China

Another day, another fresh all-time record low in The Baltic Dry Index as Deutsche Bank's "perfect storm" appears ever closer on the horizon. Plunging 4.7% overnight to 445 points, this is 20% lower than the previous record low in 1986 and as one strategist warns, "It’s a brutal start of the year, there’s just nowhere to hide on the market."

Who could have seen that coming? Bob Pisani is about to get "worried" as VIX broke above 25

If there’s one thing to take away from this year’s developments in markets and economies so far, it’s that they are all linked, they’re all part of the same thing. If you can’t see that, you’re not going to understand what’s happening. It’s tempting to see this as a China problem, but first of all there is no China problem that will not of necessity also gravely affect the west , and second of all when you read, just to name an example, that America’s new jobs pay 23% less than the jobs they replaced, it’s just plain silly to believe that the economy is doing well, let alone recovering.

Remember 'The Santa Claus Rally' that Bob Pisani said "we should expect" - well The Dow is now down over 1200 points from the highs just before the end of the year and extending those losses as Reuters reports, PBOC advisors are said to call for steeper yuan depreciation, pressuring the government to depreciate by 10-15%.

Over the past few days we have repeatedly heard the following statement: "China isn’t that important as it is only 7% of the U.S. economy." While that may be a true statement in relation to the economy, it is a far different matter when it comes to the financial markets. With financial markets so closely correlated, what happens in China has a direct and immediate impact on U.S. markets.

Chinese stocks have retraced 50% of their overnight losses following the lifting of the circuit-breaker rule. China FTSE-A50 Futures trading on SIMEX are up over 250 points, trading at the highs of the day but for some context, the index is still down 14% from post-Christmas highs.

Update: *CHINA SUSPENDS  STOCK CIRCUIT BREAKER RULE - In Q&A, CSRC insists circuit breakers didn't cause the China meltdown but admits they may have aggravated sell-off.

"It couldn't be worse," exclaims one manager who started his fund mid-year in 2015, blaming China's equity market carnage on its newly-created circuit-breakers (as opposed to the fact that the Chinese market trades at 64x P/E and there are sellers everywhere). "Panic will eventually turn into a buying opportunity," hopes one strategist while another proclaims "poorly-designed" circuit breakers need to be adjusted to 10% (seriously). Blame is everywhere,  but it is Chen Gang who summed up the panic best, "this is insane... we were forced to liquidate all our holdings this morning."

As the PBOC revealed overnight, China’s foreign-exchange reserves plunged much more than forecast in December, capping the first-ever annual decline (of $513 billion) as authorities sought to prop up a weakening yuan. More importantly, the $108 billion decline from $3.438 trillion to $3.330 trillion - far greater than the $20 billion estimated - was the largest on record, and shows that while on the surface the Yuan was stable, behind the scenes the PBOC was furiously dumping securities to prevent an all out currency rout as outflows hit a record.

• China turmoil sends oil, stocks sliding (Reuters)
• China's Stock Traders Go Home After 29 Minutes (BBG)
• Yuan hits weakest since Feb 2011 on fresh low midpoint (Reuters)
• Stocks Extend Rout, Oil Slides on China as Soros Warns of Crisis (BBG)
• China's 29 Minutes of Chaos: Stunned Brokers and a Race to Sell (BBG)
• North Korea Uses Bomb Test to Boost Dictatorship (WSJ)

Once China set the Yuan fixing some 0.5% lower, the biggest drop since the August devaluation, all hell broke loose and unleashed a global selling panic after China's stock market was promptly shut down less than 30 minutes into trading, then European shares dropped the most in more than 4 months as Asian equities plunges, as did US stock futures, the dollar weakened against the euro and the yen; crude plunged to fresh 12 year lows. Gold rose.

Surging volatility in global equity, currency, and credit markets and significant stress in a major world economy have George Soros on edge. Speaking at an economic forum in Sri Lanka, the billionaire hedge fund manager warned global markets are facing a crisis and investors need to be very cautious. On the heels of the second trading halt in four days, Soros exclaimed "I would say it amounts to a crisis... which reminds me of 2008."

American justice is a joke. It does not exist. The USA is a lawless country. By that we do not mean what conservative Republicans mean, which is, if we understand them, that racial minorities violate law with something close to impunity. What we mean is that only the mega-banks and the One Percent have legal protection, and that is because these people control the government. For everyone else law is a weapon in the hands of the government to be used against the American people.

Surely, The PBOC will step in at some point and save the collapsing currency? Nope - not if options traders (and Kyle Bass) are to be believed. The odds of the yuan breaking beyond 7 to the greenback by the end of March more than doubled to 12% (from 5.8% at the start of December). Ironically, Bloomberg reports only 1 of 39 analyst predicts Yuan to trade beyond 7 by the end of 2016. The market's extremely strong conviction, and apparent PBOC loss of control is "a dangerous situation for policy-makers" according to one Asian economist.