People are bombarded with sensation and that substitutes for thinking
The only thing that saves us from the bureaucracy is its inefficiency
PBOC Tries To Pop Equity Bubble, Tightens FX & Slashes Collateral/Margin Availability; Yuan Crashes Most Since 2008Submitted by Tyler Durden on 12/08/2014 22:29 -0500
Unlike the Federal Reserve - which openly encourages speculative wealth creation/redistribution and has never seen an equity bubble it didn't believe was contained - the PBOC appears, by its actions tonight, to be concerned that things have got a little overheated in its corporate bond and stock markets as hot money ripped into the nation's capital markets on hints of further easing and QE-lite a few months ago. In a show of force, the PBOC simultaneously fixed CNY significantly stronger (implicit tightening) and enforced considerably stricter collateral rules on short-term loans/repos. With Chinese stocks concentrated is even fewer hands than in the US (and recently fearful of the surge in margin trading), it appears the PBOC is trying to stall the acceleration is as careful manner as possible. The result, as Bloomberg notes, is a major squeeze in CNY (biggest drop since Dec 2008), interest-rate swaps ripped higher along with corporate bond yields, and most Chinese stocks sold off (with two down for every one up) though the latter is stabilizing now.
A dispassionate look at the week ahead.
Following last week's holiday-shortened week, which was supposed to be quiet and peaceful and was anything but thanks to OPEC's shocking announcement and a historic plunge in crude prices, we have yet another busy week of macroeconomic reports to look forward to.
Meet MONIAC - Monetary National Income Analogue Computer - the 7-foot-tall, 70-year-old 'Rube Goldberg' hydraulic contraption that was the machine that analyzed data, simulated the economy, and made predictions about the future for the central planners of yore...
I love the idea that prosperity can be decreed by a G20 communiqué. World leaders in Brisbane have airily committed themselves to two per cent growth. (Why only two per cent? Why not 20 per cent? Or 200 per cent? Who knew it was so easy?) Meanwhile, in the real world, the divergence between Continental Europe and the rest of the planet accelerates. David Cameron can hardly have failed to notice, as he looked around the G20 table, that his European colleagues are the ones with the worst problems. Britain is in the wrong place.
Did China just re-enter the currency wars? The Chinese Yuan dropped 0.29% overnight - its biggest drop since September and 2nd biggest devaluation since March - as the currency tumbles back in line with the PBOC's fixing for the first time in over 3 months. Despite 'hopes', S&P confirms the recent (and reconfirmed) rate cut doesn’t signal renewed government intentions to resort to aggressive stimulus to prop up economy. More troubling is the fact that China's huge corporate debt market appears to be freezing as over $1.2 billion in bond sales were scrapped or delayed last week suggesting wall of maturing debt will find it increasingly difficult to roll-over and keep the dream alive (especially in light of Haixin's bankruptcy last week).
- Grand jury expected to resume Ferguson police shooting deliberations (Reuters)
- PBOC Bounce Seen Short Lived as History Defies Bulls (BBG)
- Home prices dropped in September for the first time since January (HousingWire)
- UPS Teaches Holiday Recruits to Fend Off Dogs, Dodge NYC Taxis (BBG)
- US oil imports from Opec at 30-year low (FT)
- Hedge Funds Bet on Coal-Mining Failures (WSJ)
- Putin Woos Pakistan as Cold War Friend India Buys U.S. Arms (BBG)
- How the EU Plans to Turn $26 Billion Into $390 Billion (BBG)
- The $31 Billion Bet Against Brazil’s New Finance Minister (BBG)
Contrary to the death of the dollar chatter, the US currency continues to appreciate. Here's why there is still punch left in the bowl.
USA! USA! USA!
With last night's latest Japanese flash crash firmly forgotten until the next time the trapdoor trade springs open and swallows a whole lot of momentum chasing Virtu vacuum tubes, it is time to look from east to west, Frankfurt to be precise, where in 45 minutes the ECB may or may not say something of importance. As Deutsche Bank comments, "Today is the most important day since.... well the last important day as the ECB hosts its widely anticipated monthly meeting." Whilst not many expect concrete action, the success will be judged on how much Draghi hints at much more future action whilst actually probably doing nothing.
It could soon trigger the burst of the world's largest bubble
- "Soaring consumer confidence" - How the Economy Is Stoking Voter Anger at Incumbent Governors (WSJ)
- Euro zone deflation worries shield German Bunds from upbeat Fed (Reuters)
- Greece’s Euro Dilemma Is Back as Minister Sees Volatility (BBG)
- Ukraine gas supplies in doubt as Russia seeks EU payment deal (Reuters)
- Sterling Lads Chats Show FX Traders Matching Fix Orders (BBG)
- NATO Tracks Large-Scale Russia Air Activity in Europe (WSJ)
- U.K. SFO Charges Ex-Tullett Prebon Broker in Libor-Rigging Probe (BBG)
- Jerusalem on edge after shooting of rabbi (FT)
- Israeli police kill Palestinian suspected of shooting far-right activist (Reuters)
- Samsung seeks smartphone revamp to arrest profit slide (Reuters)
The week ahead, as if it mattered.