It was all about China once again, where following a report of a historic layoff in which China’s second biggest coal producer Longmay Group fired an unprecedented 100,000 or 40% of its workforce, overnight we got the latest industrial profits figure which plunging -8.8% Y/Y was the biggest drop since at least 2011, and which the National Bureau of Statistics attributed to “exchange rate losses, weak stock markets, falling industrial goods prices as well as a bigger rise in costs than increases in revenue.” In not so many words: a “hard-landing.”
At danger of pointing out the all too obvious, China Minzu Securities noted that “currency devaluation isn’t substantially helping exporters’ profit margins for now; overseas shipping volumes may increase a bit, but that may not be enough to offset the decrease in asset valuation.” Well then, there is always “moar” devaluation, right. “Downward pressure on China’s manufacturing sector will persist for some time given the oversupply of property,” Zhu Qibing, Beijing-based analyst, says in interview. “There might be one more PBOC RRR cut toward the end of the year.” That, or the PBOC will cut the CNY by another 10-15% before the year is done.
And then, confirming that the Chinese contagion is not “spreading” but “spread”, we got Thailand customs exports data which plunging at -6.7% was double the expected -3.1% drop, as trade patterns across the entire Asia-Pac region, or rather the entire world, are now dramatically disrupted.
All of this has pushed the USDJPY down from its closing price of just around 120.50 on “Biotech Butchery” Friday to just below 120.00, which in turn has slammed US equity futures, and as of this moment:
Ironically China’s weakness, while slamming US equity futures, did not have an impact on Chinese stocks where – sure enough – hopes of more easing saved the day: while Asian equity markets tracked the lacklustre close on Wall Street where the NASDAQ Biotech index suffered its worst weekly loss in 7yrs and fell back into bear market territory, the Shanghai Comp. (+0.3%) was initially pressured after Chinese industrial profits (-8.8% vs. Prey. -2.9%) declined by the most on record but then pared losses on hopes of additional stimulus . The Nikkei 225 (-1.0%) was weighed on by a firmer JPY and many firms trading ex-dividend. The ASX 200 (+1.4%) bucked the trend amid gains in large banks and domestic M&A flow. Markets in Hong Kong, South Korea and Taiwan are closed for public holidays. 10yr JGBs traded lower on rebalancing ahead of month and fiscal half-yr end, while the BoJ entered the market to purchase JPY 1.2trl in government debt as expected.
Over in Europe, the biggest mover for once was not Volkswagen or some other emissions-masking German car marker, but well-known to Zero Hedge readers commodities trading floor with an attached mining operation Glencore, which plunged a whopping 27% so far today after an Investec report said what we have said since March 2014 (and what Goldman repeated last Thursday), namely that the company’s equity is worthless if commodity prices do not move higher. Hardly news here, but news everywhere else apparently, and as a result GLEN bonds and stock have both plunged to record lows.
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Stocks kicked off the week on a negative footing (Euro Stoxx: -1.26%), with the sentiment dampened by less than impressive macroeconomic data from China, as well as reports by Les Echos citing IMF’s Lagarde suggesting that the IMF is likely to revise downwards its estimates for global growth. As a result, materials sector continued to underperform, with shares of the troubled mining and trading firm Glencore (-25.0%) continuing to slide to fresh record lows . On the other hand, shares of SABMiller (+3.2%) surged following reports that AB InBev may submit GBP 70b1n bid for the brewer.
Looking elsewhere, despite the looming supply out of Eurozone, where around EUR 18.5bIn is expected to be absorbed this week vs Prey. EUR 8.8b1n, Bunds traded bid, in part supported by the cautious sentiment observed during the opening hours of trade in Europe. At the same time, Spanish bonds outperformed, with SP/GE lOy spread tighter by 5bps after the weekend’s Catalan elections showed that despite gaining the majority of seats, the pro-independence Junts pel Si failed to gain a majority of the votes. Of note Gilts look set to strengthen from substantial month end extensions, worth 0.23yrs according to Barclays Sterling Aggregate Index.
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