Hong Kong

The following story is guaranteed to make you sick. Once again, we’re shown that following trillions in taxpayer funded bailouts and backstops, TBTF Wall Street banks immediately went ahead and focused all their attention obtaining loopholes in order to transfer risk and make billions upon billions of dollars in the financial matrix, as opposed to adding any benefit whatsoever to society.

"I have learnt from history that it is very hard working out what the trigger is. In 2008, it was the collapse of Lehman Brothers that triggered a credit crunch. Now it could be a major event in Turkey or a default of the Brazilian oil company Petrobras or some event in Malaysia. But if I have to pick one I would say it is Turkey introducing capital controls. Such controls will mean that Turkey will not pay back principals amounting to 400 Bio. $ and the interests on it." - Russell Napier

• No End in Sight for Oil Glut (WSJ)
• Dozens of Clinton emails were classified from the start, U.S. rules suggest (Reuters)
• China August Manufacturing Activity Hits Lowest Level Since 2009 (WSJ)
• German Manufacturing Strengthens as Economy Shifts Up a Gear (BBG)
• Israel responds to rocket attack with protest and air strikes (FT)
• ASX carnage: 2015 fast becoming a year to forget  (Canberra Times)
• Hong Kong Stocks Enter Bear Market After Falling From April Peak (BBG)

Hong Kong's Hang Seng index is now down over 21% from the highs, having fallen over 9% in the last week, and Taiwan's TAIEX is down over 20% from April highs, joining Chinese stocks, both joining Chinese stocks in official bear markets. Japanese markets are down over 6% in the last few days (which Amari simply brushes off, blaming the global selloff stemming from China), a JGB trading volumes slump to a record low. Tensions in Korea are not helping. With all eyes on China's flash PMI (though why we are not sure since PBOC is already full liquidity-tard with CNY350bn this week alone), The PBOC fixed Yuan at 6.3864, up from yesterday's biggest strengthening in 3 months to 6.3915 (the biggest 2 day strengthening since April), and margin debt fell for the 3rd day. Gold is surging in the Asia session, near $1160.

• Crude prices fall towards $40 on global glut (Reuters)
• China Central Bank Injects Most Funds Since February as Money Rates Increase (BBG)
• Divided Fed Puts Yellen on Hot Seat (Hilsenrath)
• So Long September: Bond Traders Defer Their Date With the Fed (BBG)
• More Foods Boast Non-GMO Labels—Even Those Without GMO Varieties (WSJ)
• UN to let Iran inspect alleged nuke work site (AP)
• IAEA says access to Iran's Parchin military site meets demands (Reuters)
• Time to End Quarterly Reports, Law Firm Says (WSJ)

It is unclear what precipitated it (some blamed China concerns, fears of rate hikes, commodity weakness, technical picture deterioration although  it's all just goalseeking guesswork) but overnight S&P futures followed yesterday's unexpected slide following what were explicitly dovish Fed minutes, and took another sharp leg lower down by almost 20 points, set to open below the 200 DMA again, as the dazed and confused investing world reacts to what both the Treasury and Oil market signal is a deflationary deluge. Indeed, oil is about to trade under $40 while the 10Y Treasury was last seen trading at 2.07%. Incidentally, the last time oil was here in March of 2009, the Fed was about to unleash QE 1. This time, so called experts are debating if the Fed will hike rates in one month or three.

The PBOC set the Yuan fix 0.08% stronger - the biggest 'strengthening' in 2 months, which is interesting because The IMF's confirmation of a delay to Yuan inclusion in the SDR basket to Oct 2016 (pending a year-end decision) asked for more flexibility. For the 3rd day in a row, The PBOC injected massive liquidity (120bn today, 110bn yesterday, 120bn Monday). Shanghai margin debt declined for a 2nd day in a row and Chinese stocks look set to open weaker.

With China's currency devaluation having shifted to the backburner if only for the time being, all attention was once again on the Chinese stock market roller coaster, which did not disappoint: starting off with yesterday's dramatic 6.2% plunge, the Shanghai Composite crashed in early trading, plunging as much as 5% in early trading and bringing the two-day drop to a correction-inducing 11%, and just 51.2 points away from the July 8 low (when China unleashed the biggest ad hoc market bailout in capital markets history) . And then the cavalry came in, and virtually the entire afternoon session was one big BTFD orgy, leading to a 1.2% gain in the Shanghai Composite closing price, while Shenzhen and ChiNext closed up 2.2% and 2.7%, respectively.

Follow the plunge protection.

As it turns out it is not just in the US that the "smart money" is bailing out as fast as it can: according to Bloomberg, the wealthiest investors in China’s stock market are also scrambling for the exits. To wit: "The number of traders with more than 10 million yuan ($1.6 million) of shares in their accounts shrank by 28 percent in July, even as those with less than 100,000 yuan rose by 8 percent, according to the nation’s clearing agency. While some of the drop is explained by falling market values, CLSA Ltd. says China’s rich have taken advantage of state buying to cash out after the nation’s record-long bull market peaked in June."

PBoC Injection Shows China Worries About Outflows- WSJ

It's human nature for us to want to keep our wealth close at hand. Trouble is, you have all your wealth in one jurisdiction, and should that jurisdiction find itself in an economic crisis, all that “diversification” will be seriously at risk. If we’re being really truthful with ourselves, governments pose a greater threat than the average thief, as they can steal legally. Much of the world has gone on a massive spending spree and has, in effect, used a credit card to do so. Soon, that bill will need to be paid and the jurisdictions that are in debt will unquestionably be revealed to be insolvent. The economic crisis, when it hits, will be sudden and will be devastating.

• Oil moves nearer six-year low on Japan data, oversupply (Reuters)
• Commodity Slide Spurs Treasuries as Emerging Markets Extend Drop (BBG)
• Because 7 years is "just right" - BOE Official Says Don’t Wait Too Long on Rates (WSJ)
• How Medicare Rewards Copious Nursing-Home Therapy (WSJ)
• Millennials Are Developing Parents’ Taste for Jaguars, Cadillacs (BBG) ... and even more debt
• Mexican Billionaire’s Firms Swept Up in U.S. Probe of Citigroup (BBG)