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First it was Chinese stocks, then Chinese real estate (twice), then Chinese commodities (twice), and now Chinese Bitcoin's bubble has burst as a massive short squeeze on the offshore Yuan combined with comments on 'virtual' capital controls has sparked a bloodbath in the cryptocurrency from 8,896 yuan to 6,101 yuan in the last few hours...a 31% collapse.
"All of this is being done just to stop a few people shorting the currency to reflect the fact that everyone can see that capital is flowing out and that fundamentals argue for a weaker yuan" - Rabobank
Asian stocks rose, led by Hong Kong, while European shares and U.S. equity-index futures are little changed. Euro, yen climb as the dollar posted an unexpected loss following some serious fireworks out of China, which intervened in funding market to crush offshore Yuan shorts.
It was a night of painful fireworks for China bears, who experienced the overnight offshore Yuan deposit hitting a record 80%, while the USDCNH tumbled as low as 6.78, resulting in a 2.3% move in 2-days: the biggest such jump in the CNH on record.
As one veteran trader noted "something is very broken." After a massive short-squeeze stronger in offshore yuan during the day session, overnight yuan deposit rates have exploded 31.5 percentage points higher to 45% - just shy of the record highs - as China's liquidity crisis is front-and-center. At the same time, coincidence or not, Bitcoin has gone vertical, smashing through previous record highs.
Following last night's trial ballon by the PBOC, when the PBOC hinted it was studying possible scenarios of capital outflows and is preparing contingency plans, the Offshore Yuan reacted accordingly, and soared by 0.9% to as high as 6.8950 per dollar as of 7:20pm in Hong Kong. That was the biggest increase on a closing basis since Jan. 11 last year.
Following another day of upbeat economic data, with growing signs that inflation on both sides of the Atlantic is accelerating, investors rediscovered their faith in the Trumpflation rally, pushing global stocks and US equity futures higher, fuelling a second day of 2017 equity gains ahead of today's release of the Fed's December minutes.
It took a while, but the world are slowly coming to grips with the simple fact the Chinese miracle is built on a pile of debt with only an unconstrained printing press to support it. The danger is obviously that the political establishment in China will be in dire need to distract the hordes of angry masses that are about to lose their life savings.
Having tried and failed with simple jawboning, China admitted that it has "studied possible scenarios of yuan exchange rate and capital outflows in 2017 based on models, stress tests and field research, and is preparing contingency plans", Bloomberg reported citing sources, and added that "China may further cut U.S. Treasury holdings in 2017 if needed to keep exchange rate stable."