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26Aug2015 Pre-Market Commentary: China Markets Fall Again, U.S. Futures Higher, Oil Higher, U.S. Dollar Higher, Markets Expected To Slip

Written by Gary

U.S. stock index futures are higher this morning even though China and the EU markets are lower. The Shanghai Composite Index fell 1.3% to 2,927.29 at the close, despite a new $22B injection from Beijing to shore up growth. Oil has edged higher, but isn't expected to hold recent gains.

Today's markets are expected to follow the action in China again, but there will also be plenty of speculation about the Fed and when it might raise rates. Volatility will be the watch word for today as we expect the averages to sea-saw and edged further down by the close.


Here is the current market situation from CNN Money

European markets are mixed today. The DAX is up 0.24% while the FTSE 100 gains 0.22%. The CAC 40 is off 1.66%.

What Is Moving the Markets

Here are the headlines moving the markets.

Time To Pull Out The Nasdaq/China Comparison Chart

Following the most recent Chinese market rout, Deutsche's Jim Reid updates a chart he used back in early June comparing the Shanghai Composite recent performance with that of the NASDAQ back in 1999-2000. This is what he says:

The ascent was very similar back in June and now the decline is pretty much on exactly the same path. So the NASDAQ '99-00 has almost been like having a stock almanac for the recent Chinese experience. It reminds me of Back to the future II where Biff steals the time machine to take a sports almanac back to his younger self in order to make millions betting on these events. A great film. Although having only watched it recently again, I was amused to note it largely takes place in 2015 and everyone has flying cars. So perhaps the pace of technical change is not as great as was anticipated back in the eighties!

True, but BTTFII never anticipated the massive economic impact of "eyeballs" on technological progress. Anyway, here is the chart. If past is indeed prologue, now may be a good time to buy some Shanghai Composite calls, especially with China's desperation getting more profound with each passing day.

Schlumberger to buy oilfield gear maker Cameron in $14.8 billion deal

(Reuters) - Oilfield services company Schlumberger Ltd agreed to buy Cameron International Corp , which makes equipment used by oilfield services providers, in a deal valued at $14.8 billion to cut costs amid weak drilling activity.

Stock futures rise but uncertainty remains

(Reuters) - U.S. stock index futures were sharply higher on Wednesday, a day after a rally on Wall Street fizzled as concerns about China's economy overwhelmed a bout of bargain-hunting.

Frontrunning: August 26



Global Stocks Struggle to Shrug Off China Fears (WSJ)

Brief Respite Ends for European Stocks Amid Renewed Retreat (BBG)

Stock futures rise after China injects $21.8 billion (Reuters)

China turmoil needn't rattle BOJ, yen rise not a worry: Abe adviser (Reuters)

Stock-Market Tumult Exposes Flaws in Modern Markets (WSJ)

Dollar gains as stocks recover, lessens safe-haven bid for yen (Reuters)

For Oil Producers Cash Is King, and That's Why They Just Can't Stop Drilling (BBG)

Rebels Blame Turkey After US-Trained 'Moderates' Captured Inside Syria (Sputnik)

As Biden weighs 2016 bid, donors so far stick by Clinton (Reuters)

Schlumberger to buy Cameron in $14.8 billion deal (

World shares sag as China jitters persist

LONDON (Reuters) - World shares sagged on Wednesday as investors feared fresh rate cuts in China may not be enough to stabilize its slowing economy or halt a stocks collapse that is wreaking havoc in global markets.

Devaluation Stunner: China Has Dumped $100 Billion In Treasurys In The Past Two Weeks

On August 11, China devalued its currency, and in the subsequent 3 days the onshore Yuan, the CNY, tumbled by some 4% against the dollar. Then, as if by magic, the CNY stabilized when China started intervening massively, only this time not through the fixing, but in the actual FX market.

This means that while China has previously been dumping reserves as a matter of FX policy, after August 11 it was intervening directly in the FX market, with the intervention said to really pick up after the FOMC Minutes on August 19, the same day the market finally topped out, and has tumbled into a correction since then. The result was the same: massive FX reserve liquidations to defend the currency one way or the other.

And yet something curious emerges when comparing the traditionally tight, and inverse, relationship between the S&P and the Treausry long-end: the drop in yields has not been anywhere near as profound as the tumble in stocks. In fact, the 30 Year is wider now than where it was the day China announced the Yuan devaluation.

Why is that?

We hinted at the answer on two occasions earlier (here and here) and yet the point is so critical, and was missed by virtually all readers, that it deserves to be repeated once again: as part of China's devaluation and subsequent attempts to contain said devaluation, it has been purging foreign reserves at an epic pace. Said otherwise, China h ...

Oil catches breath near six-and-a-half-year lows after falls

LONDON (Reuters) - Oil stabilized on Wednesday after China's central bank moved to support the country's economy, but prices stayed near 6-1/2-year lows as a heavy supply glut kept the market outlook bearish.

As Markets Flail, China Investigates Large Brokerage Firms

The two inquiries appear aimed at bolstering investors' confidence, differing from past investigations used to help tamp down frothy markets.

Mind The Gap: Assessing Labor Market Slack

by Liberty Street Economics

-- this post authored by Joseph Tracy, Robert Rich, Samuel Kapon, and Ellen Fu

Indicators of labor market slack enable economists to judge pressures on wages and prices. Direct measures of slack, however, are not available and must be constructed. Here, we build on our previous work using the employment-to-population (E/P) ratio and develop an updated measure of labor market slack based on the behavior of labor compensation. Our measure indicates that roughly 90 percent of the labor gap that opened up following the recession has been closed.

Mortgage applications inch up in latest week: MBA

NEW YORK (Reuters) - Applications for U.S. home mortgages edged up last week as interest rates declined, an industry group said on Wednesday.

Here We Go Again: US Equities Surge Even As Chinese Stock Market Rollercoaster Tumbles To 8 Month Low

It seemed like finally China's relentless and increasingly futile attempts to have a green stock close would work: interest rate cuts, liquidity injections, direct stock interventions, even threats on the Prime Minister's head, and just to make certain moments before the close news very deliberately broke that government funds are buying large financial stocks, especially state-owned banks, to support the index, in the latest clear signs of government support, the Shanghai Composite seemed on pace to end an unprecedented series of consecutive tumbles which have dragged the composite down nearly 1000 points, or 25% in one week, and then... red close, with the SHCOMP down 1.3% to 2927, and a stunned China watching in horror as the central bank and government lose control, and everything they throws at the biggest market bubble of 2015 does absolutely nothing.

Well, not nothing: what was a 60% stock market gain for the year on June 12 has turned into a -8% rout two months later.

Here are the cliff notes: the Shanghai Composite today has been up 1%, down 3.5%, up 4%, down 1.5% and closed down 1.3%. As Bloomberg's Richard Breslow noted, the composite is the poster child for and magnified image of how all sorts of assets have moved.

"The PBOC has serially announced aggressive and long-lasting market support measures, a cessation of support measures pending further study, a devaluation with murky explanation, a belated rate cut, followed up with ''the recent interest rate and reserve requirement ratio cuts don't represent a shift in China's prudent monetary policy.'' It isn't just about a bubble being burst."

Act ...

Steep Swings for Chinese Shares as Global Markets Turn Mixed

Shanghai stocks staged a wild ride before turning lower at the close, while Japanese and South Korean markets rebounded and European shares edged down.

Glut of Chinese Steel Looms Large

The world's biggest producers of iron ore have a problem, and it ilies in the steel that has already gone into China's cars, bridges and skyscrapers.

Toyota says to restart Tianjin plants post explosion

BEIJING (Reuters) - Toyota Motor Corp plans to "gradually" restart from Thursday its manufacturing operations near the Chinese port of Tianjin, which has been halted after the deadly chemical explosions on Aug. 12, the company said on Wednesday.

E.ON targets United States in solar push

BERLIN (Reuters) - Germany's biggest utility E.ON aims to aggressively expand its solar business and is banking on the United States where President Barack Obama has pledged to promote renewables in a bid to fight climate change.

U.S. Stock Market Update - Word On The Street

The world watched as global stock markets went haywire on what is now being called "Black Monday." No major markets around the world went unscathed, with many markets taking their worst hits since the Global Financial Crisis.

Trading Tumult Exposes Flaws in Modern Markets

Monday's mayhem exposed significant flaws in the new architecture of Wall Street, where stock-linked funds "as much as shares themselves" now trade en masse on U.S. markets.

Democracy in America

Written by Frank Li

I believe I have the most accurate diagnosis for America (Diagnosis for America (Version 3)) as well as the best solution (Solution for America (Version 3)). To best appreciate them, you must have an in-depth understanding of both democracy and America. Let's begin with Alexis de Tocqueville.

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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