We start off the overnight wrap up with the usual place, China, where in a mirror image of Wednesday's action, stocks once again started off uneventful, then gradually rose in the afternoon session and meandered near unchanged territory until the last half hour, when out of the blue they tumbled to close near the day's low, some 2.2% below yesterday's closing level.
Bloomberg adds that drugmakers and technology companies led declines. A gauge of 100-day price-swings rose to the highest level in six years. Trading volumes in Shanghai have halved from their peaks in June, while margin debt, which had fueled a world-beating rally for China's stocks, declined to a four-month low.
All 10 industries in the CSI 300 slid more than 2 percent, led by a 4.1 percent slump in the gauge of health-care companies. Lepu Medical Technology Co. plunged 8.3 percent, while Hualan Biological Engineering Inc. slid 5.2 percent. The drug sub-index has been the best performer over the past three month, falling 5.6 percent versus the 20 percent slump for the CSI 300.
Volatility has increased this week as Monday's 8.5 percent plunge by the benchmark gauge shredded a calm induced by unprecedented state intervention.
“There were no major macro developments,” said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co. in Shanghai. “The disconnect with fundamentals continues making trading challenging.”
What caused it? It is unclear why the government would step away from the bid despite the PBOC injecting liquidity for the 11th consecutive day, just as everyone was selling in an attempt to capture the EOD upside as telegraphed the day before, or perhaps the selling was just too violent.
One possible catalyst came from Reuters which reported that that Chinese banks were investigating their exposure to the stock market via wealth management products and loans backed by stock as collateral.If true, since this was the catalyst that also ended the steep ascent of mega fraud Hanergy, one can see why Chinese gamblers would be concerned and rush to take profits.
And with every close on a down tick forcing the PBOC and the politburo to implement even more “anti-panic” regulations which merely reinforce the lack of faith in a normal market, expect the situation to get worse before it gets better.
With China out of the way, it brings us to the main event of the day: the first estimate of US Q2 GDP release which also will incorporate the annual revision to GDP growth with the widely mocked and goalseeked “second seasonal adjustments” part of historical GDP, whose only purpose will be to remove the negative Q1 GDP print from 2014 and 2015.
This is how BofA sees today's GDP release:
Actually it is rather easy to say with certainty that this is precisely what will happen, which however may be a clear case of good news is bad news (for stocks), since a substantial upward revision to GDP data will greenlight Yellen to hike rates that much sooner. As a reminder the current Atlanta Fed estimate has Q2 GDP at 2.4%. Will it be the closest forecast again? Find out in just over 90 minutes.
Back to markets where aside from China, Asian equities traded mostly higher following a strong lead from Wall Street, as the Fed failed to yield any definitive clues as to when a Fed rate-lift off would occur. Nikkei 225 (+1.1%) outperformed amid a slew of strong corporate earnings, coupled with Industrial production growing at its fastest rate in a year (2.0% vs. Exp. 1.3%); yet another tumble in the JPY certainly helped push stocks higher. ASX 200 (+0.8%) was led higher by miners after iron ore prices rose 4.6%. Finally, JGB's fell in conjunction with USTs as the demand for safer assets subsided following the broad based gains in Asian indices.
Today has seen the busiest day of earning season so far in Europe and as such company specific news has dictated market movements . A host of large cap names all reported, including heavyweights Siemens (+3.0%), Shell (+2.8%), Deutsche Bank (+2.6%), AstraZeneca (+2.1%), Sanofi (-0.4%) and Santander (-1.9%), with the IBEX underperforming (-0.6%, Euro Stoxx: -0.1%) after being weighed on by Santander, with all other indices trading in the green.
