Chinese stocks opened with a bang, and as we previously noted soared higher at the open after China’s long 4-day holiday weekend, which however subsequently slowly (but very surely) fizzled, eating away at the hope that the 3-day drop in the Shanghai Composite would finally come to an end following comments from PBOC governor Zhou that the recent rout in Chinese stocks is almost over, and result in a relief rally in Europe and the US. Alas, all that was promptly swept away at the end of trading in China when the Shanghai Composite tumbled at close of trading to confirm just how unpleasant a “death cross” is coupled with loss of central bank control, and to push the Shanghai Composite down 2.5% for the day and 3.4% for the year.

Click on picture to enlarge


Click on picture to enlarge

To be sure, there was enough volatility to confuse the AP’s market reporting algos as can be seen on the screengrab below.

For once we commiserate with the algos: following last night’s action, which once again definitively showed that if nothing else China clearly has no idea how to manipulate market and used up all its dry powder in the first minutes of trading, we are quite concerned what will happen tonight when this time US stocks will open shortly after China’s latest horror show.

That said, the biggest news out of Asia had nothing to do with its market, and everything to do with the PBOC’s confirmation China saw a record $94 billion in reserve outflow in August (precisely in line with our post from 2 weeks ago, the one that started it all: “Devaluation Stunner: China Has Dumped $100 Billion In Treasurys In The Past Two Weeks”). We will have much more to say on this shortly in a follow up post.

Elsewhere in Asia, equities traded mixed (clearly – see confused algos above) following the initial gain in Chinese equities however, the index saw selling pressure heading into the close (Shanghai Comp. -2.5%). Nikkei 225 (+0.32%) fluctuated between gains and losses with price action driven by a weaker JPY, while ASX 200 (-0.2%) was the session’s laggard dragged lower by weakness in energy and basic materials, after Friday’s declines in commodities. JGBs traded relatively flat amid the volatility seen in Asian stocks, while the BoJ also entered the market to purchase JPY 1.2trl of government bonds.

Stocks in Europe traded higher since the open (EuroStoxx +0.3%), benefiting from supportive comments made by the governor of the PBOC who said that the recent rout in Chinese financial markets is almost over. At the same time, the sentiment was buoyed by the announcement from the commodities trading giant Glencore (+6.6%), which finally succumbed to market pressure and announced plans to address its financial position amid the slump in commodities market. As a result, energy and material names outperformed on the sector breakdown, that’s in spite of the ongoing weakness in energy prices, with WTI and Brent crude trading lower this morning.

In the US, the E-mini which is trading was up 0.6% at last check, continuing to be driven entirely and only by the smallest gyration in the USDJPY, as markets try to milk every last bit of Yen carry trading before the market starts pricing in the tapering (and end) of the BOJ’s QE which as even the IMF warned has about 2 more years to go.

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