Open Market Operations

PBOC Weakens Yuan To One-Month Lows

Having yesterday expressed clearly that there was no desire to see the Yuan depreciate, The PBOC weakened the Yuan fix by 0.16% to one-month lows. This sent offshore Yuan notably lower back to post-RRR-Cut lows. For the 2nd day in a row, PBOC also decided to 'skip' open market operations (due to ample liquidity according to their statement).

Get Shorty? PBOC Strengthens Yuan, Erases All RRR-Cut Swing

For the first time in six days, PBOC decided to strengthen the Yuan fix (+0.1% to 6.5385). This sent offshore Yuan surging back to pre-RRR-Cut levels, ensuring that (for the very short-term) speculators don't get any ideas about piling into a Yuan short (again). This action followed the suspension of China's Open Market Operations (due to lack of interest from traders).

G-20 Needs To "Man Up" Or Risk Sparking Market Chaos, Citi Warns

“Keeping the previous language would be very disappointing and would be viewed as either complacent or reflecting policy paralysis. [They need to] man up and tell member countries that monetary policy should be accompanied by fiscal expansion.”

The Great Unraveling Looms - Blame The 'Austrians'?

Decades of accumulated market distortions appear to be on the brink of a great unwind, most of which can be blamed on expansionary monetary policies. If so, the banking crisis of 2008 was a prelude, rather than the crisis itself. The Keynesians will blame the Fed for a complete policy failure. The reality is, that by implementing conventional policies on the recommendation of group-thinking macroeconomists, the central banks have dug a hole too deep to escape. Recognition of the merits of Austrian sound money theory will simply expose this reality sooner than later.

Fed Reveals Rate Hike "Plumbing" Details: Removes Cap On Reverse Repos, Limits Each Counterparty To $30 Billion

Perhaps even more important than the actual rate hike announcement, the one statement the market was particularly focused on was the Fed's "implementation note", which lays out the Fed's thought process on how it will actually raise rates in order to maintain the Fed Funds in the 0.25%-0.50% range. What it reveals is that in addition to removing the daily limit on aggregate borrowings through its overnight reverse repurchase facility, previously set at $300 billion (recall that according to Citi, the Fed may need to drain up to $1 trillion in excess liquidity to effect the 25 bps hike), it will have a per counterparty limit of $30 billion per day, which may or may not be enough.

"Don't Believe The Hope" - When Forward Guidance Becomes Forward Mis-Direction

As we approach the Fed meeting expect markets to get more volatile. While the odds favor a move, it isn’t a sure thing until it is actually done. We found out last week what happens when forward guidance turns out to be forward misdirection. All those traders who thought they had a sure thing, who assumed that Draghi wouldn’t dare disappoint the market, got whipped. Whipped good.

Presenting The Mechanics Of "Liftoff" Or, How The Fed Actually Hikes Rates

How would a Fed hike be transmitted? To the uninitiated, it might seem as though Janet Yellen snaps her fingers or twitches her nose and just like that, banks and money markets price in the 25bps. But contrary to Haruhiko Kuroda's characterization of central bankers as fairy tale protagonists, it's not as simple as waving a magic wand and in the US, the whole show runs through Bill Dudley's Open Market Trading Desk at the New York Fed.

The Unintended Consequences Of 'Lift-Off' In A World Of Excess Reserves

In the short run this will probably lead to dramatic and unexpected change in financial flows. Over the longer run, a much-overlooked problem emerges. Simply put, it is highly unlikely that market rates will respond as the Fed moves its target rate upwards; in this case, the FOMC will have lost all control.

Why The Friedman/Bernanke Thesis About The Great Depression Was Dead Wrong

No, Ben S. Bernanke will be someday remembered as the world’s most destructive battleship admiral. Not only was he fighting the last war, but his whole multi-trillion money printing campaign after September 15, 2008 was aimed at avoiding an historical Fed mistake that had never even happened!

Why Did China Just Cut Rates, Again: Here Are Goldman's Three Reasons

Goldman's 3 key reasons for China's "surprise" rate cut: i) Activity growth weakened meaningfully after a brief rebound in 2Q; ii) Outflows re-emerged and drained liquidity; iii) Equity market has been falling very rapidly. The conclusion: "These cuts are positive moves which are much needed to support the economy and market. But they are unlikely to be sufficient by themselves."

Paul Craig Roberts: Central Banks Have Become A Corrupting Force

As asset bubbles are in the way of the Fed’s policy, a decline in stock prices removes the equity market bubble and enables the Fed to print more money and start the process up again. On the other hand, the stock market decline could indicate that the players in the market have comprehended that the stock market is an artificially inflated bubble that has no real basis. Once the psychology is destroyed, flight sets in.

China Strengthens Yuan By Most In 2 Months Following Another Massive Liquidity Injection

The PBOC set the Yuan fix 0.08% stronger - the biggest 'strengthening' in 2 months, which is interesting because The IMF's confirmation of a delay to Yuan inclusion in the SDR basket to Oct 2016 (pending a year-end decision) asked for more flexibility. For the 3rd day in a row, The PBOC injected massive liquidity (120bn today, 110bn yesterday, 120bn Monday). Shanghai margin debt declined for a 2nd day in a row and Chinese stocks look set to open weaker.

China Rushes To Inject Hundreds Of Billions In Liquidity To Offset Yuan Intervention

Now that the PBoC has created a situation where it’s forced to prop up the yuan via open FX ops just about as often as it’s forced to prop up the SHCOMP via China Securities Finance, concerns are growing about liquidity and a severe tightening of money markets, prompting the PBoC to inject hundreds of billions in emergency funding.

China Stocks Crash, More Than Half Of Market Halted Limit Down; PBOC Loss Of Control Spooks Global Assets

Just hours after the PBOC announced a modestly "revalued" fixing in the CNY, which curiously led to weaker trading in the onshore Yuan for most of the day before a forceful last minute intervention by the central bank pushed it back down to 6.39 it was the local stock market spinning plate - which had been relatively stable during the entire FX devaluation process - that China lost control over, and after 7 days of margin debt increases the Shanghai Composite plunged by 6.2% in late trade, tumbling 245 points to 3748, just 240 points above its recent trough on July 8, a closing level some 27% off its June peak.