The boom turns to bust as the Eurodollar market breaks. If the cycle gets out of hand, as it did from 2008 onwards, banking solvency is not only limited to local emerging market banks, but to the international banking community at large. This is exactly where we are at now and if history repeats itself, which we believe it will, a new financial crisis is brewing just under the surface as the dollar moves into its second leg.
With most global market closed for Christmas holiday, and traders taking the day and the week off, global stocks traded mixed in thin, subdued conditions. Japanese shares fell as the yen gained against the dollar for the fourth straight day after the release of BOJ Minutes and a Kuroda speech, while Chinese equities recovered from earlier losses.
Assuming Deutsche Bank is correct, the result would be the scariest forecast bond bulls have seen in years: a 10-Year TSY whose yield fades all gains attained during the past decade, in the span of just two short years, hitting 4.5% in early 2019. The adverse implications from such a fast, steep move on all asset classes, not just bonds, would be devastating.
"Beijing will increase controls on the property market to maintain stable home prices in 2017, said a statement issued after a plenary session of the Beijing Municipal Committee of the Communist Party of China on Saturday. Housing prices in the capital are already too high and ensuing increased social tension brings enormous challenges to ... stability in the city."
With fears mounting over China's debt load sustainability, and amid yet another liquidity crisis, President Xi Jinping appeared to admit that China's economic growth will slow below the government’s 6.5% target. Despite the promise of creating a "modestly prosperous society," Xi warned that China doesn’t need to meet the objective if doing so creates too much risk - a little late for that after trillions of freshly created credit was spewed into zombified firms this year - but at least reality is starting to set in.
For the 3rd night in a row, China opens with a panic bid for Bitcoin. The cryptocurrency is now up over 14% in less than 3 days, topping $900 for the first time since December 2013. Interestingly yuan is not moving much tonight.
The Royal Mint in the UK, had beaten the Royal Canadian Mint and GoldMoney to it by announcing at the end of November that they were launching a blockchain project, one which will be in direct competition with the Euroclear project.
With Bitcoin at 3 year highs, China’s renewed efforts to curb declines in its currency are doing little to stop yuan bears who have sent forward devaluation expectations to record highs and options positioning to six-month lows. And judging by Goldman Sachs' outlook - a potential resurgence in Chinese growth fears early next year, but more broadly, a continued bumpy deceleration - things are not getting better anytime soon.
Chinese multi-billionaire Wu Ruilin, Chairman of Cosun Group, has defaulted on bonds worth a paltry 100 million yuan ($14.4 million) that he raised from retail investors, citing tight cash flow. "Either he was building his business on high leverage, or he is determined to count on the insurer, but it is for sure he really has a severe cash crunch."
With Chinese liquidity markets turmoiling, bonds crashing, and gold premiums soaring, it appears growing concerns over capital controls tightening has sent Chinese fleeing into Bitcoin as a way to escape the mainland restrictions. Bitcoin is up over $30 today to its hghest since Dec 2013...
While being capable of imagining a 'black swan' event implies its non-existence; given the level of groupthink consensus agreement that the bond bull is dead, inflation is back, central banks are maxed out, and global fiscal stimulus will save the world, we thought a look at some of the more unsusual, unpredictable expectations for 2017 was worthwhile...
Suggesting that China’s Ministry of Finance is suddenly worried about failed bond auctions, overnight it announced it would offer a steeply downsized CNY16 billion of bonds at each of its 3- and 7-year debt sales on Wednesday, a more than 40% drop from 28 billion yuan announced earlier.