China

Yuantervention overnight steadied the Chinese currency and despite a plunge in Asian equities, stabilized US equities thanks to an incvessant bid for USDJPY. However, this morning has seen PBOC's Ma crawl out from under the desk to attempt to calm investor panic with two-faced comments about the nation's new FX regime. Noting that PBOC will focus on stability of Yuan vs their new CFETS basket, Ma then back-handedly said two-way volatility was expected to increase (in a clear nod to stopping carry traders piling on). Of course, the crude oil algos loved it and surged, USDJPY jumped, but for now US equities and bond are unimpressed.

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Initially both European stocks and US equity futures were grateful that China has picked at least one asset class to prop up overnight, and rose in an extremely illiquid market with European shares gaining for first time in 4 days, as S&P futures rise even as the MSCI Asia Pacific ex-Japan index just fell to the lowest level in more than 4 years. However, as of moments ago the Stoxx 600 had faded all its earlier gains and was trading near the flatline, as an algo takes out all stops on the top and bottom once more, and looks set to move on to US futures shortly.

Chinese stocks are trading at the lows of the day after Overnight HIBOR rates (Hong Kong's interbank borrowing rate) exploded a stunning 939bps to a record high 13.4%. It is clear that banks are utterly desperate for liquidity and/or are extremely concerned about one another's counterparty risk. This has dragged HSCEI down 5% (to its lowest since Oct 2011).

Unique among the countries on earth, the US government insists that its laws and dictates take precedence over the sovereignty of nations. Neoconned Washington claims that as History chose America to exercise its hegemony over the world, no other law is relevant. Only Washington’s will counts.

As China’s leaders figure out that pegging the yuan to the dollar while quintupling their debt in five years was a colossal mistake, they are, apparently, concluding that the only way out is a sudden, sharp currency devaluation...

Ming Pao, the most influential Chinese newspaper in Hong Kong, reports that Shanghai residents are lining up at local banks to sell Yuan for Dollars over fears of even more Yuan devaluation.

With all eyes focused on tonight's China open (and the "oops, China matters after all" meme), the Middle-East has fallen off the front (or back) pages of mainstream media. However, the last few days have been a bloodbath (analogistically as opposed to literally) across the Middle-East with Saudi stocks plunging 2.5% overnight (down almost 13% in the last 5 days) and every market from Bahrain to UAE all tumbling below August lows.

It was an ominous beginning to what is poised to be a most tumultuous year. Market participants are quickly coming to appreciate that China does in fact matter. Few understand why. Most – from billionaires to fund managers to retail investors – will “Do Nothing.” This has worked just fine in the past – repeatedly. Not understanding and not doing anything will be detriments going forward.

how many billions (or trillions) did China's so-called "national team" spend to prop up stocks in recent months? According to Goldman not less than CNY1.8 trillion in the June-November period.

 In short, for oil prices to recover, US Production needs to drop to at the very least 6 million barrels per day for the market to rationalize in price.

"Growth" meet "mal-investment boom-bust" In a perfect example of the smoke-and-mirror-ness of China's credit-fueled expansion, a 27-storey high-rise building which was completed on November 15th 2015 was just demolished, "having been left unused for too long."

Perhaps weak manufacturing, construction, and trade data are mere outliers.  Maybe the Fed can see beyond the fog to clearly capture the big picture.  Or maybe the Fed has lost its marbles.  Their outlook doesn’t jive with that of the regular working stiff.

An unseen bubble at the heart of the financial system is deflating with unknown consequences. When bubbles deflate, and here we are talking about one in the hundreds of trillions, bad debts are usually exposed. Even though much of the reduction in outstanding OTC derivatives is due to consolidation of positions following the Frank Dodd Act, much of it is not. When free markets reassert themselves, and they always do, the disruption promises to be substantial. We appear to be in the early stages of this event. If so, demand for physical gold can be expected to escalate rapidly as a financial crisis unfolds.

South Korea - which Kim Jong-Un says is "jealous" of the North's "H-bomb" test - has resumed blaring anti-Pyongyang propaganda over loudspeakers installed on the two countries' border, a move the North says has once again brought the Korean Peninsula "to the brink of war."