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Chinese Stocks Slide Again, Copper Tumbles To 6 Year Low; Greek Market Crashes After One Month Trading Halt

If China had hoped it would root out intervention by eliminating Citadel's rigging algos, and unleash a buying spree it was wrong: the Shanghai Composite opened negative, and never managed to cross into the green, despite the usual last hour push higher, ending down -1.1% and down for 6 of the past 7 days.

Worse, the high-beta Chinext tumbled 8% from Friday's late day highs upon opening. Surprisingly, this happened even as China's final Caixin/Markit manufacturing PMI tumbled to 47.8, the lowest since July 2013 as reported previously, a collapse which normally would have been very bullish for stocks as it guarantees even more PBOC intervention. The trouble is that with the PBOC losing the market's faith, not to mention control, bad economic news are becoming even worse news for stocks.

Adding commodity insult to stock injury, earlier today copper plunged to a fresh 6 year low, and like crude, is back in its second bear market of the past year.

Watch: Heads into Bear Market after Metal Hits 6-Year Low http://t.co/zNhsG5Q8Yi via pic.twitter.com/RnnWDGT0v2

— Javier Blas (@JavierBlas2)

Elsewhere in Asia equities fell with Chinese bourses at the forefront in the wake of disappointing Chinese Official and Caixin Mfg PMI readings. Hang Seng (-0.9%) traded in negative territory as the poor data increased concerns over China's growth with a PBoC official adding that downward economic pressures are 'not small' and further revealing China had fabricated its local government debt numbers. Nikkei 225 (-0.4%) and ASX 200 (-0.4%) fell, as mining and energy names felt the effects of weak commodity prices. JGBs were flat having initially opening higher following the gains seen in USTs, however later pared gains amid a mild bounce back in Japanese equities.

The real action, however, was not in Asia but in Europe, and specifically Greece, where the stock market finally reopened after a 1+ month "capital control" hiatus. Granted, numerous conditions still remained, such as no short selling, and extensive limitations to just what could be sold, but despite the attempt to micro manage the reopening, the result was not pretty, with stocks crashing 23% at the open and staging barely a rebound trading -17% as of this moment, even as banks promptly traded down to the -30% limit as the realization that an equity-eviscerating recapitalization (or bail-in) is now inevitable.

Worse, just as the Greek stock market reopened, the Greek Markit data and at 30.2, down from 46.9 the month before, the best reaction anyone could muster to this complete shutdown in the Greek economy was laughter. The chart below hardly needs commentary...

... but here is some anyway from Phil Smith, Economist at Markit:

“Manufacturing output collapsed in July as the debt crisis came to a head. Factories faced a record drop in new orders and were often unable to acquire the inputs they needed, particularly from abroad, as bank closures and capital restrictions badly hampered normal business activity.

 

“Demand was hit amid the heightened uncertainty surrounding Greece’s future, leading both total new business and exports to contract sharply, and it remains to be seen how long it takes these to recover.”

 

“Although manufacturing represents only a small proportion of Greece’s total productive output, the sheer magnitude of the downturn sends a worrying signal for the health of the economy as a whole.”

Don't expect a quick rebound: Greek economic sentiment likewise tumbled, however it could be worse: unlike the unprecedented collapse in the PMI, this was only at a 3 year low:

The Greek pain was largely confined just to one country as European equities (Euro Stoxx: +0.2%) were bolstered during the European morning as a consequence of the better than expected PMI's , while also benefiting from stock specific news, with earnings today generally better than expected, with , with HSBC (+0.6%) trading higher after their earnings.

fixed income markets have seen tight price action in Europe with volumes starting the week in light fashion, while the Greek spread is tighter against its German counterparts on their reopening. Of note, seasonally we are entering the most bullish month of the year for bonds. Treasury Futures have been up 14 of the last 15 Augusts, and have averaged a 1.14% gain over the last 20 years . Interestingly, the curve continues to flatten, as 12-month yields hits a six-year high and 30-year yields touched a two-month low last week.

In FX, the week has kicked off with Manufacturing PM's from around Europe and the UK, with the data generally better than expected (Eurozone Manufacturing PMI 52.4 vs. Exp. 52.2, UK Manufacturing PMI 51.9 vs. Exp. 51.5). However price action has been fairly muted, with both EUR and GBP down under 10 pips throughout the majority of the session against the USD, which trades flat on the day (USD-Index 0.0%).

Elsewhere the aforementioned lower than expected Chinese PMIs has weighed on AUD/USD to see the pair trade below the 0.7300 handle, while USD/CAD broke above the 1.3100 level to trade at its highest level in 10yrs amid CAD weakness after the commodity currency fell in sympathy with AUD and as a consequence of the ongoing commodity weakness.

Commodities have continued their recent decline this week with both the metals and energy markets experiencing weakness so far. As such, Brent Sep15 futures reside in close proximity to the USD 51.00 handle having earlier touched USD 50.85 , its lowest level since January, while gold remains firmly below the USD 1,100/oz handle amid fears of a China slow down and concerns around a Fed rate hike.

Overall, the story from last week remains the same: crashing commodity demand, sliding Chinese stocks, Europe treading water and ignoring what may still be Greek contagion for the broader economy, with the biggest wildcard now Friday's US nonfarm payrolls report, which will either be a superstart and send 10Y yield soaring yet again, or confirm the record low ECI print last week and steamroll over the latest batch of Treasury shorts.

In summary: European stocks rise for fifth day while U.S. equity index futures decline with oil, gold. Asian stocks decline. Greek stocks on ASE Index paring losses after 23% drop in early trading; for list of halted Greek stocks, click here. European bourses outperforming include Netherlands, Spain, Germany. Yields on most euro-zone 10-yr notes fall; Italian yields rise. U.S. Markit U.S. manufacturing PMI, ISM manufacturing, construction spending, vehicle sales, personal income, personal spending due later.

Market Wrap

  • S&P 500 futures down 0.1% to 2096.5
  • Stoxx 600 up 0.4% to 398.1
  • US 10Yr yield up 3bps to 2.21%
  • German 10Yr yield up 3bps to 0.67%
  • MSCI Asia Pacific down 0.8% to 141
  • Gold spot down 0.2% to $1093.9/oz
  • 15 out of 19 Stoxx 600 sectors rise; food, telecomms outperform; basic resources, autos underperform
    Eurostoxx 50 +0.3%, FTSE 100 -0.2%, CAC 40 +0.1%, DAX +0.3%, IBEX +0.4%, FTSEMIB +0.2%, SMI +0.4%
  • Asian stocks fall with the CSI 300 outperforming and the Shenzhen Composite underperforming; MSCI Asia Pacific down 0.8% to 141
  • Nikkei 225 down 0.2%, Hang Seng down 0.9%, Kospi down 1.1%, Shanghai Composite down 1.1%, ASX down 0.3%, Sensex up 0.4%
  • German Carmakers to Buy Nokia’s HERE Maps for $3.1b
  • Euro down 0.16% to $1.0966
  • Dollar Index up 0.06% to 97.4
  • Italian 10Yr yield down 1bps to 1.77%
  • Spanish 10Yr yield up 9bps to 1.94%
  • French 10Yr yield up 2bps to 0.96%
  • S&P GSCI Index down 1.4% to 373.1
  • Brent Futures down 2.2% to $51.1/bbl, WTI Futures down 1.7% to $46.3/bbl
  • LME 3m Copper down 1.4% to $5158/MT
  • LME 3m Nickel down 2.9% to $10725/MT
  • Wheat futures down 0.9% to 494.8 USd/bu

Bulletin headline Summary from Bloomberg and RanSquawk:

  • European equities were bolstered during the European morning as a consequence of the better than expected Manufacturing PMIs
  • Today saw the Athens Stock Exchange open for the first time and immediately fell to around 20% in line with expectations
  • Today sees US Personal Income, Real Personal Spending, Construction Spending and ISM Manufacturing as well as comments expected from Fed's Powell
  • Treasuries ease before reports on personal income and spending; rose Friday after 2Q ECI increased at slowest pace on record, curbing expectations Fed will begin raising rates in September.
  • Caixin/Markit’s China PMI came in at 47.8, less than forecast; followed a reading of 50 for the official Purchasing Managers’ Index on Saturday, compared with analysts’ projections for 50.1
  • The Shanghai Stock Exchange said on its microblog Monday that two trading accounts got verbal warnings for a “large amount of sell orders affecting security prices or volume”
  • The bourse said the trading was “abnormal,” but didn’t give any details on the two accounts or indicate whether any laws were broken
  • Greek stocks fell by as much as 23% as the market reopened after five weeks to the most savage wave of selling in decades, underlining a crisis that’s crippled the economy and pushed the country’s euro membership to the brink
  • Obama will today finalize measures that force states and utilities to use less coal and more wind power, solar and natural gas; the plan is estimated to cost $8.4b and is among the most complex in agency history
  • There’s been no respite in the commodity rout that’s seen prices tumble to a 13-year low -- and that’s sending the currencies of nations that rely on exporting resources toward their worst year since the financial crisis
  • Sovereign 10Y bond yields mostly higher. Asian stocks fall, European stocks gain, U.S. equity- index futures retreat. Crude oil, copper and gold lower

US Event Calendar

  • 8:30am: Personal Income, June, est. 0.3% (prior 0.5%)
    • Personal Spending, June, est. 0.2% (prior 0.9%)
    • Real Personal Spending, June, est. 0% (prior 0.6%)
    • PCE Deflator m/m, est. 0.2% (prior 0.3%)
    • PCE Deflator y/y, June, est 0.2% (prior 0.2%)
    • PCE Core m/m, June, est. 0.1% (prior 0.1%)
    • PCE Core y/y, June, est. 1.2% (prior 1.2%)
  • 9:45am: Markit US Manufacturing PMI, July final, est. 53.8 (prior 53.8)
  • 10:00am: Construction Spending m/m, June, est. 0.6% (prior 0.8%)
  • 10:00am: ISM Manufacturing, July, est. 53.5 (prior 53.5)
  • ISM Prices Paid, July, est. 49.5 (prior 49.5)

DB's Jim Reid completes the overnight event wrap

With liquidity structurally lower in this cycle anyway, we could do without any big surprises. The main hurdle on this front this week could be US payrolls on Friday where we all have to make a judgement as to whether the report shows "SOME" improvement in the labour market. We still think its a big gamble to raise rates with the global data as it is and commodities and China/EM in a state of flux. Having said this if we get two decent payroll reports in the next 5 weeks then the trigger could very easily be pulled. As you'll see in the week ahead there's a lot of other data out this week but it will all reach a crescendo on Friday.

The heavy data week has started with the final reading of China's Caixin manufacturing index falling short of the flash reading. The final read came in at 47.8 versus the flash of 48.2 and market expectations of 48.3. Accordingly to Bloomberg this marks the fifth consecutive month of contraction and puts the reading at its lowest since July 2013. This clearly does little to reverse what seems to be a broadening worry of Chinese economic slowdown which is also having a considerable impact on growth commodities. As we show in our July recap below it certainly has been a woeful month for these proxies.

As for markets, Asian investors are reacting negatively to the bad China print. In China, the Shanghai and Shenzhen bourses are down 2.4% and 2.9% respectively as we go to print (let’s see where they end the day!). Away from China, equity benchmarks in HK (-1.0%), Korea (-1.1%) and Japan (-0.4%) are also down as we write. Credit spreads are little changed in Asia while Oil markets are touch softer overnight. US Treasuries are about 2-3bp higher to 2.20% in 10yr yields to retrace some of the 8bp rally we saw on Friday.

The bond rally on Friday was helped by the data as the latest wage numbers in the US were soft. The US employment cost index in Q2 rose +0.2% qoq, its smallest increase since data started in 1982 and also fell short of +0.6% qoq expected by the market. Our economists noted that this brings annual labour cost inflation back to 2.0% yoy – which was where it stood a year ago.

Data aside it was also a rather soft finish for US equities on Friday. The S&P 500 fell -0.23% not helped by some weaker energy sector earnings. A Baker Hughes report which noted that the number of US oil rigs count rose for its second consecutive week also did not help. Brent and WTI closed -2.0% and -1.4% lower, respectively. Brent and WTI were some of the worst performers in July (more below) and this capped a bad month. The downturn in commodity prices seems to be also affecting appetite for capex. Per the FT, S&P now expects that global capex will fall more than 10% this year and decline further in 2016 largely driven by belt tightening measures by commodity related sectors.

A quick recap of the current earnings season now. Over 330 US companies have reported so far and the trend is more or less similar to what we’ve been observing in the past. 74% of them have beaten EPS estimates but only 50% have beaten revenue forecasts. The trend is more balanced in Europe with about 63% and 65% of those that have reported so far beating EPS and revenue consensus, respectively.

Staying with Europe, today marks the reopening of the Athens stock exchange after a five week suspension while bailout talks continue. Local traders will be able to buy stocks, bonds, derivatives, and warrants under certain conditions. International investors won’t be restricted as long as they were active in the markets before markets were closed in June (Bloomberg). So it will be interesting to watch today.