China Crashes To 13 Month Low After Last Hour Panic Selling; Crude, Futures Tumble Then Surge

Tyler Durden's picture

It has been another volatile, illiquid, whipsawed session, driven by the only two things that have mattered so far in 2016, China and oil.... and stop-hunting algos of course.

A quick look at the former first reveals that after sliding gradually all session, Chinese stocks puked in the last hour of trading with the China's Shanghai Composite Index plunging 6.4% to 2,750, the most since the first week of January, and falling to the lowest level since December 2014. The composite has now plunged 22% in 2016 alone and is the world's worst-performing primary equity index this year.

Among the reasons for the crash was concern about a possible cash squeeze before next month’s Chinese new year holiday as well as further capital outflows amid signs of a slowing economy, Huang Cendong, Shanghai-based analyst at Sinolink Securities, was quoted by Bloomberg as saying. We find that hard to believe, as neither are news.

What is far more accurate is what Wu Kan, a fund manager at JK Life Insurance Co. in Shanghai, said namely that "we are less than two weeks from the spring festival and it seems that most investors have no mood for trading any more." Indeed, it appears that even the Chinese banana stand traders are tired of participating in a rigged casino and would much rather lose their money on other wholesome activities.

Furthermore, judging by the variety of predictions about what happens to Chinese stocks, such as these:

  • China Fund That Beat 98% of Peers Says Time to ‘Buy in Bulk’ -BBG
  • The Trader Who Made 6,200% on China Stocks Says Sell Now - BBG

... it is quite clear that nobody has any idea what is going on in China, or what is coming.

One thing that is certain, however, is that the Chinese government will continue intervening if not in stocks then in FX which it did earlier today in the offshore Yuan which had dropped 0.2% against the USD only to see the entire loss recovered after the PBOC intervened via "large-sized Chinese banks."

The latest Chinese crash, and continued oversupply fears initially sent crude falling below $30 a barrel. The two-day drop in West Texas Intermediate topped 8% after a 21 percent rally on Thursday and Friday, the biggest in over seven years demonstrating just what a volatile pennystock oil has become. Data on Wednesday may show U.S. supplies rose by four million barrels last week, keeping inventories more than 120 million barrels above the 5-year seasonal average. As a reminder, the sliding price of oil hasn't deterred Saudi Arabia. It won't reduce its spending on energy projects, the catalyst for yesterday's bounce.

And then, as if on cue, WTI and Brent both surged back over $30 after a few flashing read headlines carried the latest statement from the Iraq oil minister Adel Abdul Mahdi who told reporters in Kuwait City that Saudi Arabia and Russia are more flexible now on making cuts and cooperating, and that Iraq is ready to cut if others do so. The only problem is that Saudi Arabia has made it very clear it won't cut until either the marginal producers cut first, or it puts the marginal shale producers out of business.

Furthermore, it will only take algos a few hours to realize that such statements are merely an opportunity for the oil ministers to sell into especially after Angola nnounced it would boost crude exports to 55.8MM B/D in March, and will ship 58 cargoes, equating to 1.8m b/d, according to final loading program obtained by Bloomberg. This is up from 1.69m b/d in Feb., and 1.77m b/d in preliminary plan for March. In other words, the supply glut is not only not improving, but getting worse by the day.

And then this:


For now however that is irrelevant, as algos saw the Iraqi headlines and ran with them, sending oil rebounding sharply from the lows and back into the green for the day, in the process pushing both US equities, which had tumbled more than 1% earlier, back to unchanged, and as now 7 points higher on the day...

... while the US 10 Year which had tumbled as much as 1.94% overnight is back to 2.00%.

At last check, this is where we stood:

  • S&P 500 futures up 0.2% to 1874
  • Stoxx 600 down 0.8% to 334
  • MSCI Asia Pacific down 1.6% to 118
  • US 10-yr yield unch at 2.00%
  • Dollar Index up 0.02% to 99.38
  • WTI Crude futures up 0.9% to $30.55
  • Brent up 1.4% to 30.98
  • Gold spot up 0.6% to $1,115
  • Silver spot up 1.1% to $14.39

Going quickly through the regional markets, Asian stocks traded in firm negative territory following the lacklustre close on Wall St., with sentiment dampened after crude pulled back from its largest 2-day gain in 7 years. Nikkei 225 (-2.4%) was pressured by the oil slump, while telecoms led declines amid losses from index heavyweight Softbank, which continued to suffer from Sprint woes. Elsewhere, the Shanghai Comp (-6.4%) weakened despite the largest liquidity injection conducted in 3 years, as oil weakness dictated sentiment, while outflow concerns also added to the downbeat tone. As a reminder, the ASX 200 was closed today due to Australia Day holiday. Finally, 10yr JGBs traded relatively flat, failing to sustain most its early advances despite weakness in stocks, as participants remain tentative ahead of Friday's BoJ policy decision.

Top Asian News

  • PBOC’s Flood of Cash Keeps Money Rates in Check Before Holiday: China’s central bank conducts most reverse repos in 3 yrs
  • China’s Stocks Fall to 13-Month Low Amid Capital Outflow Concern: Shanghai Composite Index plunged 6.4% to lowest close since Dec. 2014
  • Hyundai Posts Lowest Profit in Five Years on China Slowdown: Slump in China deliveries overshadowed gains in the U.S., Europe, South Korea; 4Q oper. profit 1.52t won; est. 1.68t won
  • Sumitomo Mitsui Profit Unexpectedly Rises 17% on Stock Gains: 3Q net 238.1b yen, est. 192.4b yen
  • SK Hynix Profit Misses Estimates on Lower Memory Chip Prices: 4Q oper. profit 988.9b won; est. 1.04t won
  • Some BOJ Officials Are Said to See More Easing as Close Call: Kuroda gave no hint of his appetite for more stimulus at Davos
  • Hong Kong Feels Squeeze of Slowing China and Rising Rates: Stock selloff and Hong Kong dollar pressure unnerve investors
  • Singapore’s 80-Cent Loans Not Cheap Enough for Distressed Funds: Asian secondary loan trading thinnest in decade, says SC Lowy
  • Malaysia Brings Najib Probe to Close With No Graft Found: Najib has faced pressure to step down over funding scandal

In Europe, oil has turned around in recent trade, abating the risk off sentiment after both Brent and WTI re-took the USD 30.00 handle aided by comments from the Iraqi oil minister regarding production. European equities have been boosted by a turnaround in the energy sector, which was the laggard by a substantial margin throughout most of European trade today. It has recently turned around however, and lifted European indices off their worst levels.

In spite of a turnaround in risk sentiment, Bunds still trade higher (25 ticks), while the Dax (-0.7%) is lower even though one of its largest companies Siemens (6.4%) upgraded its EPS forecast. As participants await the release of Apple earnings after market today, it's worth noting that its German

Top European News:

  • Lundbeck Said to Explore Options for Alcohol-Dependence Drug: Review may lead to a partnership agreement for Selincro
  • Draghi Says ECB Credibility Hinges on Meeting Its Inflation Goal: ECB President says critics ignore risks of doing nothing
  • Philips Earnings Beat Estimates on Jump in Medical Orders: 4Q Ebita ex-items EU842m, est. EU798m; confirms it sees modest comparable sales growth in 2016, expects improvements in the year to be back-end loaded; Philips’s Lumileds Draws Interest, May Get Lower Price, CEO Says
  • EasyJet to Intensify Cost Cuts as 2015 Terrorism Hurts Fares: iscal 1Q rev. fell 0.1% on pricing, currencies
  • Swiss Watch Exports Decline Amid Smartwatch Encroachment: Dec. exports declined 3.8%, pushing shipments down 3.3% on the yr to CHF21.5b, Federation of the Swiss Watch Industry said
  • Dixons Carphone to Accelerate Closings as Sales Beat Estimates: Will reduce outlet numbers by 134 over the next yr as it combines its PC World and Currys stores, while inserting a Carphone Warehouse outlet into each
  • Tesco Rapped by Grocery Regulator Over Treatment of Suppliers: Serious Fraud Office criminal probe still hangs over grocer
  • U.K. Flirts With Failed Debt Auction as Analysts Wince at Depth: Analysts study chance as Jan. 20 offer barely oversubscribed
  • Deutsche Post to Expand Parcel Service to Confront Amazon: Bild

In commodities, WTI crude fluctuated after Monday’s 5.8 percent retreat. Government data due out Wednesday is expected to show U.S. inventories rose by 4 million barrels last week, according to energy analysts. That would be a third week of gains. Oil is down almost 20 percent this year amid concern over brimming U.S. stockpiles, steady output from Saudi Arabia and Russia and the prospect of increasing Iranian shipments after the end of sanctions. Bets that WTI will retreat below $25 a barrel have reached a record high.

Iraq's oil ministers says Russia and Saudi Arabia are more flexible on cutting oil output and would agree to have an emergency OPEC meeting but says it would be pointless without an upfront agreement on production.

Gold for immediate delivery gained 0.5 percent to $1,112.94 an ounce. It climbed 0.8 percent last week as the turmoil in global stock markets renewed interest in the metal as a store of value.

In FX, haven currencies erased earlier gains. The euro weakened 0.2 percent to $1.0833, while the yen was at 118.29 per dollar. The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, increased 0.1 percent. The won fell for the first time in four days after South Korea reported economic growth of 3 percent for the fourth quarter on a year-on-year basis, retreating from a five-year high. Foreign funds have pulled $2.5 billion from Korean shares so far this year. Russia’s ruble strengthened 0.6 percent, erasing an intraday decline and clawing back some of Monday’s 2.5 percent drop.

EUR/USD drivers are similar balanced, risk off rally against fresh ECB stimulus keeping the pair on the 1.0800's for the foreseeable future. Oil was back on a USD 29.0 handle to send CAD, RUB, MXN et al all lower again, but recovering well in line with both WTI and Brent reclaiming USD 30.0 on fresh comments (from SA, Russian and Iraq) on production levels.

On the US calendar today we have the November FHFA house price index and S&P/Case-Shiller home price index. Following this will be the flash January services and composite PMI’s, before we get the January consumer confidence reading where current expectations are for no change relative to last month. The Richmond Fed manufacturing index print for January is also due out this afternoon. In terms of central bank speakers, comments from the BoE’s Carney (at 10.45pm GMT) this morning related to the December Financial Stability Report will be worth keeping an eye on. Meanwhile, earnings season rumbles on with 23 S&P 500 companies due to report. The highlight will no doubt be the Apple results which are expected post the closing bell, while Johnson & Johnson (pre-market), AT&T (after-market) and Proctor & Gamble (pre-market) are also due to report.

Bulletin Headline Summary from Bloomberg and RanSquawk

  • Treasuries slightly higher overnight as world equity markets selloff, oil mostly steady; week’s U.S. auctions begin today with $26b 2Y notes, WI yield 0.86%, compares with 1.056% awarded in Dec., fifth straight 2Y auction to stop through.
  • China’s stocks tumbled to the lowest levels in 13 months amid concern capital outflows will accelerate as the economy slows and support for the yuan eats into the nation’s foreign reserves
  • The mismatch between trade data reported by Hong Kong and China widened to the second-highest on record in December, renewing speculation of faked invoices
  • According to Bank of America Merrill Lynch, China will steer clear of a hard landing and the government will contain the risks arising from its financial market turbulence
  • While stocks are having a chaotic start to the year, investors are pulling money from securities that profit from higher volatility at the same time as short sellers are piling into bets that tranquility will return
  • Mario Draghi hit back at critics of his policies, saying the European Central Bank must fulfill its inflation mandate in order to maintain its credibility
  • Greece’s next bite of bailout money may turn into a movable feast if PM Alexis Tsipras can’t convince euro-area authorities he’s making good on his promises to fix Greece’s pension system, update its labor markets and close fiscal gaps
  • U.K. government bonds have investors bracing for a failed sale. An offering Jan. 20 that attracted the lowest demand in nearly seven years might be a warning sign for buyers who haven’t balked at acquiring all the targeted debt since a March 2009 auction
  • Across the U.S., the story is much the same. The world’s economic woes -- from China to Russia to South America -- are damping sales in the high-end real estate market
  • Sovereign 10Y bond yields mostly lower except for Greece which widens 15bp. Asian, European stocks mostly lower; U.S. equity-index futures drop. Crude oil steady, copper and gold rise

US Economic Calendar

  • 9:00am: FHFA House Price Index m/m, Nov., est. 0.5% (prior 0.5%)
  • 9:00am: S&P/Case-Shiller US HPI m/m, Nov. (prior 0.88%)
    • S&P/CS 20-City Index NSA, Nov., est. 183.09 (prior 182.83)
    • S&P/CS 20 City m/m SA, Nov., est. 0.8% (prior 0.84%)
    • S&P/CS Composite-20 y/y, Nov., est. 5.67% (prior 5.54%)
    • S&P/CS US HPI NSA, Nov. (prior 175.65)
    • S&P/CS US HPI y/y, Nov. (prior 5.17%)
  • 9:45am: Markit US Services PMI, Jan. P, est. 54 (prior 54.3)
  • Markit US Composite PMI, Jan. P (prior 54)
  • 10:00am: Consumer Confidence Index, Jan., est. 96.5 (prior 96.5)
  • 10:00am: Richmond Fed Mfg Index, Jan., est. 2 (prior 6)

Top Headline News:

  • Oil has turned around in recent trade, abating the risk off sentiment after both Brent and WTI re¬took the USD 30.00 handle
  • FX markets continue to trade in familiar ranges, but clearly to the downside as sentiment is mostly sour
  • Today's highlights include: US S&P/CaseShiller 20-City Index NSA, API Crude Oil Inventories, BoE's Carney and earnings from the likes of Apple and Johnson & Johnson
  • Huntington Bancshares to Acquire FirstMerit for $3.4b: FirstMerit shareholders will receive 1.72 shares of Huntington common stock and $5 in cash for each share that they own
  • Staples Shakes Up Management, May Go Without Office Depot: Demos Parneros, Staples’ president of North American stores and its online business, will step down by March 31
  • Siemens Raises Outlook as Lower Tax Offsets China, Oil Slump: FY EPS will be between EU6-EU6.40, higher than a previous forecast of EU5.90-EU6.20
  • Crane Co. 2016 EPS Forecast Range Below Ests; 4Q Adj. EPS Beats: Sees yr EPS $3.85-$4.15, est. $4.27.
  • Obama Seeks to Expand 401(k) Use by Letting Employers Pool Plans: President wants $100m to test more portable accounts
  • JPMorgan Reaches $1.42 Billion Deal in Lehman Clearing Case: Lehman said the settlement resolves 2 of the 3 major pieces of litigation with JPMorgan left over from its 2008 bankruptcy
  • Paulson Pledges Personal Holdings to Back Firm After Assets Fall: Puts up his hedge-fund interests for credit line
  • Traders Are Withdrawing Money From VIX Funds Like Never Before: VIX index of market stress jumps 33 percent in Jan.
  • Flexible Workers, AI Keys to Future Success, Accenture Predicts: Companies must invest in AI, training, platforms, says firm
  • Einhorn’s Greenlight May Seek SunEdison Sale, Filing Shows: Greenlight says it may propose changes including asset sale
  • Retirement Giant Fidelity Now Wants Workers’ Health Insurance: To offer private health exchange for midsized firms
  • Nexstar Said to Be Close to $2.3b Deal for Media General: NYP: Agreement is expected to be put on hold when announced, because Media General has already pledged itself to Meredith Corp.: NYP cites one unidentified person familiar
  • Tesla’s Musk Says Held High-Level Talks With Chinese Government: Tesla is looking for a Chinese production partner but still “trying to figure that out,” billionaire co. co-founder Elon Musk tells a business conference in Hong Kong
  • Verso Files for Chapter 11 Protection in Delaware Today

DB's Jim Reid concludes the overnight wrap

Global markets spat their dummy out again on Monday as oil tumbled yet again (over -7.5%) after the largest 2-day rally for 7 years. News out of Saudi Arabia proved to be a big driver in the European session, as the world’s largest crude exporter noted that it did not plan to reduce its investment spending on energy projects despite lower oil prices (Bloomberg). The risk-off sentiment once again dragged on equities, as European markets wiped out early gains and closed in marginally negative territory (STOXX -0.62%; FTSE -0.39%; DAX -0.29%) while US equities sold off in line until a weak final hour of trading saw the S&P 500 lose nearly an extra percentage point to close -1.56%.

Asia is following on from the US close with the Nikkei and Hang Seng down -2.4% and -1.8% as we go to print. The Shanghai Comp is around -3% lower and trading at 13 month lows. Oil has continued its slide from yesterday, declining around -2.5%. Just after we went to print yesterday the futures contract hit $32.73. 24 hours later it’s at $29.57 - nearly 10% lower from the highs. With high impact news-flow from China easing for now, Oil has taken over as the main global markets driver at the moment and when you get swings like we've seen since last Wednesday evening, sentiment is going to be messy.

Obvious one of the asset classes most in focus over the last few months and one closely tied to the price of Oil has been US credit. Yesterday our US credit strategist Oleg Melentyev published an update which included looking at how the market has rarely been as dislocated (less than 15% of HY trading within 100bps of the overall index - close to the lowest ever) but at least showing signs of fair value re-emerging. As Oleg discusses, HY ex-energy has widened 80bps so far in 2016, and 115bp since early December; currently standing at 667bp. IG ex-energy spreads at 168bp are +17 and +21bps respectively over those time horizons. Both markets have now modestly overshot his targets of 650bp and 155bp respectively. Oleg worries that if credit widens much more it could reach the point of no return and become even more self fulfilling. In the note he also looks at their lead indicators for the default cycle with many of them recently reaching critical levels. So overall value re-emerging but with risk that we could be near a tipping point in some of the market drivers.

Back to markets, data releases out yesterday were largely disappointing and did little to help the risk off sentiment across markets. The German IFO survey data for January missed estimates as the business expectations index fell to 102.4 (vs. 104.2 expected; 104.6 previous) and the business climate index fell  to 107.3 (vs. 108.4 expected; 108.6 previous). Data out of Italy was also soft, as retail sales numbers for November posted only +0.3% mom (vs. +0.5% expected) and increased concerns that the country’s economic recovery may already be losing momentum. The UK saw factory orders data for the three months to January dip more than expected as indicated by the CBI order book balance (-15 vs. -10 expected; -7 previous). On a somewhat positive note, optimism about the general business environment increased to -4 (vs. -12 prior) over the same period.

Data out of the US was also negative, as the Dallas Fed Manufacturing Survey reported a sharp drop in broader business conditions, as the general business activity index for January came in at -34.6 (vs. -14.5 expected; -21.6 previous) – the lowest levels since April 2009. Texas manufacturing activity also fell sharply to near recession levels with the production index dropping to -10.2 (vs. 12.7 previous), while the general Company outlook index came in at -19.5 (vs. - 10.5 previous).

Looking at today’s calendar, with no data due in Europe this morning it’s all eyes on the US session where there are a number of releases due. Kicking things off will be the latest housing market data where we’ve got the November FHFA house price index and S&P/Case-Shiller home price index prints both expected. Following this will be the flash January services and composite PMI’s, before we get the January consumer confidence reading where current expectations are for no change relative to last month. The Richmond Fed manufacturing index print for January is also due out this afternoon. In terms of central bank speakers, comments from the BoE’s Carney (at 10.45pm GMT) this morning related to the December Financial Stability Report will be worth keeping an eye on. Meanwhile, earnings season rumbles on with 23 S&P 500 companies due to report. The highlight will no doubt be the Apple results which are expected post the closing bell, while Johnson & Johnson (pre-market), AT&T (after-market) and Proctor & Gamble (pre-market) are also due to report.

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VinceFostersGhost's picture



Just gonna stay on the sidelines......for now.


Cause I'm not crazy.

thesonandheir's picture
  • China Fund That Beat 98% of Peers Says Time to ‘Buy in Bulk’ -BBG
  • The Trader Who Made 6,200% on China Stocks Says Sell Now - BBG


One of those guys will go home tonight and one won't.

Serfs Up's picture

Why not jsut go long at 2:00 fucking a.m.??

That's apparently when ""investors"" are cheered by newz...and decide to ramp the fucking futures as if the had a magic fucking chart ruler.

firstdivision's picture

Dr. Copper says, "I'm the flight to safety".

nmewn's picture

And some moar good nuuuz.

Everyone remember Mzzz.Click, as in...Professor "Can I Get Some Muscle Over Here" Click?


...of slowly grinding wheels and what not.

But I doubt her students have learned anything of substance ;-)

o r c k's picture

A safe space with bars.

CheapBastard's picture

Her lawyer, "Chris Slusher"?


ABC 17 News confirmed Monday night through her lawyer Chris Slusher that Dr. Melissa Click will plead "not guilty" to that charge. Slusher said they will waive her arraignment as well.

Foley said she is currently working from home and will continue to do so the rest of the week.


Barry needs to invite her to the wh for a beer...seems like his type.


youngman's picture

Somewhere in China there are a few guys that wish they had bought some gold and silver...

VinceFostersGhost's picture



There are some guys over there that are buying Doré Bars.....totally off the radar.


Stick one of those bad boys on a WILL sink.

Bro of the Sorrowful Figure's picture

very few over here got into stocks last year, the only people i know who did were younger people (20s) who hadnt started families yet. everyone else puts their money into real estate, their kid, and yes, gold.


some on here like to believe in the demise of china, but when i look around at the individual over here who has very little debt, lots of savings, house/car paid for in cash, and who only a generation or two ago were very familiar with hardships and even hunger, i see a bright future after the debt restructuring. not to mention the fact that the manufacturing engine of the world is here now and they have trillions of brand new, unused infrastructure.


they produce things of real value. we produce debt and death. i hear on ZH about "crap chinese products", but the reality is all high tech products in the world today are produced or assembled here.

Zero-risk bias's picture

Contrary to what you observe. I've seen things first hand for over a decade in countless cities, not just talking the first and even second tier ones. Like the guy selling bananas with laptop, the picture isn't always so healthy as seen on the exterior.

I personally know of more than a few cases of adults (30-50y/o), who have invested and piled in, and were smug about it to boot. I've even heard of an economics professor who doubled down on his position at the beginning of the year. This year losing sums of multiple hundred thousands USD has not been uncommon.

I'm neither bullish nor bearish on China, yet my general outlook for the less well-endowed is grim.



chairman mao's picture

typically economic professors (especially famous ones) in China sit on boards of public listed companies, they get paid for doing shit all or spruiking up the company, for them its insider trading or no trading.

that professor you heard of must be an rare idiot, no individual investor is putting their money into the stock market now, period.

new game's picture

much truth as i believe you/your statement as fact. so trump will change the corp tax structure to swing the pendulum back? or get jfk'd by one of the mad dogs....

HoserF16's picture

Bi-Polar Bitchez'

SillySalesmanQuestion's picture

Probally time for the Bulltard effect today to ramp the algos up, up and away...

runningman18's picture

The Bullard effect is over.  There will be no more of that.  Now it's all about fake oil production headlines and fake stimulus headlines to manipulate the algos, and even that's not really working all that well anymore.  This market willl be grinding down for months, and every consecutive rally will be a little shorter and a little less hopeful. 

Early Retirement's picture

Please stop floating the nonsense these trades are by individual "investors." The automated pop in Crude started 10 minutes before the headlines, as there was a delay releasing the spin to accompany the PPT's daily pre-planned taxpayer-financed move to Unchanged.

VinceFostersGhost's picture



Thanks Captain Obvious......anything else?

Iam Yue2's picture

Iran has made it clear that it will not cut until it gets its pre-sanctions market share back.  It is also using oil as a weapon in a proxy war with Saudi.

new game's picture

some day we will look back and ask why didn't humans try to organize to coexist rather than exist to dominate?

this question could be asked every day about yesterday for eternity...

Name Already Taken's picture

"The only problem is that Saudi Arabia has made it very clear it won't cut until either the marginal producers cut first"


The only problem is that Saudi thinks the world is dumb enough to make that work.

yogafan's picture

I wonder how many chinese bananas a Bitcoin buys today?

TheDanimal's picture

Lundbeck Said to Explore Options for Alcohol-Dependence Drug: Review may lead to a partnership agreement for Selincro

It already exists, it's called weed.  I just started smoking weed exclusively and not doing anything else in terms of partying, I'm in objectively the best health of my life.  Haven't had so much as a single can of beer since August 2015, but I'm not all anal about dates like those sobriety enthusiasts over at AA.