Mercenary Macro Links August 20th 2015
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Emerging market turmoil spreads to western stock markets - FT.com
Growth Fears Send Stocks Into a Skid - WSJ
Six-year low for China PMI extends EM turmoil - FT.com
The Battle at the Heart of Global Markets--Heard on the Street - WSJ
US credit signals warning for risk assets - FT.com
US Equity Futures Nosedive After China PMI Plunge | Zero Hedge
Fed's tightening cycle scenario involves risky bet on inflation | Reuters
So Long September: Bond Traders Defer Their Date With the Fed - Bloomberg Business
Beijing Picks the Winners in China Stocks - WSJ
China’s Resistance to Reform May Grow With IMF Rejection - WSJ
Chinese Factory Gauge Drops to Lowest Level Since March 2009 - Bloomberg Business
No, Credit Growth In China Is Not "Surging"... | Zero Hedge
Tianjin Explosion Erodes Faith in Leadership for Many in China - WSJ
China’s Devaluation Revisited - WSJ
China Pollution: Mapping the invisible scourge | The Economist
Feels like 1986: Oil on track for longest weekly losing streak in 29 years | Reuters
Oil Poised for Longest Weekly Losing Streak Since 1986 Amid Glut - Bloomberg Business
How Much Longer Can Saudi Arabia's Economy Hold Out Against Cheap Oil? - Bloomberg
Mexico hedges oil at $49 a barrel - FT.com
No End in Sight for Oil Glut - WSJ
Refineries Could Push Oil Over the Edge -- Heard on the Street - WSJ
Rout Erases $2 Trillion From Stock Values - Bloomberg Business
Decade of binging on commodities may lead to longer hangover | The Economist
From Mining to Refining: Low Commodity Prices Force Shift at Industry Giants - WSJ
Glencore CDS Costs Soar On Poor Results - WSJ
Emerging-Market Currencies Battered by Commodities Slide, China Turbulence - WSJ
10 Currencies That May Follow Tenge in Tumble Triggered by China - Bloomberg Business
Brazil jobless rate hits five-year high - FT.com
Emerging markets wield their spades - FT.com
Greece Makes Payment to European Central Bank, Avoiding Default - The New York Times
North and South Korea did what?
North and South Korea Exchange Fire - WSJ
Kim Jong Un Orders North Korean Army to Be Ready for Combat - Bloomberg Business
Growth Fears Send Stocks Into a Skid
Parting company - yield on US high-yield bonds
Performance of MSCI and World Indices
So long September - probabilities drop
Beijing’s heavy hand sends individual stocks higher
60% of China’s surging credit growth is made up
As Chinese have migrated to cities waste has soared
US refining capacity utilization
Retreat of Bloomberg commodity index
Global mining company performance
Commodities companies plunged in the last year
shares of mining and oil companies taken down with commodities
Eastern Shit Hits Western Fan
Emerging market turmoil spreads to western stock markets - FT.com
The US stock market slid by the most since February 2014 on Thursday, wiping out all of this year’s gains to trade at a six-month low, as the deepening emerging markets turmoil triggered by the commodity slide and China’s devaluation rattled global bourses.
With many developing countries benefiting from China’s voracious demand for commodities in recent years, last week’s devaluation of the renminbi has increased concern that a primary engine of the global economy is spluttering.
Growth Fears Send Stocks Into a Skid - WSJ
Worries about the pace of global growth jolted markets anew, sending the Dow industrials to their largest decline in 18 months and boosting the prices of gold and government bonds.
The tumult is the latest sign of the uncertainty rippling through financial markets following China’s decision last week to allow the value of its currency, the yuan, to decline, triggering its biggest one-day fall in two decades.
Six-year low for China PMI extends EM turmoil - FT.com
Asian markets slumped on Friday as an index of Chinese manufacturing activity hit a six year low, compounding a rout in emerging markets that spread to developed indices overnight.
Updated at 11:30 to reflect close of China's morning session
Following on from Wall Street's biggest fall in 18 months on Thursday, Japan's Nikkei 225 was down 2.2 per cent, with just nine of its 225 members in positive territory, The broader Topix fell 2.5 per cent.
The Battle at the Heart of Global Markets--Heard on the Street - WSJ
Global markets are undergoing a titanic tug of war.
On the one side is the decent, if not spectacular, growth in developed economies like the U.S. and U.K. that is prompting the Federal Reserve and the Bank of England to lean toward increasing rates for the first time since the global financial crisis hit. Even the eurozone has shaken off recession and is growing again.
On the other side, however, is the fear of a new deflationary tide from slowing emerging-market economies, accompanied by a collapse in their currencies, and swiftly dropping commodity prices. Risk premiums are rising in credit markets, causing further nerves.
US credit signals warning for risk assets - FT.com
Investors are demanding a greater premium for owning the debt of US companies in a sign that weakening growth prospects for China and sliding commodity prices are hurting US credit markets.
Credit spreads, or the difference in yield between debt sold by companies and that of US government bonds, are at their widest level for the year. The downturn in commodity prices, particularly oil, has pushed investors to demand more yield when lending to risky energy and basic materials companies.
US Equity Futures Nosedive After China PMI Plunge | Zero Hedge
It appears bad news in China is "bad news" for everyone. With Chinese authorities already in full liquidity spigot-mode, the fact that China PMI for August collapsed to its lowest since March 2009 strongly suggests that - unlike every talking-head's proclamation - a crashing stock market does (whether reflexively or not) impact the real economy. US equity futures legged significantly lower on the news - S&P 500 to 7-month lows, eyeing the stunning 2,000 level; and Japanese stocks also legged lower.
Rate Hike Tea Leaves
Fed's tightening cycle scenario involves risky bet on inflation | Reuters
Federal Reserve officials planning to lift interest rates as soon as September have been encouraged by solid U.S. jobs growth, but inflation holds the key to how far the Fed can go in moving rates away from zero.
Fed officials have said that they do not need to see prices accelerate to start raising rates after six years near zero, and "lift-off" appears nearly ordained by a 5.3 percent unemployment rate, the lowest since April of 2008.
So Long September: Bond Traders Defer Their Date With the Fed - Bloomberg Business
The probability that futures traders assign to a rate boost next month slid to 36 percent, the lowest since July, from about 50 percent earlier in the day. The levels assume that the Fed’s target will average 0.375 percent after the first move. The chance of an increase at or before the Fed's December meeting dropped as well, to 65 percent from 73 percent Tuesday.
China China China
Beijing Picks the Winners in China Stocks - WSJ
Stock-market investors try to choose winners. China’s government is minting them.
Shareholders in Guangdong Meiyan Jixiang Hydropower Co., a resource-investment company that lost money as recently as the six months ended in March, are among the beneficiaries of the more than $90 billion the government has earmarked to rescue its stock market.
The government’s sprinkling of cash into Meiyan, which is based in southern China, sent its shares up more than 150% at one point this month, though the stock has since cooled.
China’s Resistance to Reform May Grow With IMF Rejection - WSJ
Political support in China for economic reform, already weakened by the specter of slowing growth, may be further dented by the International Monetary Fund’s indication this week that it won’t add the yuan to an international basket of reserve currencies for at least a year.
The IMF’s disclosure, which appears to postpone a reward China has sought for its pro-market tack, follows a decision in June by index provider MSCI Inc. not to include China’s shares in a global stock index. The developments signal doubts that Beijing has done enough to loosen government control and open its vast financial market to the rest of the world.
Chinese Factory Gauge Drops to Lowest Level Since March 2009 - Bloomberg Business
A Chinese manufacturing gauge fell to the lowest in more than six years, suggesting the economy will need further policy support to stem a deepening slowdown.
The preliminary Purchasing Managers’ Index from Caixin Media and Markit Economics was at 47.1 for August. That compared with a median estimate of 48.2 and the final reading of 47.8 the previous month. Numbers below 50 indicate contraction.
No, Credit Growth In China Is Not "Surging"... | Zero Hedge
Indeed, for China (whose GDP growth is at best exaggerated due to an understated deflator and at worst is completely made up) going full-shark-jumping-retard means doing something so completely ridiculous that it hides in plain sight.
Something like loaning yourself a trillion yuan to prop up the stock market and then counting that trillion yuan loan towards credit growth.
Tianjin Explosion Erodes Faith in Leadership for Many in China - WSJ
...the blasts at a dockside warehouse hit directly at owners of high-rise homes, dashing the perception held among many upwardly mobile Chinese that they were exempt from the ill effects of runaway growth.
“On the surface, your life is no different from a middle-class person in a normal country,” said an anonymous author of an essay that has drawn nearly 32,000 views since it was posted online Monday. “But after the blast, homeowners [in Tianjin] are finding that they are the same as those petitioners they looked down on.”
China’s Devaluation Revisited - WSJ
... the good news seems to be that Beijing hasn’t really stepped away from its commitment to sound money, and it isn’t pursuing a competitive devaluation to steal export demand from its neighbors. But the challenge posed by capital outflows and the end of the Fed’s near-zero interest rate era demands more than a slightly weaker yuan. The real test continues to be whether Beijing has the will to carry out domestic economic and financial reforms that are necessary to drive growth in the future. That’s also the best way to stem capital outflows.
China Pollution: Mapping the invisible scourge | The Economist
Pollution is sky-high everywhere in China. Some 83% of Chinese are exposed to air that, in America, would be deemed by the Environmental Protection Agency either to be unhealthy or unhealthy for sensitive groups. Almost half the population of China experiences levels of PM2.5 that are above America’s highest threshold. That is even worse than the satellite data had suggested.
Berkeley Earth’s scientific director, Richard Muller, says breathing Beijing’s air is the equivalent of smoking almost 40 cigarettes a day and calculates that air pollution causes 1.6m deaths a year in China, or 17% of the total. A previous estimate, based on a study of pollution in the Huai river basin (which lies between the Yellow and Yangzi rivers), put the toll at 1.2m deaths a year—still high.
Oilmageddon
Feels like 1986: Oil on track for longest weekly losing streak in 29 years | Reuters
U.S. oil prices headed for their eighth consecutive week of falls on Friday, the longest losing streak since 1986, after a sharp drop in Chinese manufacturing increased worries over the health of the world's biggest energy consumer.
Activity in China's factory sector shrank at its fastest pace in almost 6-1/2 years in August as domestic and export demand dwindled, adding to worries about lower consumption of crude in the second-biggest oil user.
Oil Poised for Longest Weekly Losing Streak Since 1986 Amid Glut - Bloomberg Business
Oil headed for the longest run of weekly declines in almost three decades on signs the supply glut that drove prices to a six-year low will be prolonged.
Futures fell as much as 1.6 percent in New York, set for an eighth weekly drop. The U.S. pumped crude in July at the fastest pace for the month since at least 1920, the American Petroleum Institute reported Thursday. The nation’s stockpiles are almost 100 million barrels above the five-year seasonal average, weekly government data showed Wednesday.
How Much Longer Can Saudi Arabia's Economy Hold Out Against Cheap Oil? - Bloomberg
The oil price was near its lowest in more than a decade, cash reserves were being depleted, emerging markets were in turmoil and Saudi Arabia was beginning to panic.
“It was a very scary moment,” said Khalid Alsweilem, former head of investment at the Saudi Arabian Monetary Agency, the country’s central bank. “And luckily at that point, oil prices started going up. Not by design, by good luck.”
That was 1998, and now Saudi Arabia’s fortunes threaten to turn again. This time, luck might not be enough as the government tries to protect the wealth of a nation whose economy has swelled by five times since then. The bastion of conservative Sunni Islam also is paying for an expanding role in regional conflicts in the face of a resurgent Iran and Islamic State extremists who have bombed Saudi mosques.
Mexico hedges oil at $49 a barrel - FT.com
Mexico has paid $1bn to insure against a further fall in oil prices, locking in a much lower price for its crude sales than in years past as big exporters battle for market share.
The finance ministry said late on Wednesday that the government had hedged the price of 212m barrels of oil to be sold in 2016 at $49 a barrel. The government typically pays Wall Street banks for put options that give it the right to sell crude above a specified level, helping cement a federal budget that is heavily reliant on oil revenue.
No End in Sight for Oil Glut - WSJ
When oil prices started to edge down a year ago, most energy mavens thought the drop would be small and short-lived.
Instead, the price of crude has plunged by almost 60% from its 2014 peak—and suddenly looks likely to stay low for months and maybe years to come. The reason: In the global battle for market share, nobody has backed down. Nobody has even blinked. Not Saudi Arabia, not the U.S., and not even troubled producers from Russia to Iraq. Everyone who can seems locked into pumping as much oil as possible.
Refineries Could Push Oil Over the Edge -- Heard on the Street - WSJ
Were it not for gasoline’s strength, oil would lack any real support: Ex-gasoline, average U.S. demand for petroleum products in the past four weeks is flat on last year.
This matters because U.S. gasoline demand typically peaks around now—just before many refineries start scaling back to carry out maintenance. And this is why a hot summer sets up a cold fall for crude. When refineries run so hard, there is greater wear and tear and risk of outages, such as the one that began earlier this month at BP’s Whiting refinery near Chicago.
$2 Trillion Commodity Rout
Rout Erases $2 Trillion From Stock Values - Bloomberg Business
The value that commodity producers have lost in the past year almost equals India’s entire economy.
Slumping prices for raw materials have wiped out $2.05 trillion from the shares of mining and oil companies since the middle of last year, data compiled by Bloomberg show. That compares with India’s $2.07 trillion gross domestic product.
Decade of binging on commodities may lead to longer hangover | The Economist
The gears have now gone into reverse. A resurgent dollar has hammered commodity prices: many have recently fallen below their levels of a decade ago. That is a fate not shared by other tradeable assets: not since the late 1990s have commodity prices been so weak compared with shares (see chart 1). The American economy is strengthening, but by no means enough to encourage thieves to filch bronze bells from Chinese temples to send as scrap to the United States. The impact of its recovery is dwarfed by slowing demand in China, which still consumes about half the world’s metals such as iron, aluminium, and zinc.
From Mining to Refining: Low Commodity Prices Force Shift at Industry Giants - WSJ
In a sign of desperation amid plunging commodity prices, mining companies are delving into low-margin businesses—traditionally the domain of the industry’s middlemen—for new sources of revenue.
Rio Tinto PLC for the first time has started to refine other companies’ copper ore. Brazil’s Vale SA, the world’s largest iron-ore producer, has begun mixing minerals to make custom supplies for buyers. U.S. coal miner Murray Energy Corp. started its own trading unit in June.
Glencore CDS Costs Soar On Poor Results - WSJ
The price investors must pay to insure against a default on Glencore PLC’s debt ballooned after poor results from the commodities giant.
As of Thursday, investors had to pay $330,000 to insure against $10 million of Glencore debt for five years using credit default swaps, or CDS, according to data group Markit. That is more than three times the price of insuring against a default last September. At the end of last week, it cost $294,000.
Currencies + EM Carnage
Emerging-Market Currencies Battered by Commodities Slide, China Turbulence - WSJ
A whirl of global forces bore down on emerging-market currencies Thursday, as investors assessed the damage from the slide in commodities prices and concerns about China’s economy.
The mood soured on currencies from South Africa’s rand to Kazakhstan’s tenge, with some forecasting the slide could get steeper.
“It’s a total carnage in commodity currencies,” said Piotr Matys, an emerging-markets analyst at Rabobank in London.
10 Currencies That May Follow Tenge in Tumble Triggered by China - Bloomberg Business
On most days, Kazakhstan finds itself in the backwaters of financial markets. Yet, it’s this central Asian nation that has delivered the latest shock to global currency trading.
Thursday’s 22 percent plunge in the tenge after Kazakhstan abandoned control of its exchange rate revealed a sense of urgency among policy makers: they had tried a managed depreciation just a day earlier. The escalation signaled to investors that it has become too costly for developing nations to defend their currencies. Vietnam also devalued the dong, while freely traded currencies such the South African rand and Turkey’s lira extended losses.
Brazil jobless rate hits five-year high - FT.com
Brazil’s unemployment rate rose sharply in July to its highest level in five years, in the latest sign of the country’s economic malaise as policymakers struggle to turn round a deepening recession and quell a growing political crisis.
Unemployment in Latin America’s largest economy rose for the seventh straight month, hitting 7.5 per cent. That is up from 6.9 per cent in June and much worse than the 7 per cent the market had forecast.
Emerging markets wield their spades - FT.com
Emerging markets’ troubles have now unwound all their outperformance of the past decade. Over 10 years, developed equities have beaten emerging stocks — for the first time since 2007 (10 years on from 1997’s bubble top).
There are good reasons for emerging markets to drop. They are squeezed between China’s slowdown and an imminent US rate rise, which both hurt commodities. Add the reversal of excessive bets that saw capital flood into countries without the capability to deploy it effectively, and it is easy to imagine a pit opening beneath investors.
Greece Again...
Greek Prime Minister Alexis Tsipras Resigns, Clearing Way for Elections in Bid to Uphold Bailout Deal - WSJ
Greek Prime Minister Alexis Tsipras resigned in a bid to trigger snap elections and return to power stronger, plunging his country into weeks of political paralysis just as it seemed to have scraped through a summer of fraught bailout talks and near-bankruptcy.
Mr. Tsipras’s gambit, announced in a short televised address late on Thursday, is expected to lead to his re-election in September, thanks to his popularity and the absence of strong challengers. But whether elections bolster his grip on Parliament, as he hopes, hinges on his ability to persuade Greeks that the €86 billion ($96 billion) bailout he negotiated with Europe is the only path out of the country’s long crisis.
Greece Makes Payment to European Central Bank, Avoiding Default - The New York Times
Greece narrowly avoided defaulting on its debt on Thursday, making a crucial payment to the European Central Bank after receiving billions of euros in new aid from other eurozone countries.
But most of the new aid package will be used to repay existing debt rather than to rebuild the shattered Greek economy, leading to criticism that eurozone creditors are repeating the same austerity policies that delivered six years in a row of recession in Greece. To qualify for the aid, Greece had to agree to maintain strict discipline while carrying out a long list of changes intended to improve the functioning of its economy.
North and South Korea did what?
North and South Korea Exchange Fire - WSJ
The two Koreas briefly exchanged heavy-arms fire in an escalation of tensions days after two South Korean soldiers were maimed by land mines.
Thursday’s shooting began when two rockets were fired across the border from North Korea. It comes as the U.S. and South Korea are staging annual summer military exercises to ensure readiness for a possible invasion by North Korea. Pyongyang has portrayed the drills as preparation for such an attack.
Kim Jong Un Orders North Korean Army to Be Ready for Combat - Bloomberg Business
North Korean leader Kim Jong Un ordered his army to prepare for war after an exchange of fire with South Korea, ratcheting up the rhetoric as the latest skirmish between the two nations intensifies.
Kim declared a “semi-state of war” along the border and ordered his troops to be combat ready from 5 p.m. local time, North Korea’s official Korean Central News Agency said Friday. Yesterday, Kim gave South Korea 48 hours to stop broadcasting propaganda across the demilitarized zone or face further attacks. Stocks fell to a two-year low and the won retreated.
Charts and Graphics
Growth Fears Send Stocks Into a Skid
WSJ
Parting company - yield on US high-yield bonds
WSJ
Performance of MSCI and World Indices
WSJ
China PMI Worst Since 2009
ZRH
So long September - probabilities drop
Bloomberg
Beijing’s heavy hand sends individual stocks higher
WSJ
60% of China’s surging credit growth is made up
ZRH
As Chinese have migrated to cities waste has soared
WSJ
The 40-a-day habit
Economist
Saudi Arabia’s Upward Curve
Bloomberg
Saudi Slowdown Ahead?
Bloomberg
Outstripping Demand
WSJ
US refining capacity utilization
WSJ
Retreat of Bloomberg commodity index
Economist
Global mining company performance
WSJ
metals meltdown
WSJ
Commodities companies plunged in the last year
Bloomberg
shares of mining and oil companies taken down with commodities
Bloomberg
