2016 Off To A Miserable Start: Asian Stocks Drop; Futures Slide After China PMI Tumbles On Dire Commentary

Tyler Durden's picture




 

Earlier in the session, after the surge in oil prices on fears of a spike in belligerence between Saudi Arabia and Iran, bulls were hopeful that after a poor close to 2015, at least the first trading day of 2016 would set a positive mood: after all, if there is one thing war is good for, it is to lift stock markets. And it did... for about 3 hours.

Then moments ago, Caixin Media and Markit Economics released China’s December manufacturing purchasing managers’ index.  It was a doozy, falling to 48.2 from 48.6 in November, well below the 48.9 consensus estimate and even lower than the 49.6 printed a year ago, its tenth consecutive month in contraction territory and the lowest reading since September 2015.

The trend is clearly not one's friend, especially if one is part of Beijing's political oligarchy.

As the report noted, there was a renewed contraction of output, with total new work continuing to fall, while new export work declines for first time in three months; finally, companies continued to shed staff as the greatest threat facing China, a massive labor revolt, continues to slowly simmer.

The details were quite frankly, stunning, in their negativity: as if Markit wanted to paint China's economy in the worst way possible:

Adjusted for seasonal factors, the Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – registered below the neutral 50.0 value at 48.2 in December, down from 48.6 in the previous month. Business conditions have now worsened in each of the past 10 months. That said, the latest deterioration was modest overall.

 

A renewed contraction of manufacturing output weighed on the headline index reading in December. Although the rate of reduction was modest overall, it was the seventh time in the past eight months that production has fallen, and contrasted with a stabilisation in November. Anecdotal evidence suggested that relatively weak market conditions and reduced client demand had prompted firms to cut output in the latest survey period.

 

Indeed, total new business declined again in December, and at a similarly modest rate to those seen in the prior two months. Data suggested that softer domestic and international demand led to lower overall new work, with new export business also falling in December. Furthermore, this was the first time that new work from overseas had fallen since September.

 

Lower output requirements underpinned a further fall in purchasing activity in December. Moreover, the rate of contraction quickened slightly since November and was marked overall. As a result, stocks of inputs also declined over the month, while fewer sales led to a slight accumulation of stocks of finished goods.

 

Manufacturing companies continued to cut their payroll numbers at the end of 2015 and at a moderate rate. According to panellists, lower staff numbers were the result of company down-sizing policies and cost-saving initiatives. Fewer employees contributed to an accumulation of outstanding work in December, with the rate of growth quickening to an eight-month high.

 

December data signalled a further fall in average cost burdens faced by Chinese manufacturers. Moreover, the rate of reduction eased only slightly since November and remained sharp overall. Panellists that reported decreased input costs widely attributed this to lower raw material prices. Manufacturers generally passed on their cost savings to clients in the form of lower selling prices, while some companies mentioned that greater market competition had led them to cut their tariffs.

The summary from He Fan, Caixin's Chief Economist was downright dire:

“The Caixin China General Manufacturing PMI for December is 48.2, down 0.4 points from the reading for November. This shows that  the forces driving an economic recovery have encountered obstacles and the economy is facing a greater risk of weakening. More fluctuations in global markets are expected now that the U.S. Federal Reserve has started raising interest rates. The government needs to pay more attention to external risk factors in the short term and fine-tune macroeconomic policies accordingly so the economy does not fall off a cliff. It needs to simultaneously push forward the supply-side reform to release its potential and reap the benefits.”

Here, again, is the key part: "The government needs to fine-tune macroeconomic policies accordingly so the economy does not fall off a cliff."

But... 7% GDP.

Incidentally, all this is happening as China's set the Yuan's fixing at 6.5032, another multi-year low for the currency as China's devaluation is accelerating with every passing day.

 

Furthermore, offshore Yuan is collapsing... breaking above 6.6100...

As a result, algos quickly got the hint that nothing has changed from the deteriorating trends of late 2015, and promptly applied that pattern to the E-mini, which after optimistically rising as high as 2043, has since dropped 11 points and was trading at the lows of the session, well in the red...

 

... and following its favorite carry trade partner, the USDJPY, which has likewise dumped, below the key 120.00 support, and is currently trading at a 2-month low.

Which reminds us of what Goldman said just on December 20: "we continue to expect $/JPY higher. We recommend being long $/JPY as part of our 2016 top trade recommendation (along with short EUR/$) and forecast $/JPY at 130 in 12 months."

It really never fails.

And speaking of things that are falling, it wasn't just US equity futures and the USDJPY. It was everything, with Asia largely down by 1% or more as of this writing:

  • MSCI AP Index -1.2% to 130.46; telecoms services, IT fall most
  • MXAPJ Index -1.4%; S&P 500 Futures +0.2%
  • Nikkei 225 -1.1%; Topix -0.8%; yen +0.3% to 120.3/USD
  • Hang Seng Index -1.5%, HSCI -1.4%, HSCEI -1.6%; H.K.’s HSI falls most in 3 weeks.
  • ASX 200 -0.1%
  • Kospi -1.2%
  • Straits Times Index -1%
  • KLCI -0.7%
  • TWSE -2%
  • Philippines Composite -0.4%

Finally, remember when "bad news was good news"? Well, as of this moment the Shanghai Composite is down -4% and sliding fast... and the broader CSI-300 is limit down 5%...

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Sun, 01/03/2016 - 21:34 | 6993170 dimwitted economist
dimwitted economist's picture

YES!

it's a Recovery!

Don't listen to the Doom and Gloomers!

the stock market is a Win!

Sun, 01/03/2016 - 21:41 | 6993223 38BWD22
38BWD22's picture

 

 

Shanghai has bounced off its lows, at least for now.

marketwatch.com is my favorite easy-to-use way of checking Asia at about this time of night.  They also track gold and oil there at their little widget.

I like ounce.me too.

Sun, 01/03/2016 - 22:00 | 6993308 Soul Glow
Soul Glow's picture

That October bounce was pathetic.  No way they make new highs anytime soon.  Anytime, like, in the next fucking 100 years.

Mon, 01/04/2016 - 15:17 | 6996595 mkkby
mkkby's picture

Simmer down, chicken little.  Breathe into the paper bag.

Last january opened about the same as today.  The year was choppy, but no major changes.  Expect about the same this year too.

Sun, 01/03/2016 - 22:47 | 6993518 ebworthen
ebworthen's picture

Marketwatch is useful for the numbers, but the majority of articles are a treasure trove of delusional 2000/2007 "All is Well!" pulp and syrup missives from Oz.

Mon, 01/04/2016 - 04:37 | 6994239 huggy_in_london
huggy_in_london's picture

Errr, you know, markets spend most of their time off their lows, so "bouncing off their low" is the mere minimum one should expect of it....

Sun, 01/03/2016 - 21:54 | 6993279 junction
junction's picture

As the world's economies spiral down the drain (counterclockwise in the Northern Hemisphere,clockwise in the Southern Hemisphere), Obama is making another gun grab for his New World Order masters.  What better way to add gravitas to King Obummer's proclamation than to have someone well known, say a reporter, be the victim of random (?) gun violence.  So, who does Obummer's death squad target?  I nominate Rachel Maddow, she would take a bullet flesh wound to keep her job doing her MSNBC 9 PM snoozefest. 

Mon, 01/04/2016 - 15:24 | 6996619 mkkby
mkkby's picture

China is fine.  They still have dozens of vacant cities they can rent or sell off.  I hear a few syrians need a home, and folks in tokyo may be getting more than a healthy sun tan.

Sun, 01/03/2016 - 21:38 | 6993199 TheBoyPlunger
TheBoyPlunger's picture

Yeah I'm sure the Fed is really going to raise 4 times this year. All those dollar bulls have nothing to worry about...

Sun, 01/03/2016 - 23:31 | 6993659 Yen Cross
Yen Cross's picture

 I'm pretty sure the Fed. will lower the rate on excess reserves four times this year.

 What about draining liquidity?

 The Fed. has some serious swaps situations on it's books. We bailed out Europe in 2007-08.

 It's no secret the ECB and European commission want the the "re- Hypothecated " Euro to trade lower.

Sun, 01/03/2016 - 21:38 | 6993203 stant
stant's picture

As January goes so goes the rest of the year

Sun, 01/03/2016 - 22:26 | 6993284 Albertarocks
Albertarocks's picture

Yup, about 50% of the time.

The "January effect" is a total myth, conjured up by the assholes on MSM.  The actual theory states that whatever happens in the first 5 trading days of the year... that's the direction the market will take for the rest of the year.  But investors would be nuts to bank on it, since it isn't true. 

Here are the facts for this century.  Whatever the S&P did in the following Januaries, the S&P did the opposite for the remainder of that year:

2001

2003

2005

2009

2010

2011

2015

BTW, I did not give stant that negative vote.  He didn't say anything to deserve that.

Sun, 01/03/2016 - 22:54 | 6993549 stant
stant's picture

I wasnt referring to the market

Sun, 01/03/2016 - 23:28 | 6993671 Albertarocks
Albertarocks's picture

Oh.  My mistake.  I didn't realize you were talking about the weather.  lol

Sun, 01/03/2016 - 21:39 | 6993213 Yellen's_Boytoy
Yellen's_Boytoy's picture

Are they blaming my lady?  Ok, ok, I get it... she can't handle rates, but she sure can toss a salad... that minx

Sun, 01/03/2016 - 21:53 | 6993274 CHoward
CHoward's picture

That's bad - really bad!!!  LOL   Minx no less?!?    hahahahahahaha

Sun, 01/03/2016 - 21:55 | 6993282 BlueStreet
BlueStreet's picture

Lady? That's breaking news worthy of a Drudge siren. 

Sun, 01/03/2016 - 21:40 | 6993215 DogeCoin
DogeCoin's picture

It's okay the problems are only transitory. *Readies helicopters*

Sun, 01/03/2016 - 21:43 | 6993222 mtndds
mtndds's picture

It will all be green in the morning with a 3:30pm ramp tomorrow to finish in the green.  You heard it here first.  LOL remember its all TRANSITORY.

Sun, 01/03/2016 - 21:42 | 6993229 Tasty Sandwich
Tasty Sandwich's picture

When the bottom finally, really drops out, they will just close the "markets" indefinitely.

Sun, 01/03/2016 - 22:56 | 6993555 sun tzu
sun tzu's picture

They can ban people from shorting or selling at a loss and tax profits at 90%. That should cut down on any selling. If not, then start putting sellers in prison for terrorism.

Sun, 01/03/2016 - 21:46 | 6993244 two hoots
two hoots's picture

What has this to do with the price of eggs? An old question that may soon be answered.

Sun, 01/03/2016 - 22:00 | 6993307 Who was that ma...
Who was that masked man's picture

It means get your own chicken.

Mon, 01/04/2016 - 08:41 | 6994655 kralizec
kralizec's picture

I thought it was "the price of corn"?

Either way...

Sun, 01/03/2016 - 21:49 | 6993262 bobert727
bobert727's picture

Transitory................

Sun, 01/03/2016 - 21:57 | 6993296 Soul Glow
Soul Glow's picture

Chinese stocks are dropping while their currency drops.  To put that in perspective the asset is dropping while it loses monetary value too.  That's a double whammy.

Sun, 01/03/2016 - 21:59 | 6993303 Yen Cross
Yen Cross's picture

  It's a beauty Tylers...

  Those carry costs on my ponzi XAU trades are starting to stack-up. I Might have to partially cover, and add  off the 38.2% fibi.

 Gold is going lower, NOT MUCH.

 I'm just playing the range trade. ;-D

Sun, 01/03/2016 - 22:08 | 6993341 Soul Glow
Soul Glow's picture

The banking system is run by inbreds.  That is all.

:)

Sun, 01/03/2016 - 22:58 | 6993559 sun tzu
sun tzu's picture

They're called Rothschilds

Sun, 01/03/2016 - 23:11 | 6993612 bunnyswanson
bunnyswanson's picture

Jacob states 82 Rothschild cousins married each other.  They compete with each other.

Interview with Jacob Rothschild.

https://www.youtube.com/watch?v=WZAB2S1mTrU  English begins at 4 minutes. 

Sun, 01/03/2016 - 23:21 | 6993632 Yen Cross
Yen Cross's picture

 There is NO banking system. Use your head?

 You think you're smarter than me'Soul Glow'?

  I gave you an nugget.

Sun, 01/03/2016 - 22:03 | 6993319 SillySalesmanQu...
SillySalesmanQuestion's picture

I thought I heard a rubber band snap earlier...

Sun, 01/03/2016 - 22:43 | 6993506 kiwigal
kiwigal's picture

Market is closed for a won ton break, nearly down 4%.

Sun, 01/03/2016 - 23:08 | 6993596 ZombieHuntclub
ZombieHuntclub's picture

US markets will still magically stay positive. It's almost Elvis' birthday so lots of blue suede shoes will be sold this week and the cold weather means snow shovel sales in the eastern U.S. will help our economy grow!

 

Dear Leader will be ever so proud of us! 

Sun, 01/03/2016 - 23:14 | 6993624 Yen Cross
Yen Cross's picture

What Ever? </sarc>

Sun, 01/03/2016 - 23:49 | 6993744 Boing_Snap
Boing_Snap's picture

Can you hear that sucking sound???

That's the world importing deflation to the Western world economies, if you haven't gotten sound money by the time they open the QE spigots you will be a pauper in real terms in less than a year.

 

Mon, 01/04/2016 - 00:27 | 6993841 Yen Cross
Yen Cross's picture

I think some people are making wrong decisions.

  It shouldn't require an exponential amount of fuel, to escape Earths' atmosphere...

 Lets' conquer gravity?

Mon, 01/04/2016 - 00:42 | 6993876 tommylicious
tommylicious's picture

Too boo koo. 

Mon, 01/04/2016 - 01:42 | 6994026 orangegeek
orangegeek's picture

sum ting ...

Mon, 01/04/2016 - 03:30 | 6994188 polo007
polo007's picture

According to Macquarie Research:

https://app.box.com/s/ju6d0ren3gfg4m3dbr2o3qx09q9dp0tn

China’s savings dilemma

In our latest commentary, we ask whether China’s economy can be re-balanced.

China savings dilemma. It is a truism to state that China’s investment and debt fuelled economic formulae is ultimately unsustainable and could lead to severe consequences for China and the global economy. Indeed it has become one of the most consensus themes and hence mechanisms by which China can rebalance and the likely time-frame have emerged as the key points of debate.

In order to understand what is ailing China one needs to appreciate the underlying causes that drive overinvestment and rising debt levels. Whilst there is nothing new in China’s model of suppressing consumption and re-directing funds towards investment and trade (mercantilist model that over centuries has been used by countries as diverse as Germany, Russia, US, Japan and Korea), the global impact of China makes all other transitions pale into insignificance.

Arguably the best way to illustrate China’s challenges is to examine its sectoral balances (given that all sectors must ultimately balance to zero, it precludes arguments that do not take into account consequences of changes in one sector on others). The key problem is that all of China’s sectors (household, corporate and government) are significant gross savers. As a result, gross national saving rate (~48% of GDP) is the highest in the world and is responsible for ~30% of entire global flows. The high level of savings can be either utilized domestically in fixed asset investment or it can be exported to other countries (via current account surplus). Indeed, China has been doing both, with high investment rates (~45% of GDP) and CA surpluses. The challenge however is that China is starting to run into constraints in both domestic (high ICOR rate, declining ROE and debt addiction) and foreign utilizations (declining ability of other countries to absorb China’s surplus, in the global economy that lacks growth; trade and liquidity). Hence, an urgent need to unhook China from its investment and debt fuelled model and move towards lower savings and higher consumption.

Unfortunately, “iron logic” of sectoral balances precludes simple solutions. The ideal outcome would be: (a) spontaneous rise in household spending at a rate much faster than investment and concurrent (b) strong recovery in global trade, allowing China to further reduce investment via higher CA surplus (as other countries would have greater capacity to accommodate China when global trade expands). We view chances of either outcome coming to pass at almost zero.

Hence China has to settle for sub-optimum choices, such as: (a) relying on long (decades) demographic transition to lower savings; (b) attempting to accelerate consumption through higher fiscal spending (eroding precautionary savings); (c) transfer of surpluses from corporate sector to households (lower prices; higher dividend and capital distributions); and (d) lower currency (stealing growth from other countries). All of these choices have side-effects and do not yield quick results. The pace of China’s re-balancing is now too slow to make much ST difference and therefore it has no choice but to continue with investment growth fuelled by debt, until it is either exhausted (under weight of excessive debt) or global and local (reforms) factors converge to assist this transition. The jury is still out on which outcome is more likely. We continue to prefer quality private sector players that offer protection if reforms stall and benefit if they accelerate.

How did we do in 2015? “Quality & Stability” portfolio delivered ~8% relative performance; outperformance since Mar’13 is ~24%. “Sustainable Dividends” finished inaugural year with ~10% outperformance whilst “Thematic Leaders” is up by ~7-8% since launch in Sep’14.

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