Yuan

• Global Stocks Slip Lower (WSJ)
• Dollar sits pretty, bond yields rise as Fed bets firm (Reuters)
• Takeover Loans Have Few Takers on Wall Street (WSJ)
• Chinese Buyers Seek Dollar Assets as Promise of Yuan Gains Fades (BBG)
• Banking Giants Learn Cost of Preventing Another Lehman Moment (BBG)
• Eurozone Finance Ministers Won’t Release $2.15 billion Loan to Greece (WSJ)

China's exports fell for the fourth consecutive month in October as evidence of collapsing global demand and trade continues to pile up. “A lot of Westerners think this helped us out a lot. But the 2% depreciation actually hurt us. It was in every newspaper and customers called us within hours pushing for 6% discount, so we had to give them 4%."

Today we got yet another confirmation that China's July announcement on its gold holdings merely broke the seal of accumulation when the PBOC reported that its total gold holdings as of October 31 had risen to a record $63.3 billion, up $2.1 billion from $61.2 billion at the end of September, and an increase of 14 tons based on the month-end LBMA gold fix price. This represents the fifth consecutive month in a row in which China has added to its gold.

Until recently, the consensus assumed a strengthening of the global economy in 2016. It won’t happen. If the global economic growth manages to reach 3.1% next year, as forecast by the IMF, it will be a miracle. We are close to the end of the current economic cycle. The outbreak of a new global crisis in the coming years is inevitable.  The Fed and other central banks are in a dead-end having fallen in the same trap as the Bank of Japan. If they increase rates too much, they will precipitate another financial crisis. It is impossible to stop the accommodative monetary policy.

Bitcoin is an easy way for people to swap out of yuan. Goldman Sachs analysts estimated earlier this year that 80% of bitcoin volume is exchanged in and out of the Chinese yuan. Once converted to bitcoin, the owners can then swap back into other fiat currencies and indeed physical gold.

• BOE Stays Cautious on Rate-Hike Timing as Inflation Outlook Cut (BBG)
• China Enters Bull Market (WSJ)
• Britain says Islamic State likely brought down Russian plane (Reuters)
• Dollar jumps as markets fix on December rate expectations (Reuters)
• Activist Investor Bill Ackman Plays Defense (WSJ)
• BOJ Survey Data Reveals Signs of Growing Inequality in Japan (BBG)
• UAW Warns of General Motors Strike If Workers Fail to Approve Contract (WSJ)

For those eager to cut to the chase and curious if overnight we have had another standard USDJPY ramp levitating US equity futures on low volume, the answer is yes. And since the USDJPY carry was patient enough, it managed to trigger the 2100 ES stops and as of this moment the futures were comfortably on the politically-correct side of 2100.

• Euro zone growth weak in October, China services rally (Reuters)
• Stocks Rise With European Bonds on Stimulus Outlook; Euro Falls (BBG)
• VW Sinks Deeper Into Crisis as Scandal Spreads to More Cars (BBG)
• Republicans ask IRS to audit Clinton charity's finances (Reuters)
• PBOC Inadvertently Boosts Stocks With Dated Zhou Comments (BBG)
• As China’s Economy Slows, Consumers Pick Up Some of the Slack (WSJ)
• Plane crashes in South Sudan, witnesses say dozens killed (Reuters)

The most entertaining overnight story has to do with the latest farcical development in the Chinese "market" when just after open, it was reported that PBOC Governor Zhou said a trading link with Shenzhen will start this year which promptly sent all Chinese brokerages soaring, and the Shanghai Composite jumped over 3%. And then, out of the blue, the PBOC said the undated comments were actually as of May. As Bloomberg put it, "China’s central bank unintentionally sparked a surge in the nation’s stock market by publishing five-month-old comments from governor Zhou Xiaochuan that said a link between exchanges in Shenzhen and Hong Kong would start in 2015."

Bitcoin, at $444, is now up over 100% since we suggested, in early September, it would become the conduit for Chinese capital outflows following China's crackdown on capital controls. This afternoon's sudden BIS-induced plunge, taking the virtual currency down $50, has been entirely retraced and more as BTCC (China's leading Bitcoin Exchange) announced it will now accept direct deposits (making it significantly easier for Chinese to rotate their Yuan deposits into the virtual currency and out of the potential clutches of capital controlling communists).

Following Caixin China Manufacturing's 'surprise' jump higher (in the face of the official PMI flat), Caixin Services PMI just beat expectations and bounced considerably to a 'healthy expanding' 52.0 (despite official Services PMI plunge), bringing the Composite PMI to 49.9 - thus proving that billions of dollars of liquidity injections, market interventions, debt transfers to SOEs, arrests, shootings, and general thuggery has fixed China. For now stocks are rallying on this news but offshore Yuan is continuing to leak back to Friday's lows. The biggest gainers are the Chinese brokerages and exchanges (HKEx is up 8%) after PBOC Governor Zhou said a trading link with Shenzhen will start this year.

If it smells like a rat it probably is a rat, and so it is with respect to these deals by collusion between China and Western governments, and their chosen corporate protégés, whether on currency or trade or investment matters. This is all an exercise in some combination of crony capitalism (with cronies on both sides!) and diplomacy by stealth. The gains and gainers are deliberately kept opaque. The losers are much less evident than the gainers, on whichever side of the fence, but principle and practice tells us that the total losses are much larger than the gains.

At the height of the financial crisis, the unprecedented decline in swap rates below Treasury yields was seen as an anomaly. The phenomenon is now widespread, as Bloomberg notes, what Fabozzi's bible of swap-pricing calls a "perversion" is now the rule all the way from 30Y to 2Y maturities. As one analyst notes, historical interpretations of this have been destroyed and if the flip to negative spreads persists, it would signal that its roots are in a combination of regulators’ efforts to head off another financial crisis, massive corporate issuance (which we are seeing), China selling pressure (and its impact on repo markets) and "broken" wholesale money-markets.

Following a recent report documenting the surge in empty malls littering China, many suggested that this is indicative of a shift to online shopping and migration to platforms such as Alibaba. That may well be the case, but unlike in the US where one is assured at least some quality control and has a rational expectation that what was ordered online is what will be delivered, in China the reality is far different. According to China's official news agency, Xingua, more than 40% of goods sold online in China last year were either counterfeits or of bad quality, illustrating the extent of a problem that has bogged down the fast-growing online sector.