On Black Monday Deutsche Bank Sums It Up "The Fragility Of This Artificially Manipulated Financial System Was Finally Exposed"

The fragility of this artificially manipulated financial system was exposed over the last couple of days of last week. It all ended with the S&P 500 falling -3.19% on Friday – its worst day since November 9th 2011.

* * * 

We’ve long felt that the only thing preventing another financial crisis has been extraordinary central bank liquidity and general interventions from the global authorities which we still expect to continue for a long while yet. So when policy changes, risks arise. The genesis of this recent sell-off has been the threat of the Fed raising rates next month, but China’s confrontational move two weeks ago and the subsequent knock-on through EM have accelerated us towards something more serious. We always thought something would get in the way of the Fed raising rates in September and we’re perhaps seeing this now. With 24 days to go until we find out, the probability of a hike has gone down to 34% from a 54% recent peak on August 9th. Having said we always thought something would come along to derail a Fed rate hike we probably should have gone underweight credit. However with trading liquidity poor and with a reasonably high desire to be long amongst investors there has to be a big move to justify the change in stance. Also with a strong possibility that the Fed will relent and that China could add more stimulus soon, there may be a small window to be short European credit. So at the moment this could be a dangerous time to sell. However if it wasn’t for expected intervention and extraordinary central bank policy we would be very bearish as the global financial system remains an artificial construct reliant on the largesse of the authorities.

NYSE Invokes Rule 48 (Once Again) To Pre-Empt Panic-Selling Open

NYSE granting “triple width opening quote relief in all option classes for August 24, 2015″, Invokes Rule 48

Bloodbath: Emerging Market Assets Collapse As China Selloff Triggers Panic

• BLOOMBERG COMMODITY INDEX SLIDES TO LOWEST LEVEL SINCE 1999

Emerging markets will remain in focus this week as the world watches anxiously to see if China’s move to devalue the yuan will ultimately transform an already precarious situation into an outright crisis.

Slowing demand from China has been the major concern for commodity exporters and indeed, wide open capital markets (thanks to ultra accommodative monetary policies across the globe) have served to keep struggling producers afloat, perpetuating a global deflationary supply glut.

Saudi Arabia’s attempt to squeeze the US shale complex has only exacerbated the problem, as persistently low crude prices put further pressure on the commodities space as well as on the FX reserves of oil producing countries. When China devalued the yuan,it validated the suspicions of those who had assumed that the country’s economy was in far worse shape than anyone at the NBS was willing to admit. Additionally, it marked a new escalation in the global currency wars and threatens to undermine the export competitiveness of many an emerging economy.

http://nunezreport.blogspot.com/