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13Aug2015 Pre-Market Commentary: U.S. Stock Futures Indexes Higher, WTI Oil Falling Rapidly, U.S. Dollar Rising Sharply, Averages Expected To Slip

Written by Gary

U.S. stock futures index's are up fractionally partially due to China's stock markets closing almost two percentage points higher. France's CAC 40 is down almost two percentage points and should be considered a bellwether of countries in financial trouble. WTI oil has fallen to March 2009 lows and the U.S. dollar is on the rise again, both bearish for the markets.

Today is expected to be volatile with the markets opening higher and falling into the red by mid morning.

Here is the current market situation from CNN Money

European markets are mixed today. The DAX is up 1.70% while the FTSE 100 gains 0.57%. The CAC 40 is off 1.91%.

What Is Moving the Markets

Here are the headlines moving the markets.

Both ECB And BOJ Warn More QE May Be Response To Chinese Currency War

Minutes from the ECB's most recent policy meeting reveal that Mario Draghi and company have a number of concerns about the pace of economic growth in the euroarea and about the outlook for inflation which, much to the governing council's surprise, "remains unusually low."

Board members also took note of increasingly volatile EGB markets and made special mention of the second bund VaR shock which took place at the first of June, something the central bank attributes to "overvaluation [and] one?way market positioning related to the public sector purchase programme." In other words: "our bad."

The bank gave itself the now customary pat on the back for the "success" of PSPP noting that the "moderate frontloading of purchases" (a reference to the effective expansion of QE that was leaked to a room full of hedge funds at an event in May) was going smoothly, other than the above-mentioned nasty bout of extreme volatility.

As for the economy and inflation, well, that's not going so hot. "Overall, the recovery in the euro area was expected to remain moderate and gradual, which was considered disappointing from both a longer-term and an international perspective [while] consumer price inflation had remained unusually low."

Between that rather grim assessment and the comments cited above regarding volatility, one is certainly left to wonder what it is exactly about PSPP that's going so "smoothly."

But as interesting as all of that is (or isn't), the most compelling comments were related to China. Here's the excerpt:

In particular, financial developments in China could have a larger than expected adverse impact, given this country's prominent role in global trade.

Consider that, and consider the following statement sent to Bloomb ...

Stock futures rise as China seeks to soothe global markets

(Reuters) - U.S. stock index futures were higher on Thursday after China's central bank said there was no basis for further depreciation of the yuan and as oil prices rose.

Rail Week Ending 08 August 2015: Continued Decline of One Year Rolling Average

Econintersect: Week 31 of 2015 shows same week total rail traffic (from same week one year ago) contracted according to the Association of American Railroads (AAR) traffic data. Intermodal traffic expanded year-over-year, which accounts for approximately half of movements. and weekly railcar counts continued in contraction.

Greeks Ditch Euro For Alternative Currencies As Parliament Votes On Bailout

Greece released a bit of amusing econ data on Thursday, as the country's statistical authority claimed GDP grew by 0.8% in Q2, well ahead of estimates of a 0.5% contraction. While we suppose it's feasible that things weren't as bad in Q2 as they have been since (capital controls weren't in place during the quarter), we think you'd be hard pressed to find anyone in Greece who thought things were looking up for the economy heading into the referendum. In any event it doesn't matter, because as WSJ notes, the fiscal retrenchment enshrined in the country's third bailout program combined with the generally poor outlook means Greece faces a two-year recession - at least:

Greece faces two years of recession amid sharp budget cuts and overhauls mandated by its €86 billion ($95 billion) bailout agreement, European Union officials said, as Greek Prime MinisterAlexis Tsipras expressed confidence that the deal would be completed.

The country's economy is expected to shrink 2.3% this year because of the recent months of turmoil and the cuts required by the bailout, the officials said, citing the latest estimates from the institutions that have been negotiating Greece's new aid program. Next year, it is projected to contract 1.3%.

Miraculously, the Greek economy is expected to rebound sharply in 2017, when it will supposedly grow at 2.7%. Clearly that's optimistic to the point of being largely meaningless, but that's the story Athens and creditors are sticking to for now a ...

Frontrunning: August 13

China central bank tries to soothe global markets, says no reason for yuan to fall further (Reuters)

Huge blasts at Chinese port kill 44, with hundreds injured (Reuters)

China efforts to slow yuan fall hoist Europe shares, bond yields (Reuters)

Greek Economy Unexpectedly Surged Before Capital Controls (BBG)

Joe Biden Is Sounding Out Allies About a 2016 Bid (WSJ)

U.K. Tries to Kick-Start Shale Gas With Planning Speedup (BBG)

Crude Prices Seen Staying Below $70 A Barrel Over The Next Year (WSJ)

Former President Carter says he has cancer (Reuters)

Who's Crazy Now? Yuan Bears Vindicated by Tumble See More Pain (BBG)

Deutsche Bank Employees Charged in Emissions Trading Case

HTC Worth Less to Investors than Cash on Hand

What was once the most popular Android manufacture in the world, HTC's market price has now fallen below the value of its own cash reserves of roughly $1.4 billion. According to Calvin Huang of Sinopac Financial Holdings Co. in Taipei, "HTC's cash is the only asset of value to shareholders. Most of the other assets shouldn't be considered in their valuation because there's more write-offs to come and the brand has no value."

HTC's fall has been rather swift. Back in 2011, the company was valued at $28 billion, but in the past four years it has been unable to compete against Samsung or a flood of upstart China brands. Now it's hanging on to a fraction of its former market share, and it's forecasting third quarter sales could fall a further 48 percent. Inventory has jumped 60 percent, which further highlights the company's problems in moving product.

With only two percent of the global smartphone market today, it would be natural to fault HTC for such a major free fall; however, a deeper look into the market reveals that may not be the case. The predominant strategy in Android has been to churn out as many types of devices as possible in the hope that one of them will appeal to some niche of customer. Whether or not that niche exists is irrelevant. Samsung, for example, released 56 devices just in 2014. While the R&D, validation, marketing, and distribution costs for any given device are small comparative to total net revenue, the sheer number of them eventually adds up to a massive amount of money, killing profit margins. LG's for example, comes out to 1.2 cents p ...

TSLA Confirms Cash Burn Fears, Sells $500 Million In Stock

Over the weekend, when looking carefully at Tesla's cash burn, pardon cash inferno...

... we said that at "the current cash burn rate, TSLA can only fund just two more quarters of cash burn at which point, and most likely well before it, the company will have to aggressively raise new capital."

It wasn't 1-2 quarters. It was barely 3 days. Moments ago TSLA announced that, just as we expected, it would dilute its shareholder by just under 2% by issuing $500 million in equity. From the press release:

Tesla announced today that it intends to offer, subject to market and other conditions, $500 million of additional shares of common stock in an underwritten registered public offering. In addition, Tesla intends to grant the underwriters a 30-day option to purchase up to $75 million of additional shares of common stock.

Elon Musk, Tesla's CEO, intends to purchase $20 million of common stock in this offering at the public offering price.

One wonders if the entire $20 million "out of Elon's pocket" was once again funded by $20 million out of California taxpayers' pockets.

Tesla intends to use the net proceeds from this offering to accelerate the growth of its business in the United States and internationally, including the growth of its stores, service centers, Supercharger network and the Tesla Energ ...

China efforts to slow yuan fall hoist Europe shares, bond yields

LONDON (Reuters) - European shares rallied on Thursday as calm returned to global markets after China's central bank said there was no basis for further depreciation of its yuan currency following a sharp devaluation this week.

Risk On Despite Third Chinese Devaluation In A Row As PBOC Jawbones, Intervenes In FX Market

With everyone now focused on what China's daily Yuan fixing will be ever night, there was some confusion why last night the PBOC decided to devalue the CNY by another 1.1% to 6.4010, despite its promise that the devaluation would be a "one-off" event, taking the 3 day devaluation to just about 4.5%. However, subsequently in a press conference in which the central banks which now has to handle a metaphorical grenade going off not only in its burst stock market bubble but in its FX market as well, vice-governor Yi Gang said that the PBoC will continue to step in when the market is â€'distorted', that there is no economic basis for the Yuan to fall continuously and that it will look to keep the exchange rate â€'basically stable'. The Vice-Governor also said that the PBoC will closely monitor cross-border capital flows and that reports suggesting the Central Banks wants to see the currency depreciate 10% are â€'groundless'.

Which is ironic considering after just 3 days, the PBOC is already half the way there!

In any event, in an attempt to calm nerves and smooth the volatility, there was another bout of PBOC FX intervention, and as can be seen in the chart below, the onshore Yuan actually closed stronger than the fixing after a bout of buying in the last minute sent it under 6.40: this was the first time the onshore currency has traded stronger than the PBOC fix since November!

End result: the market and China's trading partners are still trying to assess the motive for this week's move and how far they're likely to allow the currency to fall. As DB summarizes, the PBOC's soothing if contradictory comments may give some c ...

China central bank tries to soothe global markets, says no reason for yuan to fall further

BEIJING/SHANGHAI (Reuters) - China's central bank said on Thursday there was no reason for the yuan to fall further given the country's strong economic fundamentals, in a bid to reassure jittery global markets after it devalued the currency earlier in the week.

Russia Is Destroying Its Food


Russia's recent show of strength toward the West may come at the price of its own internal stability. On Aug. 7, Russian President Vladimir Putin ordered a crackdown on violations of the Kremlin's food sanctions against the European Union and the United States, during which some illegally imported food was destroyed. The move was very unpopular among Russian officials and the public. Since food imports to Russia fell by more than half within a single day of Putin's order, many criticized the Kremlin for destroying food at a time when Russians are under increased financial and economic pressure. If the Kremlin continues to crack down on those who violate the order, protests will only grow louder.

Global Gold Demand Drops 12%

Global demand for gold plummeted 12% to a six-year low in the second quarter, as vital buyers in Asia lost their appetite for the metal, the World Gold Council said Thursday.

China Seeks to Calm Markets as It Devalues Currency for 3rd Consecutive Day

The renminbi's official rate against the dollar has fallen 4.4 percent over the past three days, but officials in Beijing said it was not in free fall.

U.S.-China aviation talks hit stumbling block on airport access

BEIJING/NEW YORK (Reuters) - Talks to ease limits on flights between the United States and China's gateway cities have stalled over U.S. fears its airlines will be given less attractive time slots for take-off and landing than their Chinese rivals, people familiar with the negotiations said.

Lenovo faces Motorola hangover, cuts 3,200 jobs as sales slide, profit tumbles

BEIJING (Reuters) - China's Lenovo Group Ltd will lay off 10 percent of white-collar staff after sales of Motorola handsets fell by a third, raising doubts over the personal computer giant's bet that a money-losing brand it bought for nearly $3 billion will help it become a global smartphone leader.

"It's A Warzone": Images Of Devastation After Chinese Explosion; Toxic Chemicals Feared; Port Ops Disrupted

Daylight has arrived after the massive explosion in the Chinese port of Tianjin, and reveals nothing but devastation, or as the following tweet from Offbeat China describes it, "a warzone":

War zone #tianjin

Offbeat China (@OffbeatChina) August 13, 2015

According to the latest report from Xinhua, following the series of enormous explosions at an industrial area in Tianjin, at least 44 people were dead including 12 firefighters, with at least 520 injured, 66 of which in critical condition.

Album: Death toll reach 44 in #Tianjin warehouse #explosion, 12 firefighters are among the dead

China Xinhua News (@XHNews) August 13, 2015

According to an AFP reporter at the scene there was shattered glass up to three kilometres (two miles) from the blast site, after a shipment of explosives detonated in a warehouse, raining debris on the city and starting huge fires. As the following image shows, the heat was so intense it melted hub caps:

Tianjin explosion so infernal even wheel hub melt away

Roche buys 'superbug' diagnostics firm for up to $425 million

(Reuters) - Roche is buying U.S. diagnostics firm GeneWEAVE BioSciences for up to $425 million, expanding the Swiss group's commitment to fighting so-called "superbugs" as the threat from drug-resistant microbes grows.

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