And to think all it took was Gartman going short of stocks in 25% correction terms yesterday…

Yesterday morning we remarked that while China staged a massive intervention in the market in the last hour of trading to push stocks higher, it came far too late to benefit Japan’s Nikkei225, which closed red for the year, just before a dramatic move lower in the Yen prompted by the latest Chinese intervention. Because it was just after yesterday’s Nikkei close that we saw the coordinated effort of Chinese and Japanese authorities send the world’s carry trade, the USDJPY, soaring by over 100 pips, and combined with today’s latest jump of over 50 pips, the result has been nothing short of a near-record one-day move in the Japanese Nikkei stock average, which jumped the most in nearly seven years in percentage terms, and the biggest point move in over 21 years. 

The Nikkei Stock Average surged 7.7%, or 1343.43 points, to 18,770.51, marking the benchmark’s biggest daily percentage gain since October 2008. In point terms, it was the biggest gain since January 1994.

 

In addition to the central bank intervention to push the USDJPY higher over the past 24 hours, a major catalyst of the move was short covering. According to Mizuho’s head of equity research, Yoshihisa Okamoto, hedge funds shorted Japanese index futures Tuesday afternoon speculating that Chinese stocks would fall after weak trade data, and are pushing Japan shares higher Wednesday as they close out positions. In other words, China’s terrible trade data was just the equity surge catalyst the world needed.

Mizuho added that hedge funds had used Japanese futures as China proxy because regulations restrict their mainland trading, and very much incorrectly observed that “investors also closing out shorts amid growing speculation that BOJ will add to easing.” Needless to say, not only will the BOJ not boost QE, but as a result of no marginal sellers, will soon be forced to taper it. But for now, price action dictates the newsflow, and certainly logic, and after a 7.7% move, there is no logic left.

Meanwhile, a modest two day rebound is all China needed to proclaim the “systemic financial risk” over:

China successfully fends off systematic financial risks: Premier Li at Summer #Davos @wef #WEF pic.twitter.com/X07UPUHCz5

— China Xinhua News (@XHNews) September 9, 2015

Supposedly this means no more monetary easing or market intervention, right? Yeah, that’s what we thought…

The ongoing intervention in China where the Composite closed +2.3% now that index futures no longer trade, and Japan’s mega short squeeze unleashed the biggest jump in the MSCI Asia-Pacific index since September 2011, pushing equities higher across the board. There were also broad based gains across the region’s bourses with the ASX 200 (+2.1 %) and Hang Seng (+4.1 %) up on increased speculation of additional measures after yesterday’s weak trade data.

JGBs traded lower as strength in equities dampen demand, while the BoJ also entered the market to purchase JPY 780b1n in government bonds ranging between 5yr to the super long end. In other meaningless from a trading standpoint news, Japan PM Abe said he will reduce corporate tax next year by a minimum of 3.3 percentage points and could seek a larger reduction if feasible. Considering Japan’s actual underlying economy is in a tailspin, and about to undergo its 5th recession since Lehman, we somehow doubt any Japanese predictions and plans, especially those about the future, will hold.

Asia’s euphoria carried over into Europe where stocks opened broadly higher, in reaction to the bolstered sentiment, with Asian equity indices rallying to see the Nikkei 225 posted its largest gain in a session since 2008.  Despite opening sharply lower in reaction to the pick-up in sentiment, Bunds have gradually come off the worst levels throughout the European morning as stocks pared part of the initial gains, but remain in the red as supply factors keep prices lower. 

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