Following last week's bad news for the economy (terrible ADP private payrolls, confirmed by a miss in the NFP) which also resulted in bad news for the market which suffered its worst week in years, many were focused on how the market would react to the latest battery of terrible economic news out of China which as we observed over the weekend reported abysmal trade data, and the worst plunge in Chinese factory prices in 6 years. We now know: the Shanghai Composite soared by 5%, rising to 3,928 and approaching the key 4000 level because the ongoing economic collapse led Pavlov's dog to believe that much more easing is coming from the country which as we showed last night has literally thrown the kitchen sink at stabilizing the plunge in stocks.
And while China has adopted most US market manipulation practices, it had yet to levitate stocks on Merger hopes: this was just the catalyst in the overnight ramp. As Reuters reported, trading in major shipping stocks, including China Shipping Development, China Shipping Container Lines and China COSCO Holdings, was suspended on Monday pending announcements, adding to speculation they may be merged. It remains to be seen if any news will emerge or if the market regulators merely halted them just to create the illusion of an imminent merger. For now the “news pending” gimmick worked: the SHCOMP closed at the highs with 300 stocks ending at the 10% limit up.
Just to show how desperate China is to draw in mom and pop yet again, the Shanghai Securities News reported on Friday that “close to 300 China funds that oversee more than 1 trillion yuan ($161 billion) are waiting to enter the stock markets at any time” in the latest attempt by state media to coax investors back into the market after its recent 25-percent rout. Good luck.
Elsewhere in Asia, Asian equities trade largely firmer despite last Friday's weak close after US NFP missed exp. but was strong enough to keep Sept. viable for Fed rate lift off. Nikkei 225 (+0.1 %) pared losses amid strong earnings from index heavyweight KDDI (+4%), while ASX 200 (+0.3%) was underpinned by strength in financials after big-4 NAB reported a 9% increase in profits. JGB's rose amid tracking gains in UST's coupled with the BoJ also conducting its large JGB purchase program
Stocks in Europe (Euro Stoxx: +0.3%) reside in positive territory this morning, however off their best levels after failing to hold onto initial gains, following the gains over in China which rallied for their biggest gain in a month amid speculation the government will accelerate mergers of state-owned enterprises. Also of note, there has been source reports that a third bailout package for Greece could be decided upon this week if an agreement in principal is reached by Tuesday and voted on in the Greek parliament on Thursday. This has seen upside in Greek banks, which trade among the best performers in Europe.
The FTSE-100 index (-0.65%) underperformed, as financials lead the way lower in the wake of reports that UK banks are bracing for a new wave of multibillion payouts linked to PPI, whereas UK materials are also weak after HSBC downgraded global materials to neutral from overweight.
In fixed income markets, Bunds have tracked movements in equities, initially opening lower amid equity strength before paring some of their early losses as equities came off their highs. T-Notes have been dragged lower in line with Bunds during the European morning ahead of the US coming to market with 3s, lOs and 30s for a total offering size of USD 64b1n later in the week.
And while Chinese stocks may have surged on terrible Chinese data, commodities have yet to follow through and earlier today crude oil futures touched multi-month lows after abysmal China trade data hurt sentiment across the commodities markets. Brent was down 19 cents at $48.42 a barrel at 0854 GMT, after touching $48.24 earlier in the session, the lowest in over six months. U.S. crude was down 18 cents at $43.69 after hitting an intraday low of $43.35 in Asian trading. Both benchmarks have been falling for six weeks, hampered by a supply glut.
“The market is more focused on the general Chinese data which is very weak … it seems that economic activity in China continues to slow down,” said Carsten Fritsch, an oil analyst at Commerzbank in Frankfurt.
“That is weighing on oil prices regardless of the fact that oil imports were very strong.”
As a result, the energy complex heads into the US session flat on the day in line with gold prices, which posted its 7th consecutive weekly loss on Friday, with marginal gains seen amid volatility in riskier assets on uncertainty regarding the timing of a Fed rate hike post-NFP. Copper prices are marginally lower following more weak data from China, which showed exports and imports declined larger than expected, while iron ore prices were also lower coinciding with weak rebar prices falling to 2% week lows.
