U.S. stock futures index along with global stocks are falling as investors see that China's economy is slowing. Chinese industrial profits fell 8.8% the largest decline since four years ago Shanghai was sharply lower early in today's session, but managed a 0.3% gain by the close. The markets are expected to open lower and then drift for much of the morning session.
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 2.27% while London's FTSE 100 is off 1.60% and Germany's DAX is lower by 1.49%.
The U.S. markets are looking at yet another down day and some analysts are saying today may turn into a solid down open buying opportunity. However, selling into a string of losses is not a high probability proposition.
Oil continues to be a choppy mess to trade and $43 remains a major support.
WASHINGTON, Sept 28 (Reuters) - U.S. consumer spending grew briskly in August and a key measure of inflation firmed a bit, signs of strength in America's domestic economy that could lead the Federal Reserve to tighten interest rates despite weakness abroad.
BERLIN (Reuters) - German prosecutors launched an investigation on Monday into former Volkswagen boss Martin Winterkorn over the rigging of vehicle emissions tests, as the carmaker suspended three top engineers in an attempt to tackle the crisis.
LONDON (Reuters) - Oil prices eased on Monday, paring some of last week's 2 percent rally, despite evidence of slowing U.S. production and a fourth weekly increase in U.S. investor holdings of crude futures.
LONDON (Reuters) - Royal Dutch Shell has abandoned its Arctic search for oil after failing to find enough crude in a move that will appease environmental campaigners and shareholders who said its project was too expensive and risky.
CHICAGO (Reuters) - Metals firm Alcoa Inc said on Monday it would split into two publicly traded entities, acknowledging that its legacy aluminum operations and higher-value and automotive businesses were diverging and no longer compatible.
-- this post authored by Nicola Cetorelli and Samuel Stern
When we think of banks, we typically have in mind our local bank branch that stores deposits and issues mortgages or business loans. Prima facie there is nothing wrong with this image. After all, there are still almost 6,000 unique commercial banks in the United States that specialize in deposit-taking and loan-making; when we include thrifts and credit unions, this number more than doubles. What we typically forget, however, is that most commercial banks are subsidiaries of larger bank holding companies (BHCs), and in fact nearly all commercial bank assets fall under such BHCs.
Just last Thursday we asked whether Goldman was "preparing to sacrifice the next Lehman", by which of course we meant the world's largest commodity trading counterparty, Baar, Switzerland-based Glencore which just two weeks ago unveiled an unprecedented "doomsday" capital raising and deleveraging plan which, in retrospect, was not enough.
The punchline of Goldman's report was that if commodity prices drop 5%, or even stay where they are, then Glencore's investment grade rating - the most critical foundation of its entire trading operation where a downgrade to junk would launch a collateral and margin-call waterfall cascade a la AIG - would be lost. From Goldman:
Glencore's trading business relies heavily on short-term credit to finance commodity deals and its financing costs would increase if it were to lose its Investment Grade credit rating. In addition, it could even lose some counterparties due to increased counterparty risk.
As we added on Thursday, "what a junking of Glencore would do, is start a collateral demand waterfall cascade that the cash-strapped company simply would not be able to sustain." So having laid out the strawman, Goldman next, very conveniently, explains just what would take for the Investment Grade trap to slam shut: "it would only take a c.5% fall in spot commodities prices for concerns about its credit rating to resurface."
It was all about China once again, where following a report of a historic layoff in which China's second biggest coal producer Longmay Group fired an unprecedented 100,000 or 40% of its workforce, overnight we got the latest industrial profits figure which plunging -8.8% Y/Y was the biggest drop since at least 2011, and which the National Bureau of Statistics attributed to "exchange rate losses, weak stock markets, falling industrial goods prices as well as a bigger rise in costs than increases in revenue." In not so many words: a "hard-landing."
At danger of pointing out the all too obvious, China Minzu Securities noted that "currency devaluation isn't substantially helping exporters' profit margins for now; overseas shipping volumes may increase a bit, but that may not be enough to offset the decrease in asset valuation." Well then, there is always "moar" devaluation, right. "Downward pressure on China's manufacturing sector will persist for some time given the oversupply of property," Zhu Qibing, Beijing-based analyst, says in interview. "There might be one more PBOC RRR cut toward the end of the year." That, or the PBOC will cut the CNY by another 10-15% before the year is done.
And then, confirming that the Chinese contagion is not "spreading" but "spread", we got Thailand customs exports data which plunging at -6.7% was double the expected -3.1% drop, as trade patterns across the entire Asia-Pac region, or rather the entire world, are now dramatically disrupted.
All of this has pushed the USDJPY down from its closing price of just around 120.50 on "Biotech Butchery" Friday to just below 120.00, which in turn has slammed US equity futures, and as of this moment:
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