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US Futures Surge Nearly 30 Points To Overnight Highs After Tumbling On Worst Chinese Data In 6 Years
In many ways, the overnight market has so far been a reversal of yesterday, when a stable Asia session (with China stocks rising) gave way to a European tumble which in turn dragged the US lower.
So far, we have seen Asian markets trade lower following the lacklustre performance of its global counterparts, while weak Chinese manufacturing PMI data, which as we reported earlier printed at levels not seen since March 2009 - further exacerbated losses.
The Hang Seng (-2.3%) led declines while the Shanghai Comp. (-2.2%) saw brokerages come under pressure after industry giant Citic Securities were suspected of illegally profiting from the stock market rescue. As Bloomberg reports, "a Chinese probe found evidence that Citic Securities Co., the nation’s biggest brokerage, engaged in insider trading connected to the government’s rescue of the stock market, people familiar with the matter said. Investigators suspect that the brokerage used advance knowledge of government-orchestrated stock purchases to execute trades that benefited the firm, said the people, who asked not to be identified because the matter is private. A Citic Securities spokeswoman said the company hasn’t received any formal notification regarding the nature of the investigation. The China Securities Regulatory Commission didn’t immediately respond to a request for comment."
In other words, after making selling illegal, China just made the only credible reason for buying - doing so to frontrun the central bank on leaked inside information - also illegal.
The result: Citic Securities’ shares fell as much as 8% in Hong Kong, down more than 50 percent for this year.
Citic Securities -6.9%; China said to suspect brokerage illegally profited from stock rescue http://t.co/dj5IxMFna7 pic.twitter.com/9dphsmfSMP
— Sarah McDonald (@mcdonaldsarahj) September 23, 2015
Elsewhere, the ASX 200 (-2.1%) declined due to its large exposure to China, with early weakness attributed to large mining names after iron ore prices slumped, while Japan remain closed due to Autumnal Equinox Day.
Elsewhere in the US, Chinese President Xi Jinping reaffirmed his commitment to implement reforms and added the Chinese economy will maintain medium to high pace of growth. Xi also dismissed the idea of a currency war and commented that China will not devaluate CNY to support exports.
Somewhat unexpectedly, Xi added that China's stock markets are in "self-recovery adjustment" after recent ups and downs, which prompted some to fear that the PBOC will engage in even less intervention. That remains to be seen as the PBOC was quite clearly involved in the currency market overnight: BBG cited "people familiar" who said that the People’s Bank of China intervened in both the onshore and offshore markets to prop up the yuan today. Intervention conducted via state banks, according to the person, who asked not to be identified because the moves haven’t been announced.
So while Asia was clearly trading on "bad news is bad news" fundamentals, Europe decided to flip the script today, and just before the European open, forced the all-important carry trades, the USDJPY and EURJPY to blast off out of the gate in a mirror image of yesterday's European open tumble, pushing European stocks promptly higher form negative to positive, pushing the EuroStoxx up 0.5% at last check, as participants continue to react to the Volkswagen news, while also digesting the latest services and manufacturing PMIs out of France, Germany and the Eurozone.
European equities moved into the red shortly after opening weighed on by carmakers as Volkswagen initially fell 7.8% to break below EUR 100 for the first time in 4 years before paring these losses amid no fundamental news to trade higher by 2.6%. Equities went on to retrace losses throughout the morning to trade in the green with the IBEX continuing to underperform, as it has done for much of September, ahead of Sunday's Catalan elections. Of note, volumes may be lighter today as Wall St. opens with Jewish participants away from their desks for Yom Kippur.
Fixed income markets have seen a paring of some of yesterday's gains in line with the modest strength in equities, with Bunds falling by around 20 ticks today after yesterday saw gains of over 130 ticks. Looking ahead, today sees the USD 13bIn 2yr FRN auction and USD 35 bin 5 yr Note Auction, where the auction in August saw the lowest B/C since July'09 yet July's offering gave the highest B/C since Nov'14 with indirects at the highest level on record.
The USDJPY move also saved US futures, which had earlier tumbled 20 points on the Chinese data to a new session low of 1910, only to ramp nearly 30 points just around 5am Eastern to 1939.
As noted above, the unexpected rebound in Volkswagen stock and the modest rise in Glencore, both of which traded below 100 (EUR and pence respectively) recently, has likely been a catalyst for the rise thanks to the latest batch of BTFDers who hope that "this is as bad as it gets." We'll find out soon if they are right.
In FX markets, we have seen relatively muted price action, with the USD-index (0.0%) heading into the US session flat, while EUR not seeing an immediate reaction to any of the French, German or Eurozone services and manufacturing PMIs , which printed generally lower than expected. Elsewhere, the likes of RUB, NOK and CAD all trade higher amid strength in the commodity complex, while AUD remains under pressure after Caixin Chinese flash manufacturing PMI (47.0 vs Exp. 47.5) printed its lowest since March 2009.
The energy complex has seen strength overnight, with WTI and Brent futures bolstered after yesterday's API crude oil inventories showed a larger drawdown than previous (3700k), while the metals complex has seen relatively muted price action, with gold heading into the North American crossover in modest positive territory. Today sees the release of the latest DoE crude oil inventories, which are expected to show a drawdown of 1250k (Prey. drawdown of 2104k).
Bulletin Headline Summary
- Treasuries decline as European stocks, commodities and U.S. equity futures rebound from yesterday’s losses and before week’s auctions continue with $35b 5Y notes, WI 1.475% vs. 1.417% in August.
- A private Chinese manufacturing gauge fell to 47.0, below estimates and the lowest in 6 1/2 years, underscoring challenges facing the economy as its old growth engines splutter
- A Chinese probe found evidence that Citic Securities Co., the nation’s biggest brokerage, engaged in insider trading connected to the government’s rescue of the stock market, people familiar with the matter said
- China is on a path similar to the one that preceded Japan’s lost decade in the 1990s as the country’s debt level grows twice as fast as its economy, according to Jim Chanos, the hedge fund manager who predicted the 2001 collapse of Enron
- Deutsche Bank AG and State Street Global Advisors will no longer acquire ABS for the ECB and euro-area central banks will play a larger role, under revisions announced Wednesday, according to a person familiar with the matter
- ECB Governing Council member Ewald Nowotny said he’s wary of increasing central-bank stimulus any time soon even as policy makers struggle to boost inflation
- Volkswagen AG CEO Martin Winterkorn will get a chance to make his case before the automaker’s executive committee today, with a critical point what he knew about a scheme intended to dupe regulators about diesel emissions
- Qatar’s sovereign-wealth fund may have lost $4.6b in just two days from its stakes in Volkswagen AG and Glencore Plc
- $2.85b IG priced yesterday, $1.9b HY. BofAML Corporate Master Index widens 1bp to +167; YTD range 172/129. High Yield Master II OAS widens 21bp to +598; YTD range 614/438
- Sovereign 10Y bond yields mostly higher. Asian stocks plunge, European stocks and U.S.equity-index futures gain. Crude oil, gold and copper gain
US Event Calendar
- 7:00am: MBA Mortgage Applications, Sept. 18 (-7%)
- 9:45am: Markit U.S. Manufacturing PMI, Sept. P, est. 52.8 (prior 53)
- 1:00pm: U.S. to sell $13b 2Y FRN, $35b 5Y notes
Central Banks
- 9:00am: ECB’s Draghi at European Parliament hearing in Brussels
- 12:30pm: Fed’s Lockhart speaks in Columbus, Ga.
DB completes the overnight recap
It’s tough to pin down where to start with yesterday’s sell-off across risk assets. Mixed messages coming out of the Fed has resulted in a decent amount of uncertainty in markets at present, while volatility is still at elevated levels. Yesterday we also saw sentiment take an extra hit with commodity and EM weakness driving down mining names, while the fallout from the Volkswagen scandal saw automakers suffer heavy losses across the sector. That resulted in steep losses for European equity markets firstly with the likes of the Stoxx 600 (-3.12%) and Dax (-3.80%) both tumbling lower. US equities did recover slightly into the close but the damage was already done with the S&P 500 finishing the session -1.23%, the index down now to the lowest level in two weeks. US 10y yields wiped out Monday’s move after closing 6.8bps lower at 2.135%. Meanwhile, 10y Bunds fell nearly 10bps to 0.589% and are back down now to the lowest yield in nearly a month. All told that’s seen October and December Fed rate hike expectations take a hit. October futures pricing is now down to just 18% versus the 20% we were at this time yesterday with December pricing now down to 39% after reaching 49% only 24 hours ago.
Markets have followed suit in Asia this morning with declines across the board, although some disappointing manufacturing data out of China has helped to extend losses. The flash Caixin manufacturing PMI reading declined another 0.3pts to 47.0 (vs. 47.5 expected) in the month of September. That marks the third straight monthly decline and the lowest level in six and a half years. Stocks in China have tumbled with the Shanghai Comp (-2.16%), CSI 300 (-2.16%) and Shenzhen (-1.41%) all suffering steep declines into the midday break. China sensitive currencies have also fallen. The Aussie Dollar is down nearly a percent, while there have been similar falls also for currencies in Korea, Indonesia and Malaysia. The moves in China have also come on the back of comments from the IMF’s Lagarde yesterday, who warned that the slowdown in Chinese growth, while predictable, has more spillover effects in the region than was anticipated.
Elsewhere this morning, the Hang Seng (-2.98%), Kospi (-1.41%) and ASX (-2.18%) are all in the red. Credit markets are weaker also, with indices in Asia and Australia around 3bps wider. S&P 500 futures are pointing to a soft start, down nearly a percent as we go to print.
Back to yesterday and looking closer at some of the themes which plagued the weaker price action. The aforementioned Volkswagen emission test scandal saw the car maker’s share price plunge nearly 20% yesterday in addition to the 19% plunge on Monday. VW’s CEO is set to meet with the executive committee of the company’s supervisory board today while the German government is said to have set up an official inquiry into the saga. The impact was felt across the carmaker space however. The likes of Daimler, BMW, Peugeot and Renault all tumbled at least 6% while across the pond we also saw some pain in General Motors and Ford, falling 2% and 3% respectively.
The weakness across the commodity and EM space was also notable yesterday. Much of the weakness was felt in the metals space in particular. Aluminum, Zinc and Nickel all fell nearly 2% while Copper sold off 3.62%. Precious metals suffered also. Gold finished down 0.77% while Silver and Platinum fell 2.79% and 3.61% respectively. In the Oil complex, WTI closed -1.28%, although a late rally helped Brent (+0.33%) creep back into positive territory. Meanwhile and led by a new record low for the Brazilian Real having fallen 1.64% yesterday, EM currencies suffered broad-based declines with currencies in Colombia, Chile, South Africa, Mexico, and Poland all seeing a depreciation of at least 1%. Mining giants had a tough day with Glencore leading the losses for the sector after falling nearly 9%.
Away from the price action, there was little economic news-flow of note yesterday. The FHFA house price index rose +0.6% mom in the month of July, ahead of expectations of a +0.4% rise with the year-on-year rate now up to 5.8%. The Richmond Fed manufacturing activity index was less supportive however, falling 5pts this month to -5 (vs. +2 expected), a level not seen since January 2013. In Europe we saw consumer confidence dip lower for the month of September (-7.1 vs. -7.0 expected), a fall of 0.2pts while prior to this in the UK CBI trends total orders disappointed in September to the downside (-7 vs. 0 expected), falling 6pts.
The uptick in volatility played into a slower day for primary issuance in credit markets. Just shy of $3bn priced in the US IG space, although given that weekly volumes so far are running at $22bn the estimated $30bn weekly volume is still in sight with a few big name issuers said to have stood down yesterday. On the flip side, there was no shortage of demand at yesterday’s T-Bill auction in the US with the four-week bills attracting the highest demand on record at a bid-to-cover ratio of 9.47 and beating the previous high set back in 2011.
Turning over to what’s a busier day for data today. Along with this morning’s final reading for Q2 GDP in France, we’ve got the September flash PMI’s to look forward to with the manufacturing, services and composite prints all expected for the Euro area, Germany and France. It’ll also be worth keeping an eye on ECB President Draghi this afternoon who is due to hold a quarterly meeting in Brussels while EU leaders are set to hold a summit later in the day on the refugee crisis. Elsewhere, over in the US, data wise we’ve got the flash manufacturing PMI due up while the Fed’s Lockhart is due to speak once again.
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life in a fiat market
Just Buy the FUCKING dip...and don't forget some bitcoins and USTs for insurance!
Just another day in low-volume paradise.
30 points......good job comrades.....you have saved DC!
Now let's go for the win.....and get Hillary elected.
Hillary will withdraw just as soon as the Fundraising dries up.
Is this the year of the (VW) Rabbit ?
Abundant Hope, for a long long time.
Well? Shemitah?
Yeah, if that was it for Shemitah, consider me unimpressed.
Obama's having a Sodomitah....at the WH....this weekend.
In his book Jonathon Cahn is pretty clear about the timing. Although the las two crashes were precicely on Elul 29 he is abundantly clear that this time could and likley will be different. It can still happen.
Citic is GS in Chinese
I hope we have an article today about the Pope meeting the Baptist joo o'bummer.
There's no way this could be mmanipulated, could it?
Market intervention abounds.
Dead Pope Bounce
Today is the day the pope lectures our asses about global warming and capitalism......can't wait to hear that crap.
Vince, Jerry Doyle the radio talk guy, this week explained that the POPE is NOT a Socialist, and damn anyone to hell who says he is..he just wants fair markets and honest ceo's ..Jerry likes the fudge packers so I guess he gets a special meeting with the popes homo pedophiles (jerry posts here so I hope he sees this, (and jerry your just a fucking demorat trojan horse fuck you.)
+1000000 guy sucks
Yes, let's give a round of applause this morning for our favorite PPT. asswipes
I used to wonder if CNBC wasn't evil, but just dumb, and they cheerleaded because Americans root for the market to go up. Days like today prove just how involved they are in the deception. CNBC mobile alert overnight, in blaring headline: "Fed Delay Could Spur More Debt Issuance for Stock Buybacks". Now keep in mind no one important said that overnight and it is just a Reuters generic article on how it all works. That is pure, total and complete manipulation to drive this thing higher into the end of the quarter
citic is probably a bit confused right about now.
Night Time is the right time to perform "operation morning wood", get it up big and hard for all to see first thing in the morning... Nice Package Janet
Any day without trading curbes is just another in a long, long, long line of small Victorys for the Ponzi.... Wake me up when the Market is Haulted for a for a few hours because of a Big Red "Trading Imbalance".