It was a relatively quiet weekend out of China, where FX warfare has taken a back seat to evaluating the full damage from the Tianjin explosion which as we reported on Saturday has prompted the evacuation of a 3 km radius around the blast zone, and instead it was Japan that featured prominently in Sunday’s headlines after its Q2 GDP tumbled by 1.6% (a number which would have been far worse had Japan used a correct deflator), and is now halfway to its fifth recession in the past 6 year, underscoring Abenomics complete success in desrtoying Japan’s economy just to get a few rich people richer. Of course, economic disintegration is great news for stocks, and courtesy of the latest Yen collapse driven by the bad GDP data which has raised the likelihood of even more Japanese QE, the Nikkei closed 100 points, or 0.5% higher.
Chinese stocks also rose by 0.7% to just shy of 4000 as a result of margin debt soaring once more, rising by $13 billion, and the longest streak in 2 months. What else can one say about Chinese investors except that they sure learned their lesson.
And while markets are levitating around the globe, if not so much in the US for now where futures are just fractionally in the red, which we expect will change in the now patented volumeless levitation into the market open and then close, economies are grinding to a halt, as express by the price of WTI, which earlier today dropped to a fresh 6 year low below $42 after Iran said OPEC production may rise to a record after sanctions on the
country are lifted and as U.S. drilling activity increased, although the black gold has since recouped some of its losses following unconfirmed reports of an explosion in Kuwait’s Shuaiba refinery.
Also confirming yet again just how clueless economists really are, is the following chart from the WSJ showing that at no point in the last 12 months did economists expect oil to drop as low as it is today.
At no point in the last 12 months have economists anticipated that oil could drop so low http://t.co/c3iLqVG4pg pic.twitter.com/ZpZyFWJiV8
— Real Time Economics (@WSJecon) August 16, 2015
A closer look at Asian equities reveals a mixed picture despite a positive Wall Street close on Friday amid light news flow. ASX 200 (+0.16 %) traded in positive territory following a bout of strong earnings, the Nikkei 225 (+0.49%) rose as participants shrugged off disappointing Q2 GDP figures as this increases calls for further measures by Japanese authorities. Chinese bourses began the week on the back foot after posting its strongest week of gains in 2-months, as the region was dragged lower by energy names. JGBs fell amid strength in equities coupled with the BoJ refraining from conducting its massive JGB purchase program. IMF forecasts China economic growth to slow to 6.8% in 2015 and 6.3% in 2016 but see more sustainable growth. There were also comments from PBoC’s Jun that China is likely to hit its target of 7% growth.
Stocks in Europe failed to hold onto the opening best levels and heading into the North American session are seen mixed, with the FTSE-100 index under performing, as the ongoing commodity market rout continues to take its toll on energy and materials sectors. The consequent retreat in stocks, in part driven by the uncertainty over the future growth prospects in China, as evidenced by the latest IMF growth forecasts.
In terms of Greek related news flow, ECB’s Coeure said rules that prohibit the buying of Greek bonds could be scrapped, while German Chancellor Merkel said there cannot be a Greek debt haircut but added there’s room for an extension of Greek debt maturities.
EUR/GBP held onto the 50% retracement level of Aug 5th low to Aug 12th high in early European trade, before the upside traction by EUR/USD towards the sizeable 1.1100 option strike saw the cross stage a recovery back into minor positive territory. At the same time, GBP failed to benefit from somewhat hawkish comments by BoE’s Forbes who said that a rate hike is needed ‘well before’ inflation reaches 2%, while departing BoE member Miles said that the case was building for a rise in Bank rate despite current low inflation.