More thoughts on China

So the "shocking collapse" in Chinese imports was so severe that global equities ripped yesterday, albeit with the aid of a friendly kickstart at the end of Tuesday's Shanghai session.  Even the "collapse" is something of an overstatement; the second derivative of the y/y change of the 3 month moving average (which mitigates the impact of the Chinese new year variability) has been turning up for a few months now.


Scant comfort, perhaps, but Macro Man seems to recall the Bernanke Fed trumpeting the green shoots of a second derivative upturn in 2009, perhaps the last time that the Fed struck a positive chord about anything.  An even more speculative measure- the 3m/3m change of the (admittedly non-seasonally adjusted) series- remains positive, albeit receding slightly from recent two-year highs.


Again, echoing yesterday's commentary, this does not necessarily mean that it's safe to sound the all-clear in China, or even that the economy isn't still decelerating.   Macro Man would suggest, however, that if the chart doesn't look like a 2008-style freefall, then it very well may not be one.

One aspect of the RRR that Macro Man neglected to mention yesterday is its utility as an indicator of China's currency policy.   Simply put, PBOC and SAFE have a bit of form when it comes to marrying FX policy and the RRR.  This shouldn't come as a massive surprise, given the importance of the latter as a sterilization tool for market intervention in the former.  Nevertheless, as a big-picture tool for assessing the current state of play of FX policy, you cannot do much better than the RRR. 

In 2008, for example, the first cut in the RRR more or less coincided with the end of the RMB's appreciation trend.  In 2010, the rise in the RRR foreshadowed the re-ignition of the appreciation tend by a good six months.  Again, this stuff won't tell you where USD/CNH will be in two weeks, but it does offer a little glimpse into official thinking that may be useful in the future.

So if China does decide to remain anchored to its tectonic plate and not slide en masse into the Pacific, that could be kind of good news, right?  As noted in the comments, some European equities have a had a proper drubbing over this, and as previously discussed in this space look fairly attractive on a broad range of metrics.

So it is interesting to note that the DAX is perched just below a little shelf of resistance, a break of which leaves a lot of fresh air for a move back above 11,000.  It can obviously be dangerous to preempt such a break whilst below the resistance, particularly in these rather volatile times.   



Even though vols are high, the Oct 11,000 call at 60 ticks or so doesn't seem particularly outrageous; three trading days and that sucker could be paritized.  With the buyback engine apparently getting re-started in the US and a market still stiff with uncertainty over the Fed, having a little bottom-of-the-drawer ticket for a ride on a rocket ship isn't the worst idea in the world.

Who knows?  It might even be made in China.

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September 9, 2015 at 7:29 AM × This comment has been removed by the author.
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Anonymous
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September 9, 2015 at 8:52 AM ×

Wow that China crash and recession was over quickly......
Mind you bots think in nan-seconds, must seem like eternity to them,
Not even a month since a tiny devaluation set the world swooning.

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Anonymous
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September 9, 2015 at 9:36 AM ×

Does anyone else think that the FED has backed themselves into a corner here. The EM has already sold off predicting a rate rise and its arguable that the PROC devalued so that they wouldn't be "tied" to a rising USD. To me the damage to markets has been done, leaving it on hold in sept will just spread out the fear and doubt over a longer period, rather they go in Sept and in the accompanying message say its going to be a long long wait till the next rise.

Everyone has front run a FED who is telegraphing a possible more, damage has been done.

The doubt is killing everyone, I think its a sell the rumour , buy the message (no more until more recovery).

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Bruce in Tennessee
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September 9, 2015 at 1:32 PM ×

http://www.ifcmarkets.com/en/economic-calendar

08:00 Japan AUG JPY Machine Tool Orders (YoY) medium -16.5% 1.7%

Yes, the Chinese import numbers were very interesting, but if imports were down, other countries exports might follow, non? Japanese orders certainly look as if the game is still afoot...

...Pass the stimulus, and be quick about it...

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Polemic
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September 9, 2015 at 2:10 PM ×

Coordinated equity buying by Chinese and Japanese? Just because 2 things happen at the same time doesn't mean they are coordinated.

Seems to be a lot of feeling that the only reason equities can go up is if CBs buy them. From that can I assume that everyone other than CBs is short?

Even FT carrying stories that no one knows why there were big rises in equities. If everyone knows every reason for them to go fown but doesn t know why they could go up then I posit that some folks are going to be educated a la Edward II as 'that shouldn't have happened' is the route to losses fighting positions.

Right, with that I'm back to my cocktail. If you are stressed by these markets try a sailing trip to Croatia. Ibiza style cool beach bars with moorings 50yds out at a fraction of the price.

Best regards Captain Birdseye.

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Nico G
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September 9, 2015 at 2:25 PM ×

Croatia is a great destination for birdwatchers

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Polemic
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September 9, 2015 at 2:50 PM ×

Nico. Ornithology is stunning. Not much variation but who cares when the plumage is so beautiful.

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Nico G
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September 9, 2015 at 3:19 PM ×

+ Croatian sense of sarcasm, and their stuffed squid are legendary

am back in the game - besides Adriatic curves there is nothing better than shorting 170 points above the last cover (stoxx)

very interesting market

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Anonymous
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September 9, 2015 at 3:31 PM ×

The big expiry Friday week. Is Hvar still the place to be seen? Lovely spot.

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washedup
admin
September 9, 2015 at 3:33 PM ×

u hear that MM? birdwatching, plumage, stuffed squids - i thought this was a G rated blog.
u ever got a chance to ponder my question of whether chinese UST reserve calculations are at purchase or market price?
thx.

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Anonymous
admin
September 9, 2015 at 3:42 PM ×

Someone wake the PBoC, Kuroda, Funny Money or his Ghost up!

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Anonymous
admin
September 9, 2015 at 3:43 PM ×

re washedup,

I am no expert but think it is marked to market based on an old Chinese article I read which blamed PBOC mismanaging rx reserve on UST and losing big money because UST's yield was rising. It must be 10 years ago...

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Anonymous
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September 9, 2015 at 6:14 PM ×

QE works in one point: Euro Zone Banks have reduced their govt bond holdings by €84bn since Feb (4.3%) (via Jefferies)

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Nico G
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September 9, 2015 at 7:27 PM ×

expiry week is morphing into a barbecue of ghosts

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Anonymous
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September 9, 2015 at 8:35 PM ×

Only BBQing is for the hindsight traders here imo.

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Nico G
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September 9, 2015 at 8:51 PM ×

damm right. that is one very acute reversal from 1990s spooz test

the 3:19 PM stoxx short from session high will be closed on close - the full 3% intraday range courtesy of September expiry weAk

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Anonymous
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September 9, 2015 at 8:59 PM ×

After JOLTS and this, goodbye Sept rate hike...

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Anonymous
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September 9, 2015 at 9:15 PM ×

Eh, jolts was strong. You should probably go look up what it means.

Have a look at this chart.

https://twitter.com/enlundm/status/641612922616201216/photo/1

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Anonymous
admin
September 9, 2015 at 9:30 PM ×

@Anon 9:15 PM - Really? You don't say. Was I perhaps talking about the market's reaction? You know, the way the spooz tanked on a good figure and then proceeded to sell off heavily for the rest of the session? (Those are the red lines on your chart btw).

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Anonymous
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September 9, 2015 at 10:49 PM ×

VVIX was the tell today that the rally was bogus
http://www.barchart.com/chart.php?sym=$VVIX&t=BAR&size=M&v=0&g=1&txtDate=09%2F09%2F2015&p=I:20&d=M&qb=1&style=technical&template=

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Anonymous
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September 9, 2015 at 11:10 PM ×

Michael Feroli, economist at JPMorgan Chase: "Will today's blowout job openings number tilt the scales at all for next week's Fed decision? One might think it should matter for a "data dependent" Fed, but with data dependency apparently now extended to how equities trade, it is not certain how this report will shade their thinking."

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Anonymous
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September 9, 2015 at 11:18 PM ×

Economists at Barclays said of the JOLTS report: "Combining these data with figures from the Labor Department's employment report suggests that labor market slack continues to diminish; the ratio of unemployed job seekers to job openings fell to 1.44 in July (previous: 1.56), the lowest on record since 2000.

A fifteen year low? And still no September rate hike? Does this mean that Christine trumps Janet?

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Anonymous
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September 10, 2015 at 5:25 AM ×

More Renimbi devaluation.... if QT theory is correct FED don't need to go its been done for them.... so market should react like a Fed hike has happened, but maybe even react worse as now fed can't hike and china (global growth proxy) is tanking.

a big fall, then increased vol.. is normally associted with an even bigger fall to come on equities..........

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