CB own again? Must be nice to print from nothing to buy up everything, in the guise of "protecting" the little people.

Mon, 08/10/2015 - 07:51 | 6409233 MFL8240
MFL8240's picture

Keep the music playing until the right time to crush the market, the dollar and economy and blame Russia. 

Mon, 08/10/2015 - 11:47 | 6409294 falak pema
falak pema's picture

The Shanghai is back at 4000 but for how long?

And is the FED's Fischer now contradicting Yellen ?

http://www.marketwatch.com/story/no-rate-hike-until-fed-sees-inflation-r...

No rate hike UNTIL inflation returns ! (So screw the labour stats! ) 

Who to believe?

Maybe Peter Schiff, who had this to say on China :

http://www.talkmarkets.com/content/us-markets/chinese-economic-problems-...

Mon, 08/10/2015 - 08:25 | 6409337 Aussiekiwi
Aussiekiwi's picture

So Bad news is good news in China now as well, considering the amount of bad news on the way for China we should therefore be looking at a booming Chinese stock market very soon.

Mon, 08/10/2015 - 11:18 | 6410075 Crocodile
Crocodile's picture

Now China is on-board with western markets; good news is bad for the market and bad news is good...the new market norm.  Cash in and convert to metal including lead.

Mon, 08/10/2015 - 15:56 | 6411168 JenkinsLane
JenkinsLane's picture

Money on the Chinese sidelines baby!

Do NOT follow this link or you will be banned from the site!