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Chinese Stocks Surge Then Tumble At The Close, Stun Market News Algos; Futures Levitate On Back Of USDJPY

Tyler Durden's picture




 

Chinese stocks opened with a bang, and as we previously noted soared higher at the open after China's long 4-day holiday weekend, which however subsequently slowly (but very surely) fizzled, eating away at the hope that the 3-day drop in the Shanghai Composite would finally come to an end following comments from PBOC governor Zhou that the recent rout in Chinese stocks is almost over, and result in a relief rally in Europe and the US. Alas, all that was promptly swept away at the end of trading in China when the Shanghai Composite tumbled at close of trading to confirm just how unpleasant a "death cross" is coupled with loss of central bank control, and to push the Shanghai Composite down 2.5% for the day and 3.4% for the year.

 

To be sure, there was enough volatility to confuse the AP's market reporting algos as can be seen on the screengrab below.

 

For once we commiserate with the algos: following last night's action, which once again definitively showed that if nothing else China clearly has no idea how to manipulate market and used up all its dry powder in the first minutes of trading, we are quite concerned what will happen tonight when this time US stocks will open shortly after China's latest horror show.

That said, the biggest news out of Asia had nothing to do with its market, and everything to do with the PBOC's confirmation China saw a record $94 billion in reserve outflow in August (precisely in line with our post from 2 weeks ago, the one that started it all: "Devaluation Stunner: China Has Dumped $100 Billion In Treasurys In The Past Two Weeks"). We will have much more to say on this shortly in a follow up post.

Elsewhere in Asia, equities traded mixed (clearly - see confused algos above) following the initial gain in Chinese equities however, the index saw selling pressure heading into the close (Shanghai Comp. -2.5%). Nikkei 225 (+0.32%) fluctuated between gains and losses with price action driven by a weaker JPY, while ASX 200 (-0.2%) was the session's laggard dragged lower by weakness in energy and basic materials, after Friday's declines in commodities. JGBs traded relatively flat amid the volatility seen in Asian stocks, while the BoJ also entered the market to purchase JPY 1.2trl of government bonds.

Stocks in Europe traded higher since the open (EuroStoxx +0.3%), benefiting from supportive comments made by the governor of the PBOC who said that the recent rout in Chinese financial markets is almost over. At the same time, the sentiment was buoyed by the announcement from the commodities trading giant Glencore (+6.6%), which finally succumbed to market pressure and announced plans to address its financial position amid the slump in commodities market. As a result, energy and material names outperformed on the sector breakdown, that's in spite of the ongoing weakness in energy prices, with WTI and Brent crude trading lower this morning.

In the US, the E-mini which is trading was up 0.6% at last check, continuing to be driven entirely and only by the smallest gyration in the USDJPY, as markets try to milk every last bit of Yen carry trading before the market starts pricing in the tapering (and end) of the BOJ's QE which as even the IMF warned has about 2 more years to go.

Elsewhere, despite the better bid stocks, Bunds traded only marginally lower, while peripheral bond yield spreads traded mixed , with lOy SP/GE, PO/GE and FR/GE spreads trading slightly wider, while IT/GE outperformed and traded tighter on the session.

In FX, GBP outperformed its major counterpart EUR, supported by expectation that the recent turmoil in China and slower growth in the UK will not derail plans by the MPC to raise rates. At the same time, USD/JPY has come off its recent lows amid an improved sentiment and also growing expectation that the BoJ may announce additional easing, with analysts at BNP highlighting consequent weakness in 2y swaps. On that note, according to sources, BoJ officials do not have full confidence in the underlying growth of the economy.

Elsewhere, despite AUD trading higher, benefiting from better bid copper prices, 1-month vol rose to 14% level, for the first time since February, highlighting the depressed outlook for the currency.

Finally, in commodities despite the relatively subdued price action by gold and silver, copper prices rose and outperformed its peers in reaction to Glencore's announcement regarding its financial position which also included the company stating that it is to suspend copper production at two top mines in Africa, in turn removing 400,000 tonnes from market, in turn supporting copper prices.

At the same time, WTI and Brent crude futures traded lower, given the lack of agreement by OPEC and non-OPEC states to support prices. Elsewhere, it was reported citing Libya East NOC's Chairman stating that the political accord may help oil ports to re-open.

With the US closed to labor day, we expect that the European close will be quiet as even the algos are still in the Hamptons.

Market Wrap

  • S&P futs +0.6% to 1934
  • DJIA futs +0.5% to 16197
  • NDX futs  +0.6% to 4219
  • DAX +0.7 to 10106
  • Nikkei +0.4% to 17860
  • WTI - 1.2% to  $45.49
  • Brent - 1.1% to $49.20
  • Gold -0.1% to $1,122
  • EURUSD -0.1% 1.1145
  • USDJPY +0.3% 119.39

Bulletin Headline Summary from RanSquawk

  • Stocks in Europe traded higher since the open, benefiting from supportive comments made by the
    governor of the PBOC who said that the recent rout in Chinese financial markets is almost over
  • The sentiment was buoyed by the announcement from the commodities trading giant Glencore (+5.77%), which finally succumbed to market pressure and announced plans to address its financial position amid the slump in commodities market
  • Going forward, there is little in terms of tier 1 data releases, with US markets closed for Labor Day holiday

DB's Jim Reid concludes the overnight and weekend recap:

A quick glance at China as it's re-opened for the first time since last Wednesday. It’s been an all too familiar choppy start with the Shanghai Comp currently going into the midday break in positive territory (+0.88%) although paring a near 2% gain at the open and doing its best to swing between gains and losses. There’s been a similar move too for the CSI 300 (+0.31%) although it’s been a much stronger start for the Shenzhen, up +3.08% as we type. Elsewhere it’s fairly mixed across the rest of Asia this morning. The Nikkei (+0.44%) has rebounded off a weak start along with the Hang Seng (+0.22%) while the Kospi (+0.02%) is unchanged and the ASX (-0.57%) currently down. China’s statistics bureau has revised down its 2014 growth reading to 7.3% from 7.4%, bringing it in line with original forecasts from analysts while indicating that the number could be revised one more time when the final results are due in January. Meanwhile, we’re also awaiting the first significant data print of the week with China’s August foreign reserves data due sometime this morning where market consensus currently is for a $70bn decline. This will be particularly important in light of the recent ‘QT’ argument. Elsewhere in markets this morning it’s been a slightly soft start in the Oil complex, currently trading half a percent lower while credit markets have been relatively well behaved, little changed as we type.

Onto the weekend’s headlines now where the main attention has been on the G20 meeting and comments out of the PBoC in particular. Voicing confidence in China’s equity markets, PBoC Governor Zhou said that the correction in Chinese equity markets ‘is almost done’ and that the Central Bank’s actions in providing liquidity through various channels prevented the market from ‘falling off a cliff’, while adding that ‘there has been no notable effect on the real economy’. On the subject of the currency, Zhou emphasized that presently the exchange rate versus the Dollar is ‘stabilizing’ and that the recent devaluation was aimed at bringing the Yuan more in line with its peers and giving market forces bigger sway in deciding its value. The soothing words were seemingly echoed in a joint communiqué from the G20 finance ministers, stating that ‘we will refrain from competitive devaluations and will resist all forms of protectionism’. Easier said than done in reality.

Whether or not markets echo similar confidence in Chinese equity remains to be seen, but in the mean time focus turns to the September FOMC decision in just 10 days and which comes following an August employment report on Friday which only helped further muddy the waters. August payrolls rose 173k last month, well below market expectations of 217k (although in line with our US team’s forecast) but with a cumulative 44k of upward revisions. The weaker headline was also in contrast to the other associated employment indicators. The unemployment rate declined two-tenths to 5.1% (vs. 5.2% expected), average hourly earnings ticked up 0.3% mom during the month (vs. +0.2% expected) and the average workweek rose one-tenth to 34.6 hours (vs. 34.5 hours expected). That well balanced mix of weakness and strength ultimately saw no change to September liftoff expectations, priced at 30% this morning which is where we were Friday morning prior to the release. As our colleagues across the pond note, the key issue for the Fed now is whether or not they will go against the markets’ expectation of no change in policy, with the behaviour of financial markets over the next 10 days likely to play a big part in that decision.

We’ll have to wait until tomorrow to see any further reaction in the US with markets closed for Labour Day today, although there was a decent leg lower for US equities post the report on Friday with the S&P 500 eventually closing down 1.53%, while the Dow (-1.66%) and Nasdaq (-1.05%) also saw similar falls. Despite already having a soft day, European equities also declined in tandem with the Stoxx 600 eventually closing the session down 2.52%. Oil markets weakened although in fairness the bulk of the move lower came towards the end of the day. Brent finished the week back under $50 at $49.61/bbl (-2.11% on Friday) and in the process marked the 11th negative weekly return in the last 12th weeks. Gold pared a brief spark higher to finish down 0.32% which was representative of an all round weaker day across the commodity complex.

Much of the reaction in Treasuries was at the short end of the curve where 2y yields in particular climbed, although fairly modestly, to finish the day 1.4bps higher at 0.709%. 10y Treasury yields were more or less unchanged relative to where they were in the moments before the report at 2.124%, 3.5bps lower on the day. Closer to home and with just a weaker than expected German factory orders print (-1.4% mom vs. -0.6% expected) in the European timezone to digest, 10y Bunds finished the session nearly 6bps lower at 0.665%.

Turning over to this week’s calendar now. With Labour Day in the US today the only data releases due are in Europe where we get German industrial production and Euro area investor confidence. All eyes tomorrow morning will be on China where we get the August trade data readings, which some have said last month contributed to China devaluing. In Japan we get the final Q2 GDP reading along with the latest trade balance. There’s more trade data in Europe too on Tuesday with German and French readings due, while the preliminary Q2 GDP print for the Euro area will be closely watched. With the US open again, it’s the usual post payrolls lull with just the NFIB small business optimism survey and consumer credit readings expected. It’s quieter in Asia on Wednesday with just Japan consumer confidence expected. That’s before we get the UK trade balance reading in Europe along with industrial and manufacturing production, while over in the US the JOLTS job openings print is the sole release. We kick Thursday off in China again with more top tier releases in CPI and PPI, while machine orders and PPI are also due in Japan. French industrial and manufacturing production highlight the data out of Europe before we get the BoE decision around midday. Dataflow picks up in the US on Thursday with wholesale inventories and trade sales, import price index and initial jobless claims all scheduled. Closing out the week on Friday in Europe we’ve got German CPI along with UK construction output data. In the US meanwhile, we end the week with PPI and University of Michigan consumer sentiment prints, along with the Monthly Budget Statement. With the FOMC meeting around the corner, there’s a lack of Fedspeak now with just non-voter Kocherlakota due to speak on Tuesday.

 

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Mon, 09/07/2015 - 07:56 | 6517801 Bernoulli
Bernoulli's picture

So much for PBOC "correction already mostly over"...

http://www.denk-bubbles.com/china-7-sept-15/

Oh and you know things are ugly when Italy and France are the countries with the best performing equity markets YTD of the top 12 countries by GDP in the world...

http://www.denk-bubbles.com/overview

#notawesome

Mon, 09/07/2015 - 08:00 | 6517809 Headbanger
Headbanger's picture

There's an old Chinese proverb  somewhere in all this shit.

Mon, 09/07/2015 - 08:09 | 6517817 Hubbs
Hubbs's picture

When man get too big for britches only britches remain.

Mon, 09/07/2015 - 08:17 | 6517836 MSimon
MSimon's picture

BTFD britches.

Mon, 09/07/2015 - 08:56 | 6517923 JRobby
JRobby's picture

"we are quite concerned what will happen tonight when this time US stocks will open shortly after China's latest horror show."

The new version of normal. But we have not seen normal for years.

Mon, 09/07/2015 - 08:10 | 6517819 Tinky
Tinky's picture

Why yes, yes there is...

 

  • Translation: Try to save the dead horse as if it is still alive.
  • English equivalent: Nothing is impossible.
  • Meaning: Do the impossible, for it may truly be possible.
Mon, 09/07/2015 - 10:25 | 6518198 Pure Evil
Pure Evil's picture

Except for running out of breath in outer space, building retirement condos on the Sun, and expecting to escape the event horizon of a super massive singularity (China).

Mon, 09/07/2015 - 08:23 | 6517849 Winston Churchill
Winston Churchill's picture

Don't slam the barn door on your Ying Yang ?

Mon, 09/07/2015 - 08:44 | 6517896 stant
stant's picture

When food on table maaaany problem, when no food on table only one problem

Mon, 09/07/2015 - 11:55 | 6518494 Nobody For President
Nobody For President's picture

Old Chinese Proverb:

Income 999 Yuan, expenses 1000 Yuan = Misery

Income 1000 Yuan, expenses 999 Yuan = Happiness

Mon, 09/07/2015 - 08:00 | 6517806 Bernoulli
Bernoulli's picture

Why wouldn't China finally seek some advice from people who know how it's done??

http://www.denk-bubbles.com/bazooka/

Mon, 09/07/2015 - 08:12 | 6517824 theFNG
theFNG's picture

The DJIA is showing classic megaphone top chart, the shit is geting real!

 

 

This is what a megaphone top chart is:

http://www.trending123.com/patterns/reverse_symmetrical_triangle.html

 

This is the Dow chart with all years of date:

http://www.marketwatch.com/investing/index/djia/charts?symb=DJIA&country...

 

What do you think?

Mon, 09/07/2015 - 08:19 | 6517842 Bernoulli
Bernoulli's picture

Not so much into 2D "technical" analysis drawing random lines on charts without looking at what the triggers were...

But I would agree in principle that shit is getting somewhat real.

Mon, 09/07/2015 - 08:20 | 6517843 Tinky
Tinky's picture

I think that you should shout it from the rooftops, using one of those...thingamajiggies.

Mon, 09/07/2015 - 08:22 | 6517847 MSimon
MSimon's picture

I think rams horn is best. Especially in the missionary position. But doggie is good too.

Mon, 09/07/2015 - 09:05 | 6517947 Enceladus
Enceladus's picture

or perhaps a shofar whilst getting your shmeta on

Mon, 09/07/2015 - 08:23 | 6517850 XAU XAG
XAU XAG's picture

DJIA.................on  a trend line could go down to 8000 before it breaks it up trend set years ago!

 

below 8000 and it's then in a bear market below up trend.

 

And just look at all those bubbles blown!

Mon, 09/07/2015 - 10:21 | 6518192 gizmotron
gizmotron's picture

In electronics, it's called an underdamped oscillation. After a certain point, it goes "unstable" -- or in math terms, "undefined."

Mon, 09/07/2015 - 08:17 | 6517837 i_call_you_my_base
i_call_you_my_base's picture

What a shitshow.

Mon, 09/07/2015 - 08:18 | 6517839 Nothing Ever Happens
Nothing Ever Happens's picture

And please don't react negative to this post, there's enough commenting out there that adds no value.

This ain't China, chum.

Mon, 09/07/2015 - 08:31 | 6517861 Winston Churchill
Winston Churchill's picture

Mores the shame.No gold, no manufacturing base, and no future.

No we're not China.

Mon, 09/07/2015 - 08:52 | 6517915 negative rates
negative rates's picture

No, but Kansas is slowly approaching.

Mon, 09/07/2015 - 10:01 | 6518135 Eyeroller
Eyeroller's picture

"Cyclone's coming, Janet!"

Mon, 09/07/2015 - 12:49 | 6518696 MSimon
MSimon's picture

The US is the 2nd largest mfg economy in the world. If you trust Chinese stats.

Mon, 09/07/2015 - 08:56 | 6517920 Arnold
Arnold's picture

Throwing that hundred billion genuine U.S. fiat debt instruments around did not seem to add much value either.

Mon, 09/07/2015 - 08:18 | 6517840 MSimon
MSimon's picture

Nothing works. Which is why I use so much of it in my designs.

Mon, 09/07/2015 - 08:49 | 6517868 Sir SpeaksALot
Sir SpeaksALot's picture

I would love to finally see all of them riggers to say: "fuck it, let the market decide..." and then go home and let the things happen.

Mon, 09/07/2015 - 08:59 | 6517927 JRobby
JRobby's picture

There is a long line of eager candidates that will step in to try

Mon, 09/07/2015 - 08:44 | 6517895 RawPawg
RawPawg's picture

it seems that there are those around the global markets that still believe(strongly) in the china kool-aid...sad

Mon, 09/07/2015 - 09:23 | 6517994 deKevelioc
deKevelioc's picture

These CBs are just providing liquidity for market paricipants to get out.

Mon, 09/07/2015 - 09:44 | 6518063 nosam
nosam's picture

In effect, they are socialising the losses. Its the ordinary Chinese worker that ultimately pays for the PPT.

Mon, 09/07/2015 - 10:02 | 6518138 Eyeroller
Eyeroller's picture

Same thing will happen to the US tax payer.

Mon, 09/07/2015 - 09:51 | 6518097 Ban KKiller
Ban KKiller's picture

Just hang out at Polypena...like Snowden. Watch the fireworks while dining on some fresh fish. 

Mon, 09/07/2015 - 13:54 | 6518970 o r c k
o r c k's picture

Auntie Em It's a twister It's a twister

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