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The Bulls Push Back

Just when the (last few remaining) bears were enjoying some market wide liquidation, China apparently launched some stealth QE of their own reversing AUD/JPY and sending markets plowing over weak bears.  From Bloomberg:

  • CHINA’S PBOC STARTS 500B YUAN SLF TODAY, SINA.COM SAYS
  • PBOC PROVIDES 500B YUAN LIQUIDITY TO CHINA’S TOP 5 BANKS: SINA
  • PBOC PROVIDES 100B YUAN TO EACH BANK TODAY, TOMORROW WITH DURATION OF 3 MONTHS: SINA

According to Government Sachs

"This amount is roughly the same as a 50 bps cut to RRR for the whole banking system on a static basis.  Still, such an easing would be consistent with our expectation that (1) monetary policy will loosened amid the drastic slowdown in activity growth and falling inflation, and (2) full scale RRR and interest rate cuts are unlikely because they would be viewed as aggressive stimulus."

Toss in a little hint dropping from the Wall Street Journal's Fed-whisperer Jon Hilsenrath that that the "considerable period" language will likely remain in the FOMC decision... and the plunge in the dollar increased (although one would think the greenback would rally on this news normally).

SPX triggered cover stops above yesterdays high and the bears appear trapped however one should note that small caps ($RUT) continue to lag.  A concern where risk appetite is concerned.  I must keep in mind however that September is end of quarter and end of fiscal year for most funds draws near.  After the massive five year run up, wouldn't you too be taking some profits? 

All eyes on the BoE minutes and FOMC tomorrow.  Then Scotland's vote Thursday and of course, the much heralded Alibaba ($BABA) IPO unveiling on Friday.  Of course SPX rebalancing Friday after the close will continue to pressure as funds shuffle their deck throughout the week and it'll also be quadruple witching option expiration.  Great stuff.  Have your BABA money ready?  Bring me the volatility!

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