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21Aug2015 Pre-Market Commentary: Futures Down Fractionally, China And The EU Manufacturing Health In Question As Investors Seek Shelter

Written by Gary

U.S. stock future indexes are down fractionally this morning as worries about the health of China and the EU's economy has put stocks in Asia and Europe deeper into the red. Chinese PMI falling at the fastest pace since 2009 and more than $500 billion being erased yesterday from the SP500 has sent investors running.

Markets are expected to open lower, but may melt up significantly to elevate an oversold position from yesterday where the Dow plummeted below 17,000 for the first time since October.

Here is the current market situation from CNN Money

European markets are sharply lower today with shares in France off the most. The CAC 40 is down 3.48% while London's FTSE 100 is off 1.40% and Germany's DAX is lower by 1.32%.

WTI crude is heading for its eighth straight weekly decline, the longest weekly losing streak in about thirty years with many analysts looking at $30 a barrel prices just around the corner. WTI crude is heading for its eighth straight weekly decline, the longest weekly losing streak in about thirty years with many analysts looking at $30 a barrel prices just around the corner.

What Is Moving the Markets

Here are the headlines moving the markets.

Microsoft confirms Finnish phone site closure and job cuts

HELSINKI (Reuters) - Microsoft Corp on Friday confirmed it will close Nokia Oyj's former handset product development unit in Salo, Finland, and will cut a total of up to 2,300 jobs in the Nordic country.

Deere profit tumbles 40 percent, cuts fourth-quarter sales outlook

(Reuters) - Deere & Co on Friday reported that third-quarter profit tumbled 40 percent on weak demand for agricultural equipment, overall lower shipment volumes and a stronger dollar, and gave a bleaker forecast for fourth-quarter sales.

U.S. oil fall longest in 29 years after China data

LONDON (Reuters) - U.S. oil prices headed for their eighth consecutive week of falls on Friday, the longest losing streak since 1986, after a sharp drop in Chinese manufacturing increased worries over the health of the world's biggest energy consumer.

Fears Of Another Mid-East War After Israel Conducts Air Strikes In Syria

"Israel is trying to divert attention from the defeat that it suffered in the face of the determination of the hero prisoner, Mohammed Allan."

That's from a spokesperson for the subtly named Islamic Jihad, a rebel group whose leadership is based in Damascus. Mohammed Allan had been starving himself for more than two months while in Israeli detention. He apparently decided to start eating again on Wednesday after Israel's high court suspended his arrest warrant.

This "defeat", Islamic Jihad claims, prompted Israel to blame the group for a rocket attack that hit an Israeli village on Thursday.

The rockets fell harmlessly into the brush and even if they hadn't, Israel had deployed Iron Dome interceptors "as a precaution," so in the event citizens were at risk, the missiles likely would have been shot down, but nevertheless, the Israeli military retaliated in characteristically disproportionate fashion striking targets in the Syrian Golan Heights "five or six times" on Friday. Here's Reuters:

Israeli officials said two rockets struck close to a northern village in the upper Galilee, near the Lebanese border, setting off brush fires but causing no casualties. Air-raid sirens had sent residents to shelters.

The attack was unusual as that frontier had been largely quiet since the 2006 war between Israel and the Lebanese guerrilla group Hezbollah. By contrast, the Israeli-occupied Golan, about 16 km (10 miles) to the east, has occasionally come under fire from within Syria during the four-year-old civil war there.

An Israeli militar ...

Daimler CEO mulls JVs with Apple, Google: magazine

BERLIN (Reuters) - Daimler's chief executive said "different types" of cooperation with Apple and Google are possible as carmakers realize next-generation autos cannot be built without greater input from telecoms and software experts.

Frontrunning: August 21

No End in Sight for Oil Glut (WSJ)

Dozens of Clinton emails were classified from the start, U.S. rules suggest (Reuters)

China August Manufacturing Activity Hits Lowest Level Since 2009 (WSJ)

German Manufacturing Strengthens as Economy Shifts Up a Gear (BBG)

Israel responds to rocket attack with protest and air strikes (FT)

ASX carnage: 2015 fast becoming a year to forget (Canberra Times)

Hong Kong Stocks Enter Bear Market After Falling From April Peak (BBG)

Far left splits from Tsipras as Greece heads to elections (Reuters)

Traders Sound Fed Policy-Error Alarm as Inflation Outlook Dives (BBG)

Pentagon Says China Has Stepped Up Land Reclamation in South Chin ...

Stock futures slump as weak Chinese data adds to growth fears

(Reuters) - U.S. stock index futures fell sharply on Friday, with the S&P 500 mini futures falling to their weakest level since early February, as more alarming data from China spooked investors already fraught with concerns over global growth.

What's Driving Dealer Balance Sheet Stagnation?

by Liberty Street Economics

-- this post authored by Tobias Adrian, Michael Fleming, Daniel Stackman, and Erik Vogt

Fifth in a five part series. Securities brokers and dealers ("dealers") engage in the business of trading securities on behalf of their customers and for their own account, and use their balance sheets primarily for trading operations, particularly for market making. Total financial assets of dealers in the United States have not shown any growth since 2009. This stagnation in their balance sheets raises the worry that dealers' market-making capacity could be constrained, adversely affecting market liquidity. In this post, we investigate the stagnation of dealer balance sheets, focusing particularly on the boom and bust of the housing market.

Deere Rocked By Bursting Of U.S. Farmland Bubble: Sales Miss, Profit Tumbles, Forecast Cut

The bursting of the farmland bubble should come as no surprise to regular readers: we covered it extensively over the past year in post such as "Another Bubble Pops: Price Of Farmland Suffers First Annual Decline Since 1986", "The Tragedy Of The American Farmer, Revealed In A Craiglist "For Sale" Post", and most recently "US Farmers In "Dire Straits": JPM Warns Of Imminent Liquidity Crunch"

For those strapped for time, here is the summary:

Moments ago said burst bubble came to roost when Deere reported EPS of $1.53 which beat expectations modestly, if down 35% from a year ago, yet which missed on the top-line with revenues coming in weak at $6.84bn, vs consensus expectations of $7.17bn. The one sentence summary: Deere revenues down 22%, profits down 39%.

Deere also cut 2015 net income from $1.9 billion to $1.8 billion, far below Wall Street's estimates of a $1.93 billion.

But the worst aspect of the just reported earnings was the commentary which confirmed that the bursting farmland bubble has finally trickled through to the income statement. To wit:

"John Deere's third-qu ...

Chinese Stocks Crash To "Red Line" Support, US Futures Rebound Then Sink Again

Perhaps the biggest surprise about the overnight Chinese stock rout is which followed the lowest manufacturing PMI since March 2009, is that it happened despite repeat sellside pleas for a PBOC RRR cut as soon as this weekend: usually that alone would have been sufficient to push the market back into the green, and it almost worked when in the afternoon session stocks rebounded after dropping as much as 4.7% below the "hard" floor of 3500, but then a second bout of selling just before the close took Chinese stocks right back to the lows with the Shanghai Composite closing at 3,507, down 4.3% on the day, having wiped out the entire 18% rebound from July 8 when the PBOC first threatened both sellers and shorters with arrest.

Which is probably why threats of harm had to be repeated: around closing time, the Chinese SEC said it was investigating major stakeholders of listed companies for illegally reducing holdings. At this point, such a rerun of China's farcical market control will likely only lead to more selling as the PBOC has clearly lost control.

In the meantime, the sellside set the weekend stage with big hopes for a RRR cut as big as 100 bps which may be the catalyst for the next major leg lower because unless the PBOC delivers, the market will resume sliding on fears Beijing has finally given up on micromanaging and artificially pushing the stock market bubble higher. Case in point, via Bloomberg:

Julia Wang, Hong Kong-based economist at HSBC:

Economy's recovery seems to have lost more momentum, reinforcing already weak market sentiment

This will weigh on economic activity and labor conditions in coming months

Expect further policy easing, including another 25 bp policy rate cut and 100 bp RRR cut in coming weeks

Zhu Qibing, Beijing-based analyst at China Minzu Securities:

Aug. flash factory PMI components reflect both weak domestic and e ...

Big Food's natural brand acquisitions prosper best when left alone

NEW YORK (Reuters) - When Hormel Foods Corp , maker of Spam canned meat, said it was buying Applegate Farms in May, fans of the organic and natural meat company lamented its takeover by Big Food on social media and questioned whether product quality would go down.

Fed's Balance Sheet 19 August 2015 - Again Essentially Unchanged

Total Fed Balance Sheet:

Fed's Balance Sheet week ending balance sheet was $4,449 trillion..

Disappointing business surveys intensify growth fears

LONDON/BEIJING (Reuters) - Signs China's slowdown is getting worse and weak growth in Europe have further damaged the outlook for the global economy, sending stocks and commodity prices reeling on Friday.

Equity outflows at 15-week high as investors seek bond safety: BAML

LONDON (Reuters) - Equity outflows hit a 15-week high of $8.3 billion in the past week, with fears of a China-driven global economic crisis pushing investors towards safe-haven money-market funds and Treasuries, Bank of America Merrill Lynch said on Friday.

McDonald's signs second franchising deal in Russia

MOSCOW (Reuters) - McDonald's Corp. said on Friday it had signed its second deal with a Russian franchisee which will help it to expand in remote Siberian regions.

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