Japan

• Global stocks rally as investors scent fresh stimulus (Reuters)
• Japan's Nikkei 225 Rises 7.7% for Biggest Gain Since October 2008 (BBG)
• China's Stocks Advance for Second Day Amid Stimulus Speculation (BBG)
• Abe Pledges Corporate Tax Cut as Investments Slump (BBG)
• U.S. to shift 50 staff to boost office handling Clinton emails (Reuters)
• Chinese Premier Li Keqiang Says China Doesn't Want a Currency War (BBG)
• One Thing China Got Right (BBG)

And to think all it took was Gartman going short of stocks in 25% correction terms yesterday...

Presented with little comment aside to ask, just what did The G-20 agree to behind the scenes?

The refugee crisis in Europe - sparked in large part by Syria’s four-year old, bloody civil war - recently reached a tipping point and the scramble to find a workable solution both in terms of allocating asylum seekers and finding the funds to accommodate them has become the single most pressing challenge facing European policy makers. Amid the chaos, Goldman may have found the silver lining. 

When it comes to crisis, SocGen notes that there is an abundance of case studies; and against the backdrop of the uncertainty shock delivered by China and the subsequent market tumult, market participants have been looking to the history books for clues as to what could happen next. While individual crises create their own risks, SocGen warns, the overriding risk  is that markets are taking less comfort today from the idea that central banks may step in with further QE-style liquidity injections to save the world.

Earlier today we got the most glaring confirmation there had been absolutely zero coordination at the highest levels of authority and "responsibility", when the World Bank's current chief economist, Kaushik Basu warned that the Fed risks, and we quote, triggering “panic and turmoil” in emerging markets if it opts to raise rates at its September meeting and should hold fire until the global economy is on a surer footing, the World Bank’s chief economist has warned. And just in case casually tossing the words "panic in turmoil" was not enough, Basu decided to add a few more choice nouns, adding a rate hike "could yield a “shock” and a new crisis in emerging markets"

The good news: the collapse in global market cap since May of 2015 is not the worst ever.

The bad news: the $9 trillion drop in combined market cap between the MSCI All World index and Chinese stocks, is the second highest ever, surpassed only by the $13 plunge in global market capitalization in late 2008.

Overnight we got an unexpected call from perpetual optimist JPMorgan (yes, we all miss Tom Lee), which released a report by Mislav Matejka warning that it is not "time to re-enter the US" because "upside is limited at this stage of cycle." To wit: "some of the longer term cycle signals are increasingly worrying, with rising risk that US equities start making sustained losses next year. At best, the upside potential for the US remains limited, in our view." Still, just like BofA, JPM felt the need to hedge: "too early to position for recession." 

The last time we looked at Chinese stocks, just a few hours ago, they were on pace to close back under 3000, following the latest collapse in trade, where in August exports dropped 5.5% (last -8.3%) while imports tumbled -13.8% in dollar terms (worse than the -8.1% prior). As the Reuters chart below shows, this was the 10th month in a row of declines and the worst stretch since the 2008 crisis, confirming China will need far more currency devaluation to stabilize the trade pain. And then Chinese authorities intervened with gusto, waiting until the start of the afternoon session, at which point a massive buying orgy ensued, and pushed the SHCOMP from down more than 2% to close at the day highs, up some 2.9%!

Following Monday's roller coaster of manipulated market machinations, perhaps China's leadership will keep its mouth shut tonight and just "monitor" the situation. Japan's opening 300-point flash-smash has now been eviscerated back to unchanged, Chinese stocks look set to open lower as Margin debt rose for the first time in 13 days (likely thanks to CSRC telling retail investors to "come back in, the water's fine.") As markets anxiously await China's trade data - which will either confirm the collapse or confirm the manipulation (given the utter devastation in Taiwan and South Korea trade data), the PBOC fixes Yuan weaker after 5 straight days of stronger fixes and injected another CNY150 billion in 7-day rev repo.

Whether it is due to thin holiday liquidity, due to the BOJ intervening just ahead of its usual time, because Japan's "legendary" Twitter trader "CIS" just went bullish (again), because prime minister Abe just learned he would be reinstalled as head of his ruling LDP party because no challenger had emerged unleashing three more years of unchallenged Abenomics, because Japan's Q2 GDP was just revised modestly higher (to a less negative number) or just because this is how the New Normal rolls, moments ago the Nikkei flash smashed higher some 400 points higher, in a well-choreographed algorithmic frenzy, to take out Friday's high stops.

The data point everyone has been waiting on is out and, just as we tipped weeks ago, China liquidated nearly $100 billion in USD assets during the month of August in support of the yuan.

Chinese stocks opened with a bang, and as we previously noted soared higher at the open after China's long 4-day holiday weekend, which however subsequently slowly (but very surely) fizzled, eating away at the hope that the 3-day drop in the Shanghai Composite would finally come to an end following comments from PBOC governor Zhou that the recent rout in Chinese stocks is almost over, and result in a relief rally in Europe and the US. Alas, all that was promptly swept away at the end of trading in China when the Shanghai Composite tumbled at close of trading to confirm just how unpleasant a "death cross" is coupled with loss of central bank control, and to push the Shanghai Composite down 2.5% for the day and 3.4% for the year.

The centrally-planned house of cards is finally starting to shake uncontrollably.

"there is a sense that policy is being priced to “fail” rather than succeed... why should equities always rise in value? Why should debt holders be expected to afford their debt burden? There are plenty of alternative viable equilibria with SPX half its value, longevity liabilities in default and debt deflation in abundance. In those equilibria traditional QE ceases to work and the only road back to what we think is the current desired equilibrium is via true helicopter money via fiscal stimulus where there are no independent central banks.