Global Markets Snap Back, China Cuts Rates

Economic Data

- (ZA) South Africa Q2 GDP Q/Q Annualized: -1.3% v 0.6%e; Y/Y: 1.2% v 2.0%e
- (BR) Brazil Aug FGV Consumer Confidence: 80.6 v 82.0 prior
- (TR) Turkey Aug Real Sector Confidence (Seasonally Adj): 103.0 v 102.9 prior
- (TR) Turkey Aug Capacity Utilization: 74.8% v 75.9% prior, cut one-year lending rate from 4.85% to 4.60%, cut RRR 50 bps to 18%
- (CN) China PBoC cut one-year deposit rate from 2.00% to 1.75%
- (US) Goldman Economist Chain Store Sales w/e Aug 22nd w/w: 0.0%; y/y: +2.0%
- (HU) Hungary Central Bank (NBH) left base rate unchanged at 1.35%, as expected
- (BR) Brazil Jun National Unemployment Rate: 8.3% v 8.3%e
- (US) Weekly Redbook Sales w/e Aug 22nd: 1.7% y/y, Aug MTD m/m: 0.3%; Aug MTD y/y: 1.7%
- (US) Jun FHFA House Price Index M/M: 0.2% v 0.4%e; Q/Q: 1.2% v 1.2%e
- (US) Jun S&P/Caseshiller 20 City M/M: -0.12% v +0.13%e; Y/Y: 4.97% v 5.10%e; House Price Index: 180.88 v 181.28e
- (BE) Belgium Aug Business Confidence: -5.1 v -4.0e
- (US) Aug Preliminary Markit Services PMI: 55.2 v 55.1e; PMI Composite: 55.0 v 55.7 prior
- (US) July New Home Sales: 507K v 511Ke
- (US) Aug Consumer Confidence Index: 101.5 v 93.0e
- (US) Aug Richmond Fed Manufacturing Index: 0 v 9.0e
- (MX) Mexico Q2 Current Account Balance: -$8.0B v -$9.0Be

The Shanghai Composite lost another 7.6% on Tuesday, compounding Black Monday's 8.5% slide. The Nikkei rode along with China, dropping nearly 4%, but the Hang Seng managed to stay in positive territory, while certain European indices have nearly filled the gap from Monday's action. US stocks are rebounding too, although the snapback has been less dramatic than in Europe. Around 06:16ET, the PBoC cut its key interest rates and reduced the Reserve Ratio Requirement (RRR) by 50bps, bringing it to 18%. This is China's second interest rate in two months. As of writing, the 10-year yield has gained nearly ten bps, rising to 2.1%, the DJIA is up 2.56%, the S&P500 has added 2.19% and the Nasdaq is up 3.36%.

The momentum stocks are among the biggest gainers this morning, with Netflix up 9%, AAPL and FB up 6% each, CELG up 4.5%, and a wide selection of volatile tech and biotech names up by even more. Best Buy is up 14% thanks to an excellent quarterly report compounded by the market-wide snapback. Shares of Bank of America are up more than 5% after a round of analyst upgrades, while the other big financial names are up 2-3% a piece.

Responses to yesterday's epoch-making market action have been varied. Virtu Financial, one of the world's largest high-frequency trading firms, had one of its most profitable days in its history. "Our firm is made for this kind of market," said CEO Douglas Cifu. Bill Gross's Janus Global Unconstrained Bond fund (which also invests in assets other than bonds) suffered a 2.9% decline, according to Morningstar, an unusually large drop for a bond fund. The WSJ's Fed watcher, Jon Hilsenrath, wrote that the Fed may need to rethink the timing and pace of rate increases. He noted that by Monday afternoon, the odds of a rate hike in September according to Fed funds futures had dropped to 28% from above 50% a week ago. Ray Dalio said he thinks the Fed is going to be forced to do another round of QE.

New home sales remained strong in July, with the annualized rate rising to +507K from June's slightly revised rate of +481K, for a 26% y/y growth rate. Supply remains an issue, with the stock of new homes still half of what was on offer at the height of the boom years, but still at its highest level since 2010. Toll Brothers widely missed earnings expectations in its third quarter report out earlier today and slightly adjusted its FY15 outlook. Shares of TOL are down 1% or so.

Looking Ahead

- 13:00 (US) Treasury to sell new 2-year Note
- 14:00 (US) Fed Discount rate minutes
- 16:30 (US) Weekly API Oil Inventories
- 17:00 (KR) South Korea Aug Consumer Confidence: No est v 100 prior
- 18:45 (NZ) New Zealand Trade Balance: -600Me v -60M prior
- 22:00 (KR) South Korea July Discount Store Sales Y/Y: No est v -10.2% prior; Department Store Sales Y/Y: No est v -11.9% prior