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11Aug2015 Pre-Market Commentary: U.S. Futures Down Sharply, Yuan Devalued In Surprising Move, Oil Falling And Investors Look To Mr. Market For Answers

Written by Gary

U.S. stock futures index is down three quarters of a percentage point after China's central bank surprisingly devalued its tightly controlled currency. It is roiling markets across the globe as investors weigh the implications of the unforeseen move. The German DAX is off nearly two percent, WTI oil is declining steeply and OPEC said the group's production rose to its highest level in over three years, despite global oversupply that has helped send prices tumbling.

The markets are expected to open sharply lower this morning.

Here is the current market situation from CNN Money

European markets are mixed. The CAC 40 is higher by 0.11%, while the DAX is leading the FTSE 100 lower. They are down 1.91% and 0.80% respectively.

What Is Moving the Markets

Here are the headlines moving the markets.

2Q2015 (Preliminary): Headline Productivity Improves, Costs Down.

Written by Steven Hansen

A simple summary of the headlines for this release is that the growth of productivity exceeded the growth of costs (headline quarter-over-quarter analysis). The year-over-year analysis says the opposite. I personally do not understand why anyone would look at the data in this series as the trends are changed from release to release.

Wage Growth Meme In Tatters As Unit Labor Cost Growth Tumbles, Huge Downward Revisions

Instead of an exuberant 6.7% surge in Q1 unit labor costs, heralded by any and all mainstream economists and talking heads as proof that long-awaited wage growth is here, the historical revision slashes it to a mere 2.3% increase, which followed by Q2's dismal 0.5% increase - the weakest since Q3 2014, suggests wage growth in America is anything but robust. Nonfarm productivity also missed expectations, rising just 1.3% QoQ, a verymodest rebound after two quarters of declines.

Momentum lost.

Charts: Bloomberg

Meet the New King of Subprime Lending

Fortress Investment's Wesley Edens turns $124 million into $3.5 billion. "It's not a bad thing."

China's devaluation raises currency war fear as Greece strikes deal

LONDON (Reuters) - China's shock 2 percent devaluation of the yuan on Tuesday pushed the dollar higher and raised the prospect of a new round of currency wars, just as Greece reached a new deal to contain its debt crisis.

OPEC Pumps at Three-Year High Despite Oversupply

The Organization of the Petroleum Exporting Countries said the group's production rose to its highest level in over three years, despite global oversupply that has helped send prices tumbling.

Greece, lenders clinch bailout deal after marathon talks

ATHENS (Reuters) - Greece and its international lenders reached a multi-billion euro bailout agreement on Tuesday after talking through the night, officials said, potentially saving the country from financial ruin.

Why Bond Yields Are Tumbling: Thank China

The entire US Treasury complex has seen yields plunge following last night's "surprise-that-everyone-except-Wall-Street-economists-saw-coming" Yuan devaluation. While there are numerous factors driving the rally in bonds, RanSquawk notes two crucial ones... that will likely persist...

Via RanSquawk,

T-Notes trade higher by around 15 ticks due to the following reasons:

Firstly, the PBoC has acted to weaken their currency in an attempt to remain competitive amid falling exports and this has therefore been interpreted by some as an admission of global growth concerns.

Secondly, in practicality,the PBoC will have to buy USTs in order to weaken their currency. The weaker CNY will in turn could lead to an overall stronger USD, which may influence the Fed's plans for future rate hikes

In other words, China only had to liquidate Treasury holdings to push CNY higher (in an effort to maintain capital outflows), now that it may no longer be doing this there is no more implicit selling pressure.

That and of course China just admitted its economy is bad enough to warrant this kind of extreme policy response which means China will be exporting an tsunami of deflation.

A Stunned Wall Street Reacts To China's Currency Devaluation

There is much stunned confusion among Wall Street's "best and brightest" following China's historic Yuan devaluation overnight which was predicted by exactly zero of said best and brightest, just like nobody expected the SNB to give up its own peg to the EUR in January.

The problem as the WSJ puts it, is that a devaluation for China is both good, and very bad. Good because it will help the struggling export sector, which has stalled amid weak global demand. Exports in July, for example, sank more than 8% and they were down nearly 1% for the first seven months of the year.

At the same time, it was essential for the People's Bank of China not to alarm domestic and foreign investors to avoid triggering a wave of capital outflows. Investors tend to dump a weakening currency and move their assets into other currencies. Thus, the PBOC said the move was a one-time reform effort to bring the yuan more in line with the markets.

That, of course, is a lie: the Fed's first QE was a "one-time" abnormal monetary intervention which has since become the de facto standard of every single central bank.

Finally, the central bank may also have had the International Monetary Fund in its sights. The yuan is up for possible inclusion in international agency's Special Drawing Rights, a basket of currencies that serves as a global reserve. Too big a move might have damaged Beijing's case that the yuan is a suitable candidate for addition to that basket of currencies, analysts said.

To show the many different and often opposing views, here is a summary of sellside views compiled by Zero Hedge

Futures lower after China devalues yuan

(Reuters) - U.S. stock index futures were lower on Tuesday after China's surprise devaluation of the yuan increased unease about the health of the world's second-largest economy and pushed the dollar higher.

Sumitomo Life to Buy U.S. Insurer Symetra for $3.73 Billion

Japan's Sumitomo Life will buy U.S. life insurance company Symetra Financial for $3.73 billion.

Symantec to sell Veritas to Carlyle-led group for $8 billion

(Reuters) - Norton antivirus maker Symantec Corp said it would sell its data storage business, Veritas, for $8 billion in cash to a group including Carlyle Group LP and Singapore's sovereign wealth fund GIC.

Frontrunning: August 11

China Rattles Markets With Yuan Devaluation (BBG)

China Move Sparks Wave of Yuan Selling (WSJ)

China's devaluation raises currency war fear as Greece strikes deal (Reuters)

Protests return to Ferguson streets, state of emergency declared (Reuters)

Heavily armed 'Oath Keepers' inject new unease to riot-hit Ferguson (Reuters)

Greece Secures Bailout Deal After All-Night Talks in Athens (BBG)

U.S. Identifies Insider Trading Ring With Ukraine Hackers (BBG)

Islamic State attacks Syrian rebels near Turkish border (Reuters)

OPEC Output Reaches 3-Year High as Iran Pumps Most Since 2012 (BBG ...

Around The World In 8,379 Foreign Entities

by Liberty Street Economics

-- this post authored by Preston Mui and Friederike Niepmann

The largest U.S. financial institutions conduct business around the world, maintaining a strong presence through branches and subsidiaries in foreign countries. This blog post highlights trends in their foreign ownership over the past twenty-five years, complementing recent research from the New York Fed on large and complex banks. We document a constant decline in the importance of foreign branches for U.S. financial institutions, an increase in the complexity of foreign subsidiary networks, and a shift of activity from Latin America and the Caribbean to Europe and other regions.

Ford targets emerging markets with frugal India engineering

UDAIPUR, India (Reuters) - Ford Motor Co plans to use the low-cost techniques it learned in India to develop compact models for other emerging markets, executives said, copying a strategy used by the Asian rivals that outsell it in the world's fifth largest auto market.

Google Forms New Parent Company; Shakes Up Management

Google unveiled a reorganization that separates its highly profitable search and advertising business from fledgling efforts in an array of so-called moonshots. Sundar Pichai will be CEO of the core Google businesses.

U.S. small business confidence bounces back in July

WASHINGTON (Reuters) - U.S. small business confidence rebounded in July from a 15-month low as owners anticipated solid sales and inventory growth, providing another boost to the economic outlook for the third quarter.

China's Historic Devaluation Sends Equity Futures, Oil, Bond Yields Sliding, Gold Spikes

If yesterday it was the turn of the upside stop hunting algos to crush anyone who was even modestly bearishly positioned in what ended up being the biggest short squeeze of 2015, then today it is the downside trailing stops that are about to be taken out in what remains the most vicious rangebound market in years, in the aftermath of the Chinese currency devaluation which weakened the CNY reference rate against the USD by the most on record, in what some have said was an attempt by China to spark its flailing SDR inclusion chances, but what was really a long overdue reaction by an exporter country having pegged to the strongest currency in the world in the past year.

End result: the CNY saw its biggest devaluation in history, just as we warned on Saturday was imminent.

The CNH (offshore) which was open for trade when the decision was made, weakened 2.25% vs. the USD. This lead to strength in USD, which in turn pressured its counterparts with notable weakness seen in antipodeans given their trade ties to China. Emerging market currencies have also weakened as other central banks now face pressure to weaken their own currencies. The currency devaluation completely eclipsed China's July monetary financing data where the PBOC disclosed a far greater than expected surge in loans and M2, however upon subsequent inspection, most of this was due to commingling bank loan data with the market bailout.

In any event, no matter how you spin China's currency devaluation, China's entry into the currency wars is now official, and ...

July 2015 Small Business Optimism Index Increased 1.3 Points

Econintersect: The National Federation of Independent Business's (NFIB) optimism index improved from 94.1 to 95.4 - and still not above the 42 year average of 98.. The market was expecting the index between 93.9 to 96.0 with consensus at 95.0.

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