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Futures Surge Overnight As Deteriorating Economic Data Unleashes Blur Of Central Bank Interventions And QE Rumors

Tyler Durden's picture




 

Following yesterday's perfectly expected, yet totally shocking Brazil downgrade to junk status by the S&P, the Emerging Market took its next leg down over concerns that the so far relatively contained BRIC contagion will spread to the rest of the Emerging Markets. The result was that Malaysia’s ringgit, Indonesia’s rupiah and South Korea’s won all lead Asian currencies lower as regional equities initially dropped in a kneejerk response to the news while the New Zealand Dollar crashed by 2% after the RBNZ was the latest central bank to cut rates for the third time in three policy meetings.

The economic weakness stretched over to Japan, whose corporate goods price index plunged the most since 2009 while its machinery orders crashed -3.6% on expectations of a +3.0% rebound putting in play another Japanese recession scenario (its 5th in the past 7 years). The early result was a plunge in the Nikkei dragged lower by USDJPY (which also impacted US equity futures down), and then the Yen crashed, and the USDJPY soared instantly, when Japan had no choice but to pull out the QE card after Bloomberg headlines hit just before 1am eastern that ruling Liberal Democratic Party lawmaker Kozo Yamamoto, one of Japan's permadoves who has advised Prime Minister Shinzo Abe on economic policy, said the BOJ should boost QE - again - and increase annual pace of asset purchases by at least 10t yen, adding that the BOJ’s Oct. 30 meeting would be "good opportunity" for further easing. And just like that horrible news is great news again.

The result is shown in the chart below: the USDJPY surged, then faded all gains, then proceeded to rise again and to trip all the upside stops set by the earlier spike...

 

... in the process dragging S&P from 1935 early in the session as high as 1966: a 30 point move on no liquidity, and no news, just more hope that the global economy is so bad, more easing will be required.

 

The move in S&P500 equity futures higher due to USDJPY correlation algos was so violent, the E-Mini was halted for 10 seconds at 6:12:45 am Eastern as central banks apparently don't know their own strength.

All this happened just as China's central bank once again intervened in the FX market, the offshore Yuan this time, when after devaluing the onshore Yuan the most in 4 weeks, "someone" scrambled to send the offshore Yuan soaring, and the USDCNH plunging by the most on record.

According to Reuters, China's yuan shot higher in offshore markets on Thursday on suspected intervention by Chinese state banks, putting the offshore rate on track for its biggest daily gain on record. The intervention caught the market wrong-footed and was seen by traders as another bold gesture by Chinese authorities to shake out speculators and dampen expectations for further depreciation in the yuan following its devaluation in August.  The offshore yuan spot rate strengthened more than 1 percent to 6.39 per dollar from 6.4698 earlier in the day as the suspected intervention prompted those betting on yuan depreciation to cover their positions. 

 

At this point it has become virtually impossible to differentiate between actual central bank intervention, hopes of central bank intervention, and how the two interplay on what was once the "market" but is now merely the place where money printers duke it out every day in some pretense of price discovery set by those who literally print money.

Elsewhere in Asia equity markets traded lower following the weak close on Wall Street as indices were pressured by a slump in commodities. Nikkei 225 (-2.5%) underperformed amid profit taking following yesterday's stellar gains where it posted its best day since 2008, while the unexpected decline of Japanese core machine orders (-3.60% vs. Exp. 3.00%) which printed its lowest since November 2014, added to the negative tone. ASX 200 (-2.4%) and Chinese bourses (Shanghai Comp. -1.4%) traded in negative territory, weighed heavily by the energy sector, following the declines seen in crude. JGBs traded in positive territory as the risk off sentiment in the region boosted demand for safer assets, while the 5yr JGB auction failed to trigger price action in the 10yr after b/c (3.49 vs 3.45) and tail in price printed relatively in line to the prior reading. Chinese Premier Li said China is to expand domestic demand and is to have a more active policy in regards to imports. Li added that China is to set up a cross border CNY payment system and is to allow foreign banks in its onshore forex market.

Cautious sentiment dominated the price action in early European trade as market participants reacted to yet another round of uninspiring data from China, as well as Europe, this time out of France (Manufacturing Production M/M -1.00% vs. Exp. 0.40%, Industrial Production M/M -0.80% vs. Exp. 0.20%), and also positioned for the key risk event — BoE monetary policy announcement. As a result, the more defensive sectors such as health care outperformed, with the French CAC index (-0.4%) also outperforming given the heavy weighting of the sector in the index. At the same time, the Spanish benchmark IBEX-35 index (-0.9%) underperformed its peers, with SP/GE lOy bond yield spread also wider, as market participants continue to price in risks stemming from the upcoming elections in Catalonia on September 27th.

Demand for safe-haven assets, which in turn resulted in Bunds outperforming USTs on the back of policy divergence flow, failed to weigh on USD/JPY which remained bid amid the growing expectation of further easing by the BoJ, with Japan LDP lawmaker Yamamoto stating that the BoJ should increase asset purchases by at least JPY 10trl and added that October 30th BoJ meeting is a good opportunity for additional easing.

Aggressive move lower by offshore CNY prompts speculation of an intervention by the PBOC in order to close the spread between offshore and onshore CNY. The move was said to be linked to the overnight statement by China's Li who said that China is to allow foreign central banks in onshore forex market.

AUD continued to be supported by the strength in copper prices and better than expected employment data, which advanced to its highest level since mid-July, with the pair trading at its highest level since late August. While New Zealand saw the RBNZ cut the OCR by 25bps and added that further easing seemed likely and will be data dependant.

In commodities, WTI has seen a pull back from yesterday's API driven losses despite the risk off sentiment as the EIA have decreased their crude oil production forecast for 2015 and 2016, furthermore Cushing inventories decreased by 1.15mln bbl last week despite API crude supplies showing a build 2.1 min. Elsewhere, the metals complex has seen copper continue to benefit from the closure of two of Glencore's African mines and trades at its highest level since mid-July, with AUD finding strength in sympathy with the base metal, trading at its highest level since late August. Looking ahead, today sees the EIA natural gas storage change data and the weekly DoE inventories update.

On the US calendar we have import price index, initial jobless claims and wholesale inventories and trade sales data all due.

Overnight Bulletin Summary from RanSquawk and Bloomberg.

  • Cautious sentiment dominated the price action in early European trade as market participants reacted to yet another round of uninspiring data from China, as well as France.
  • Demand for safe-haven assets, which in turn resulted in Bunds outperforming USTs on the back of policy divergence flow, failed to weigh on USD/JPY which remained bid amid the growing expectation of further easing by the BoJ.
  • Today sees the latest monetary policy announcement by the BoE, US weekly jobs data, EIA natural gas storage change data and the weekly DoE inventories update
  • Treasuries decline for a third day despite losses in global stocks as week’s auctions conclude with $13b long bonds; WI yield 2.985% vs. 2.880% in August.
  • “The flight-to-quality trade has become overwhelmed with selling as investors use higher prices to liquidate positions before a possible Fed rate hike or as central banks need reserves to support their currencies,’” ED&F Man head of rates Tom diGaloma writes in note
  • China’s yuan strengthened 1% in Hong Kong, poised for the biggest one-day advance since offshore trading began five years ago, spurring speculation PBOC intervened in the market
  • China will open its domestic forex market to overseas central banks, making it easier for other nations to hold yuan assets as it pushes for the currency to win IMF reserve status
  • China’s consumer prices rose at the fastest pace in a year as a pork supply crunch drives up the cost of the staple while factory-gate deflation deepened to the worst in almost six years, compounding challenges for policy makers
  • BOJ should expand its monetary easing program by at least 10t yen ($83b), ruling Liberal Democratic Party lawmaker Kozo Yamamoto said, adding that its Oct. 30 policy meeting would be a “good opportunity” to add stimulus.
  • S&P cut Brazil’s credit rating to junk, a decision underscoring the nation’s worsening economic and political prospects and which threatens President Dilma Rousseff’s ability to avoid further deterioration
  • Sovereign 10Y bond yields mixed. Asian and European stocks fall, U.S. equity- index futures rise. Crude oil and coppper rise, gold little changed; copper gains

US Event Calendar

  • 8:30am: Import Price Index m/m, Aug., est. -1.6% (prior -0.9%); Import Price Index y/y, Aug., est. -11.1% (prior -10.4%)
  • 8:30am: Initial Jobless Claims, Sept. 5, est. 275k (prior 282k); Continuing Claims, Aug. 29, est. 2.253m (prior 2.257m)
  • 9:45am: Bloomberg Consumer Comfort, Sept. (prior 41.4)
  • 10:00 am: Wholesale Inventories m/m, July, est. 0.3% (prior 0.9%); Wholesale Sales m/m, July, est. 0.1% (prior 0.1%)
  • 1pm: U.S. to sell $13b 30Y bonds

DB's Jim Reid completes the overnight market wrap

The story of the last 24 hours has been the huge swing in sentiment between the 7.71% rise in the Nikkei yesterday morning and the immediate halo effects to the eventual turnaround that saw the S&P 500 close -1.39% lower. The sharp turnaround in US equities is being attributed largely to weakness in energy stocks as we saw a decent selloff in the Oil complex with Brent (-3.92%) and WTI (-3.90%) both tumbling despite a forecast cut for US crude oil production in 2015 and 2016 from the EIA, although the subsequent justification is that the void may be filled from higher OPEC production. Apple also weighed on sentiment yesterday as the latest product launch appeared to disappoint investors, but before we dig deeper into yesterday’s moves, it’s straight to China where we’ve got more data to digest.

August inflation readings this morning have made for some contrasting reading. China’s CPI has risen four-tenths from July to +2.0% yoy, ahead of expectations of a rise to +1.8% and up to the highest level in 13 months. However there’s been no let up in deflationary pressures at the factory gate where PPI has fallen five-tenths to -5.9% yoy (vs. -5.6% expected), marking the 42nd consecutive month of deflation. The uptick in CPI however is seemingly being blamed on higher pork prices, rising +19.6% yoy while food prices alone were up +3.7% yoy in August. In fact taking food and energy out of the equation, CPI has remained unchanged for the past three months at 1.7%.

Bourses in China have weakened as we head into the midday break with the Shanghai Comp currently -0.96%. After the huge rally we saw in Japanese equities yesterday, the Nikkei and Topix have tumbled -3.30% and -2.43% respectively, while the Hang Seng (-2.15%) and ASX (-2.20%) have also seen some decent falls. EM currencies have weakened modestly this morning, while Oil is down another 1.5%. Meanwhile the NZD has fallen 2% after the RBNZ cut rates by 25bps to 2.75% as expected, but signalling further easing may be ahead.

Back to markets yesterday. US credit indices also succumbed to a turnaround in sentiment with CDX IG eventually finishing the session 1.7bps wider after an early 2bps rally. The bigger story however was a bumper and record breaking day for primary market issuance across the pond. Marking the end of a summer lull in style and on the back of a busy Tuesday, 17 deals priced yesterday which tied for the most of all time, while total volume of $26.8bn was the second busiest of the year and fourth busiest day of all time according to the FT. Meanwhile the 33 tranches priced yesterday easily surpassed the previous record of 29 set in November last year. Some impressive numbers all round and its interesting that despite a bad year for performance, the US market remains open for supply.

With the Treasury market also adjusting to the deluge of issuance yesterday, the benchmark 10y did touch an intraday high in yield of 2.252% - the highest since August 6th – before a 10y Auction later in the day, which drew the highest yield since June, saw yields decline sharply, eventually finishing at 2.201% (and up a modest +1.8bps on the day). The data flow was supportive with a better than expected JOLTS job openings print for July (5.75m vs. 5.30m expected), up 430k from the previous month in the single biggest monthly gain since April 2010, although markets were little changed following the data. In the FX space the Dollar had a volatile session but the Dollar index eventually pared all of its intraday gains to finish more or less unchanged (-0.02%). September liftoff expectations remain unchanged versus this time yesterday, still priced at 28%.

On that subject, DB’s Chief US Economist Joe Lavorgna yesterday shifted his view for liftoff timing from the September meeting to October, listing seven reasons for a change of view. Those reasons are listed as follows; 1) Global equity markets are fragile, for example the S&P 500 declined 11% over a six-day span last month. 2) The broad trade-weighted dollar continues to make new highs, so having an appreciable negative effect on net exports and real GDP in Fed models. 3) Financial markets are not discounting a Fed hike this month and history is clear that policymakers are loathe to disappoint financial markets. 4) Several key FOMC voters appear to be subtly backing away from a September move, namely Lockhart, Dudley and Williams. 5) There are still two more FOMC meetings in 2015 after next week, meaning the Fed could wait to see if financial markets settle down and if there is any negative impact on business and consumer confidence from recent market gyrations. 6) The Fed will not believe it loses market credibility, at least in its own collective mind, if policymakers refrain from a hike this month. 7) Inflation continues to undershoot the Fed’s target with little evidence of a near-term reversal in trend.

Prior to the selloff in US equities yesterday, European markets had enjoyed a reasonably strong session on the back of the gains in Asia with the Stoxx 600 closing up 1.33%. On the back of last week’s ECB meeting and Draghi comments, ECB board member Praet said yesterday that the asset purchase program is ‘largely producing its desired effects’ and that ‘we judge that the recent volatility in financial markets has not materially affected this picture, although close monitoring and continuous assessment are warranted from a monetary policy perspective’. Praet also added that the effectiveness of these asset purchases would be enhanced by complementary measures from other policymakers, particularly through structural reforms.

Away from the comments, the focus of the data yesterday was one of some soft production numbers out of the UK. Industrial production declined 0.4% mom in July, well below expectations of a +0.1% gain. Manufacturing production was also weak meanwhile, falling 0.8% mom during the month (vs. +0.2% expected) and dragging the annualized rate down to -0.5% yoy, from a +0.5% reading. That was the first negative yoy reading since August 2013 and DB’s George Buckley noted that much of the fall was due to capital goods and earlier than usual motor production shutdowns. He did however note that he would not be surprised to see a rebound in August, but nevertheless a strong Q3 is now trickier to achieve given the sharp downturn during July.

Before we take a look at today’s calendar, surprising the market late last night was the sooner than expected news that S&P had downgraded Brazil’s sovereign rating to junk (from BBB- to BB+). The move was attributed to the pressure of political challenges weighing on the government’s ability and willingness to submit a 2016 budget to Congress consistent with the policy correction signalled by President Rousseff. The rating has been left on negative outlook and in the process Brazil has now joined Russia in being the second BRIC economy with a junk rating at S&P.

Turning over to today’s calendar now. Data wise in Europe this morning the only releases of note are out of France where we get industrial and manufacturing production readings. This is before the BoE meeting around midday today. Over in the US this afternoon the calendar picks up a bit with the import price index, initial jobless claims and wholesale inventories and trade sales data all due.

 

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Thu, 09/10/2015 - 06:59 | 6530426 stant
stant's picture

Rate hike priced in. Qe4 eva priced in

Thu, 09/10/2015 - 07:02 | 6530429 VinceFostersGhost
VinceFostersGhost's picture

 

 

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

Thu, 09/10/2015 - 07:07 | 6530434 Headbanger
Headbanger's picture

NOTT!!

S&P FUTURES DROPPING LIKE A ROCK NOW`

http://www.investing.com/indices/us-spx-500-futures-streaming-chart

 

Again:  THE FERAL RESERVE WILL RAISE RATES SOON NO MATTER WHAT

AND STFU WITH THE QE 4 HOPIUM STUPID CRAP!

YOU MOOKS!

Thu, 09/10/2015 - 07:13 | 6530443 VinceFostersGhost
VinceFostersGhost's picture

 

 

Again:  THE FERAL RESERVE WILL RAISE RATES SOON NO MATTER WHAT

 

Heh heh.....don't move or the dummy gets it.

 

Don't really care anyway.....I've got gold in the COMEX.

Thu, 09/10/2015 - 07:28 | 6530468 Headbanger
Headbanger's picture

Nope

You HAD gold in the COMEX.

It's prolly on its way to an abandoned salt mine now...

Thu, 09/10/2015 - 07:29 | 6530469 VinceFostersGhost
VinceFostersGhost's picture

 

 

Nah nah nah.......I can't hear you!

Thu, 09/10/2015 - 08:10 | 6530535 stant
stant's picture

I would guess they had hard time finding good artist to urban camo lewashimas gold train. Given the low quality of graphiti I see on today's rail cars

Thu, 09/10/2015 - 08:25 | 6530585 Grinder74
Grinder74's picture

My basement is an abandoned salt mine. Yeah, that's the ticket.

Thu, 09/10/2015 - 10:32 | 6530988 Consuelo
Consuelo's picture

THAT'S THE SPIRIT...!!!!!!!!!!!!!!!!!

Thu, 09/10/2015 - 07:04 | 6530433 Eirik Magnus Larssen
Eirik Magnus Larssen's picture

I'm not sure about the former.

Thu, 09/10/2015 - 08:19 | 6530560 Grinder74
Grinder74's picture

So did the Tylers' 12am-4am strategy work last night?

Thu, 09/10/2015 - 08:24 | 6530580 Grinder74
Grinder74's picture

Were the Tylers actually right?

 

 

1. put on pants

2. buy ES at 12:00AM  (~1942.50)

3. sell ES at 4:00AM  (~1955.00)

4. take off pants

Looks like one ES contract would have returned about $625.00?

Thu, 09/10/2015 - 09:12 | 6530707 MFL8240
MFL8240's picture

So disgusting its hard to even repond!

Thu, 09/10/2015 - 07:02 | 6530431 gmak
gmak's picture

One has to only look at the e-mini trades overnight to see that the buys are without question, one contract at a time with very few exceptions after Europe opens.  One would have to be willing to believe that crazy retail traders are staying up all night to buy into any of this - and that they manage to ramp the e-mini at given times.

The interesting part is how when the price reaches certain support / resistance levels from the last couple of weeks, that volume comes in and dumps the price down.  I think that not-so-clever .gov buy programs are being used by big money to hedge or exit positions that there were no muppets as bagholders.

 

hmmmm. The FED, BoJ, ECB, PRBC: bagholders of last resort.  Has a nice ring to it, n'est-ce pas?

Thu, 09/10/2015 - 07:03 | 6530432 NoDebt
NoDebt's picture

All I need to know is what Dennis Gartman thinks about this.

Thu, 09/10/2015 - 07:06 | 6530437 NoDebt
NoDebt's picture

"putting in play another Japanese recession scenario (its 5th in the past 7 years)"

Whatever you do, don't call it a Depression.

Thu, 09/10/2015 - 07:22 | 6530460 Free_Market_Mafia
Free_Market_Mafia's picture

Silly, it's an economic glitch, blip, at worst a slow down. Never mind that man behind the curtain.

Thu, 09/10/2015 - 07:24 | 6530462 cossack55
cossack55's picture

The current floods will help, until Fuku collapses into the torrent.

Thu, 09/10/2015 - 07:07 | 6530440 buzzsaw99
buzzsaw99's picture

central bankers are trying to drive trading volume to zero all over the world bitchez

Thu, 09/10/2015 - 09:31 | 6530768 Crocodile
Crocodile's picture

That would be the snake eating its tail.

Thu, 09/10/2015 - 07:11 | 6530445 Bangin7GramRocks
Bangin7GramRocks's picture

Yeah No Debt, when The Vapors wrote Turning Japanese I don't think they meant broke, unmarried and fucking a pocket pussy while playing video games.

Thu, 09/10/2015 - 07:19 | 6530455 somecallmetimmah
somecallmetimmah's picture

Sounds like 21st century America to me.

Thu, 09/10/2015 - 07:21 | 6530458 fiftybagger
fiftybagger's picture

Would somebody please just throw all these collectivist aholes in a gulag and throw away the key?

Thu, 09/10/2015 - 07:26 | 6530466 VinceFostersGhost
VinceFostersGhost's picture

 

 

We're seconds away from total transformation......10's of millions of people killed.

 

Are you sure you just want to throw it all away?

Thu, 09/10/2015 - 07:26 | 6530465 GRDguy
GRDguy's picture

Ben Franklin's saying applies to central banks: "We must hang together or surely we will hang separately."

Thu, 09/10/2015 - 07:39 | 6530480 ToSoft4Truth
ToSoft4Truth's picture

Bye.   See you on the pole. 

Thu, 09/10/2015 - 07:41 | 6530484 ABB
ABB's picture

The whole thing is spinning out of control. Dollar is F...ed, JPY is following, China is in its own S...t all the other countries are trying to catch up. Europe is following the footsteps of FED as if it lead to somewhere...

Meanwhile investors are looking for safehaven and that is the BUNDs and TREASURIEs. At the same time gold is continueing to go down in terms of USD.

Does not make sense at all.

click....  MANUPILATION....

now it all makes sense......

I am waiting for the day where the Gold will hit zero in COMEX. Then the real party will be starting for those who are still standing....

 

Thu, 09/10/2015 - 07:45 | 6530489 Crocodile
Crocodile's picture

It will be a "BLOOD BATH" in the markets today; Rule 48 will be enacted.  Some FED head will crawl out of the wood-work.

Thu, 09/10/2015 - 07:50 | 6530497 saints51
saints51's picture

That will be tomorrow when your mind is on the buildings they blew up years ago killing innocent people.

Thu, 09/10/2015 - 08:57 | 6530666 Crocodile
Crocodile's picture

You may be correct, but I believe the next false-flagS will be an assault on many fronts from proxy war(s) [eventually very hot], to internal destruction (9/11-style on steroids) and cyber attacks (bank holiday).  I believe, for good reason, all of our computers are already infected.

 

I hope none of this happens, but we are dealing with people under the influence of Satan and maybe directly at that.

Thu, 09/10/2015 - 09:02 | 6530690 saints51
saints51's picture

Agreed and more so about the satan aspect. Even an atheist on ZH has to admit the elite worship satan. Their symbolism towarda baal is all over the world. You don't have to believe it exists but they do.

Thu, 09/10/2015 - 09:30 | 6530763 Crocodile
Crocodile's picture

Even the atheist knows that "nothing plus nothing = everything" does not equate; it is just an "official" position of denying that which is obvious; we are complex created beings living in a complex universe that can only exist by a force and mind much greater than our own.  The Scripture refers to such as "fools"; literally stupid people and there are many and growing in number especially in the "visible" church, not the true church yet to be revealed.

Thu, 09/10/2015 - 08:18 | 6530555 MSimon
MSimon's picture

Can't decide. Red or Green. I'm doing nothing. Very productive.

Thu, 09/10/2015 - 09:01 | 6530655 Crocodile
Crocodile's picture

The futures went from solid green & now getting nearly 3-digit red.  All the Asian markets were hammered last night and I believe the Chinese dumped more treasuries in large quantity because they devalued their Yuan yesterday.  This is all very bearish and no amount of Plunge Protection is going to stop this momentum.  I'm having my neighbor, who doesn't pay attention, asking questions about what he should be doing with his investments.

 

http://www.bloomberg.com/markets/stocks/futures

 

Never, if you can help yourself, trade before 10am as the over reactions need to clear.  Try to set your positions near the end of the day and keep your eye on ZH.

 

Also, listen to this.  https://www.youtube.com/watch?v=Dcc3VWrRU30  Good luck, may the Lord extend favor to U.S..

------Edited-----------

Looks like the PPT is already intervening in the futures; so this tells me they will be out early and often to hold this together.  This increases the possibility that a FED head of some-type will come out with a statement.  Desperation.

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