http://www.zerohedge.com/news/2013-08-07/latest-overnight-nikkei-crash-drags-risk-lower
Submitted by Tyler Durden on 08/07/2013 07:23 -0400
Submitted by Tyler Durden on 08/07/2013 06:57 -0400
The USA is veering into a psychological space not unlike the wilderness-of-mind that Germany found itself in back in the early 20th century: the deep woods of paranoia where our own failures will be projected onto the motives of others who mean to do us harm. The USA cannot come to terms with the salient facts staring us in the face: that we can’t run things as we’ve set them up to run. We refuse to take the obvious actions to set things up differently. That disorder has infected our currency and the infection is spreading to all currencies. The roar you hear in the distance this September will be the sound of banks crashing, followed by the silence of business-as-usual grinding to a halt. After that, the crackle of gunfire.
The rapid pace of China credit expansion since the Global Financial Crisis, increasingly sourced from the inherently more risky and less transparent "shadow banking" sector, has become a critical concern for the global markets. From the end of 2008 until the end of 2013, Chinese banking sector assets will have increased about $14 trillion. As Fitch notes,that's the size of the entire US commercial banking sector. So in a span of five years China will have replicated the whole US banking system. What we're seeing in China is one of the largest monetary stimuli on record. People are focused on QE in the US, but given the scale of credit growth in China Fitch believes that any cutback could be just as significant as US tapering, if not more. Goldman adds that China stands to lose up to a stunning RMB 18.6trn/$US 3trn. should this bubble pop. That seems like a big enough number to warrant digging deeper...
Latest Overnight Nikkei Crash Drags Risk Lower
- Bank of England
- Barack Obama
- Ben Bernanke
- BOE
- British Pound
- Central Banks
- China
- Consumer Credit
- Copper
- CPI
- Crude
- Crude Oil
- Deficit Spending
- Fannie Mae
- Freddie Mac
- Gilts
- Gross Domestic Product
- Hong Kong
- Iraq
- Japan
- Monetary Policy
- Newspaper
- Nikkei
- Program Trading
- program trading
- Trade Balance
- Unemployment
- United Kingdom
- Volatility
- Yen
While there was little macro news to report overnight, the most notable development was yet another USDJPY-driven crash in the Nikkei 225 which plunged by a whopping 576 points, or 4%, to 13825, while the Yen soared to under 96.80 in the longest series of gains since mid-June before recouping some of the losses on pre-US open program trading. The reason attributed for the move were reports that Japan would adhere to pledge to cut its deficit which is the last thing the market wanted to hear, as it realizes that boundless QE is only possible in a context of near-infinite deficit spending. The index, which has now become a volatility joke and woe to anyone whose "wealth effect" is linked to its stability, pushed not only China's Shanghai composite lower by 0.7% but led to losses across the board and as of this moment is seen dragging US equity futures lower for the third day in a row.
Furthermore as already noted, the forward guidance announcement by the BOE being riddled with so many exclusion loopholes and footnotes, and carrying an emphasis on inflation, did not help the market get the sense of a definitive BOE backstop if and when the Fed has to pull out.
There is little on the US docket today, with consumer credit due out at 3pm, while the Fed's Pianalto speaks on monetary policy in Cleveland at 1:40 pm. Expect even more hawkish tones and tapering warnings now that we are just a month away from the all important September FOMC meeting.
*****
http://www.zerohedge.com/news/2013-08-07/bank-england-announces-7-unemployment-linked-forward-guidance-credibility-questioned
Bank of England Announces 7% Unemployment-Linked "Forward Guidance" But Credibility Questioned
Moments ago the Bank of England's Mark Carney, very much as expected and warned previously, announced for the first time as part of the BOE quarterly Inflation Report press conference (the full August inflation report can be found here) the official linkage of monetary policy outlook to unemployment and pledged to expand stimulus if needed as he tried to quell investor bets on higher interest rates. Specifically as part of the BOE's forward guidance, Carney linked interest rates to a 7% unemployment threshold while forecasting that unemployment would be higher than 7% until at least Q3 2016, or in other words, no threat of an end of extraordinary monetary policy any time soon.
However, while the market enjoyed the announcement initially and sent cable 100 pips lower to 1.52, the initial dovish mood was quickly reversed after the market observed that Carney's statement carried with it three "knock out clauses" which made the forward guidance far less explicit and put doubts into the market about the credibility of this latest monetary experiment as a result unwinding an initial 100 pip drop in cable and sending it over 200 pips higher from the lows.
Specifically:
- the policy stance will depend on economic conditions, and will also be determined by the BOE's inflation target which remains at 2%
- the BOE's guidance won't hold if the CPI is seen 0.5% over 2% in the next 18-24 months
- the guidance won't hold if the BOE's council sees a financial stability threat
- Carney refrained from overlooking the BOE's inflation mandate and reiterated the bank's commitment to price stability.
- Carney said that a prolonged period of low rates has stability risks, and added that the UK economy will undoubtedly face shocks in the future which further detracted from the credibility of forward guidance
- Finally, the BOE forward guidance is not a change in the bank's reaction function Carney clarified.
The combination of all these "credibility-questioning" clauses promptly unwound the initial currency weakness, and promptly sent the GBPUSD soaring over 200 pips in the opposite direction as some saw Carney's remarks as far less of a "commitment" than previously expected.
USA - "Laboring Under A Conclave Of Would-Be Wizards"
Submitted by Tyler Durden on 08/06/2013 - 22:03The USA is veering into a psychological space not unlike the wilderness-of-mind that Germany found itself in back in the early 20th century: the deep woods of paranoia where our own failures will be projected onto the motives of others who mean to do us harm. The USA cannot come to terms with the salient facts staring us in the face: that we can’t run things as we’ve set them up to run. We refuse to take the obvious actions to set things up differently. That disorder has infected our currency and the infection is spreading to all currencies. The roar you hear in the distance this September will be the sound of banks crashing, followed by the silence of business-as-usual grinding to a halt. After that, the crackle of gunfire.China's Credit Crisis In Charts
Submitted by Tyler Durden on 08/06/2013 - 21:19The rapid pace of China credit expansion since the Global Financial Crisis, increasingly sourced from the inherently more risky and less transparent "shadow banking" sector, has become a critical concern for the global markets. From the end of 2008 until the end of 2013, Chinese banking sector assets will have increased about $14 trillion. As Fitch notes,that's the size of the entire US commercial banking sector. So in a span of five years China will have replicated the whole US banking system. What we're seeing in China is one of the largest monetary stimuli on record. People are focused on QE in the US, but given the scale of credit growth in China Fitch believes that any cutback could be just as significant as US tapering, if not more. Goldman adds that China stands to lose up to a stunning RMB 18.6trn/$US 3trn. should this bubble pop. That seems like a big enough number to warrant digging deeper...
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