Chinese Treasury futures tumbled overnight, posting their sharpest fall in three months, after the local market was spooked when the PBOC surprised bondholder by hinting it could avoid broad easing and instead may bring back a far less powerful tool.
Following an unprecedented credit expansion by China, which in the first few months of 2016 injected well over a trillion dollars in total credit, the payback - as previewed here - is coming. As reported earlier, overnight China reported that a swath economic activity, from factory output to investment and retail sales, slowed last month, reflecting renewed weakness in China’s economy, resulting in10Y bond yields dropping to near all time lows.
"I had a fascinating out of body experience meeting with one of the world's top central bankers in a private meeting about three years ago. it was one of those moments where I...it was one of those epiphanies almost, where it's something you and I knew, but hearing him say it, call it one of the four top central bankers in the world, it was a jarring experience for me..." - Kyle Bass
After issuing a record $1 trillion in combined bank and shadow loans in the first quarter which just like during the financial crisis provided a short-term catalyst for global growth (and sent China's debt/GDP to new all time highs) China's dramatic debt issuance binge is about to hit a brick wall. The reason: combined new loans in April by the Big Four state-owned banks were more than halved from March's level.
Overnight a historic event took place when China, the world's top gold consumer, launched a yuan-denominated gold benchmark on Tuesday as had been previewed here previously in what Reuters dubbed "an ambitious step to exert more control over the pricing of the metal and boost its influence in the global bullion market."
As of this moment, the three main government bodies - including the People's Bank of China - that run China's economy, the financial system or regulate the market all have a direct stake in the market, literally.
Ripley's believe it or not world continues. Earlier today, Hong Kong's Hang Seng market entered a bull market, rising 20% from its February lows, just as Hong Kong retail sales plunged 20.6%, the bigest drop since 1999 and then moments ago, in a move that pushed the Chinese Yuan stronger at least initially, S&P revised its Chinese outlook to negative, saying the economic rebalancing is likely to proceed more slowly than had expected over next 5 years and warning about China's debt load.
"Tomorrow we wake up and China has devalued 20%, the world is over. The world is over. Euro breaks up. The world is over. The euro breaks up. Everything hits a wall. There's no euro in that scenario. The US economy, I mean everything hits a wall! Everything hits a wall! It's a 'Mad Max' movie, right. OK, China gets to be the king in 'Mad Max' world. How appealing is that?"
“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.”
With every Tom, Dick, and Harry hedge fund manager now taking on The People's Bank of China (in various ways), it is no surprise that the spread between offshore Yuan and onshore Yuan blew out to its widest in 3 weeks this morning. They are not getting it all their way for now though.
"Cash had a pretty good run for 4,000 years or so. These days, though, notes and coins increasingly seem declasse: They're dirty and dangerous, unwieldy and expensive, antiquated and so very analog.... Much depends on the details, of course. But this is a welcome trend. In theory, digital legal tender could combine the inventiveness of private virtual currencies with the stability of a government mint."
Who are the brave souls who have decided to very openly fight the People's Bank of China? Here is a sample: Soros, Bass, Ackman, Druckenmiller, Tepper, Schreiber, Einhorn, Scogging, and Carlyle, Nexus and many more.