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31Aug2015 Pre-Market Commentary: U.S. Futures Down Sharply, Oil Up But Trending Down, September Rate Increase Once Again A Possibility

Written by Gary

U.S. stock futures indexes are down sharply following Global stocks that are mostly in the red. Europe is little-changed, but Shanghai lost 0.8% over night and the Nikkei is down 1.3%. The possibility of a September interest rate increase has once again put investors on alert.

Here is the current market situation from CNN Money

European markets are lower today as French and German shares fall. The French CAC 40 is off 0.77% while the German DAX is down 0.84%. The FTSE 100 in London is not trading.

Oil is taking a breather from its massive rally late last week, down 2% to $44.33 per barrel. Gold is unchanged and the 10-year Treasury yield is down one basis point to 2.17%.

What Is Moving the Markets

Here are the headlines moving the markets.

Global stocks lower after Fed official suggests September rate hike still possible

17 minutes ago

BEIJING (AP) — Global stocks mostly fell on Monday after a U.S. Federal Reserve official suggested a September interest rate hike still was possible and weak Japanese factory activity provided more evidence of a sluggish global economy.

KEEPING SCORE: In Europe, France's CAC-40 fell 0.6 percent to 4,647.27 and Germany's DAX lost 0.5 percent to 10,245.92. The U.K. was closed for a holiday. Wall Street looked set for losses at the open. Futures for the Dow Jones industrial average and Standard & Poor's 500 were both off 0.8 percent. FED

PLANS: The Fed vice chairman, Stanley Fisher said there was a "pretty strong case" for raising rates in September. That ran counter to recent market sentiment that China's economic slowdown and global market volatility might prompt the Fed to wait.


Venture capital cash surfers may see waves recede in market turmoil

SAN FRANCISCO (Reuters) - The waves of cash surfed relentlessly by some of Silicon Valley's largest venture-backed businesses are showing signs of receding amid concern the companies may already be worth more than their likely valuations once they finally go public.

Citi Admits The Truth: "If The Market Drops 10%, The Fed Will Most Likely Not Hike"

Back in April, when Bill Dudley first admitted that the Fed's rate hike will be "shaped party by the market reaction", we first coined the term Dow Data Dependent. Some mocked this assessment, but 5 months later it has proven to be spot on, following Bill Dudley's repeat appearance in which he cautioned that a September liftoff looks "less compelling", catalyzing the biggest two-day surge in the Dow Jones in history. Today, Citi admits that the "Dow" is precisely the only "data" point that the Fed cares about.

From Citi's rates strategist, Jabaz Mathai:

All the components for the US growth index have been reasonably strong over the last few months, and this was reinforced by the higher than expected revised second quarter GDP estimate released yesterday (3.7% vs. a Bloomberg median survey estimate of 3.3%). On the other hand, the global growth index is treading water. The Fed has to decide whether to hike based on domestic economic strength and the unsuitability of zero rates and super accommodative policy in the context of current growth or to hold back to better understand the disinflationary impact of slower external growth.

The market has already delivered its verdict swiftly in the face of the global equity market correctionâ€" reducing substantially the probability of a rate hike in September, and pricing in a full rate hike only by March next year. We assign a higher probability than the market for a lift off in September but acknowledge that the risk has shifted towards later, a slower pace and a lower terminal rate. For now, we hold on to the put on EDU5 that we initiated two weeks ago.

"Data dependency" over the next couple of weeks might really me ...

Toshiba CEO says newfound accounting errors not huge

TOKYO (Reuters) - The head of scandal-tarred Toshiba Corp said on Monday the company has found a half-decade's worth of new accounting problems forcing it to further delay closing its books but that it does not expect a big impact on its projected results.

Global Markets Head Lower

Global stock markets headed lower at the end of a turbulent month that was dominated by concerns over China and the timing of a U.S. Federal Reserve interest rate rise.

Exclusive: Citi aims to boost equities franchise amid industry shakeout

NEW YORK (Reuters) - Citigroup plans to rebuild its long-neglected equities franchise seeking to capitalize on a retrenchment by rivals in the face of new rules designed to make the financial system less risky, according people familiar with the bank's plans.

China "Punishes" Hundreds For "Maliciously" Manipulating The Market

The deadly chemical blast in the Chinese port of Tianjin was a preventable catastrophe in which more than 100 people lost their lives thanks in part to what looks like the political connections of the warehouse's owners and although an upfront, transparent investigation and honest assessment of the environmental impact is likely the only way to safeguard the public and ensure it doesn't happen again, no one believes the Chinese government has the will to conduct such an investigation.

But whatever you do, do not say any of the above if you live in China.

Similarly, China's stock market collapse was an entirely preventable financial catastrophe caused by the unchecked accumulation of margin debt and the encouragement of speculation, and the bursting of the equity bubble which began in June has been nothing short of a debacle that's led to international condemnation and accusations that, even in a centrally planned world, Beijing's particular brand of intervention is so egregious as to stray outside the bounds of manipulated market decorum.

But if you live in China, don't say that either.

Over the last two months there were signs that Beijing would soon resort to outright, sweeping censorship as it relates to both the stock market and the Tianjin blast. For instance, in July, phrases like "rescue the market" were reportedly banned and in the wake of the Tianjin disaster, hundreds of social media accounts were shut down for spreading "blast rumors."

Now, ahead of a military parade that Xi Jinping will allegedly use to show the world that th ...

Futures fall as September rate hike back in focus

(Reuters) - U.S. stock index futures were lower on Monday as investors once again turned their focus to the possibility of a September interest rate increase.

Frontrunning: August 31

Hilsenrath: Fed Appears to Hold Line on Rate Plan (WSJ)

Europe, Asia stocks set for worst monthly drop in three years on China, Fed (Reuters)

Beijing abandons large-scale share purchases (FT), if only for a few hours

China's Next Problem: Paying for Its Stock-Market Bailout (WSJ)

Crises Put First Dents in Xi Jinping's Power (WSJ)

Man Group's China Chief Said to Assist Police in Probe (BBG)

BNY Mellon Races to Fix Pricing Glitches Before Markets Open Monday (WSJ)

Rosneft Second-Quarter Profit Falls 22% After Crude Prices Slump (BBG)

Euro zone inflation defies expectations, unchanged in Aug vs July (Reuters)

Low-profile Signature Bank has become one of the nation's fastest-growing lenders (W ...

Discounting The Long Run

from the Liberty Street Economics

-- this post authored by Tobias Adrian, Richard Crump, Peter Diamond, and Rui Yu

Expectations about the path of interest rates matter for many economic decisions. Three sources for obtaining information about such expectations are available. The first is extrapolation from historical data. The second consists of surveys of expectations. The third are expectations drawn from financial market prices, often referred to as market expectations. The last are usually considered to be model-based expectations, because, generally, a model is needed to reliably extract expectations from current prices. In this post, we explain the need for and usage of term structure models for extracting far in the future interest rate expectations from market rates, which can be used to discount the long run. We will illustrate our arguments by discussing the measurement of long-run discount rates for Social Security.

Fiat Chrysler's Marchionne says 'unconscionable' to give up on GM deal: paper

MILAN (Reuters) - It would be "unconscionable" for Fiat Chrysler Automobiles (FCA) not to pursue a merger with rival General Motors and create a company that can generate $30 billion a year in cash, FCA chief Sergio Marchionne said in a newspaper interview.

China Dramatically Intervenes To Boost Stocks Despite Reports It Won't; US Futtures Slump On J-Hole

Yesterday, the FT triumphantly proclaimed: "Beijing abandons large-scale share purchases", and that instead of manipulating stocks directly as China did last week on Thursday and Friday, China would instead focus on punishing sellers, shorters, and various other entities. We snickered, especially after the Shanghai Composite opened down 2% and dropped as low as 4% overnight:

We'll find out shortly just how much "China won't intervene any more in the market"

â€" zerohedge (@zerohedge) August 31, 2015

Less than five hours after this tweet, we found out that our cynical skepticism was again spot on: the moment the afternoon trading session opened, the "National Team's" favorite plunge protection trade, the SSE 50 index of biggest companies, went super-bid and ramped from a low of 2071 to close 140 points higher, ending trading with a last minute government-facilitated surge, and pushing the Composite just 0.8% lower after trading down as much as -4.0%.

SSE 50 Index of China's biggest companies rebounded 6.7% in last two hours of trading from low #stateinplay

â€" Richard Frost (@frostyhk) August 31, 2015

It wasn't just direct stock market intervention: Bloomberg reported that additionally the PBOC also conducted another Short-term Liquidity Operations w ...

Europe, Asia stocks set for worst monthly drop in three years on China, Fed

LONDON (Reuters) - Stocks in Europe and Asia looked set on Monday for their worst monthly losses in at least three years, with investors still concerned about growth in China and the prospect of higher U.S. interest rates.

China stocks slide as crackdown on speculators spreads, lose 11 percent in August

SHANGHAI (Reuters) - China stocks fell sharply on Monday before recovering much of their losses as regulators cracked down on speculators which Beijing blames for a 40 percent crash in the country's stock markets since June.

Early Headlines: Shanghai Down Modestly, US Blocks India Clean Energy, India Cost Of Capital, EU Facing Epic Refugee Flood, Huge Egyptian Gas Field Discovered And More

Written by John Lounsbury

Early Bird Headlines 31 August 2015

Econintersect: Here are some of the headlines we found to help you start your day. For more headlines see our afternoon feature for GEI members, What We Read Today, which has many more headlines and a number of article discussions to keep you abreast of what we have found interesting.


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