MSCI Emerging Markets

Shortly after 1042am local, Chinese stock futures (CSI-300) flash-crashed over 12.5% on extreme heavy volume (while the cash CSI-300 remained unch). This move erased 3 months of gains but within 1 minute was back in the green with stocks up over 2.5%. The shocking collapse, exaggerated by a major lack of liquidity, was made more surprising by the fact that the last week has seen a record short position in the major Chinese stock ETF.

With the US closed for Memorial Day and UK markets offline due to a bank holiday, overnight volumes have been weaker than normal on little newsflow. The main story remains the stronger USD following Yellen's hawkish Friday speech, which not only led to the lowest Yuan fixing since February 2011...

... but pushed the USDJPY almost as high as 111.50 overnight before paring gains, however it was enough to send the Nikkei 1.4% higher.

Yesterday's weak dollar headfake has ended and overnight the USD rallied, while Asian stocks dropped to the lowest level in 7 weeks and crude oil fell as speculation returned that the Federal Reserve will raise interest rates as early as next month. The pound jumped and European stocks gained thanks to a weaker EUR.

It will be fitting, not to mention symmetric, if stocks which yesterday closed at 7 weeks lows and red for the year, end the week the same way they started it: with a rally on no news, just more hopes that oil (which as recently as two years ago none other than Chair Yellen said said would be be "unambiguously good" if lower) will continue rising.

The main risk over the weekend was that markets, which have now dropped for three consecutive weeks the longest negative streak since January, would focus their attention on the latest batch of negative Chinese economic news released over the weekend, which missed expectations across the board, most prominently in Retail Sales (10.1% vs. Exp. 10.6%, down from 10.5%) and Industrial Production (6.0% vs. Exp. 6.5% down from 6.8%), and following Friday's disappointing new credit loan data, would sell off as the Chinese slowdown once again becomes a dominant concern.