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China Folds, "Un-Tapers"; But Repo Rates Remain Elevated
UPDATE: Un-Taper didn't work - 7-day repo just hit 9% as (just as we warned) the small banks are left wth scraps
For the first time in 3 weeks, the PBOC un-tapered and added CNY 29 billion liquidity (via reverse repo). Despite the Chinese governments denial of any liquidity crisis, the decision to "fold" reflects a clear indication that, as Monex strategist Eimear Daly notes, "China's attempting to incrementally liberalize markets and to allow instabilities to unwind with minimal damage; and spikes in interbank lending rates show authorities are struggling to manage this task."
The liquidity was provided at 4.1% (not a particularly low rate but overnight repo is well off the highs of the last week) but 7-day repo rates (though down 3.5%) remain high at 5.5% (150bps above the 'normal' levels of July to October).
The night is young though as we suspect, just as yesterday, the big banks will soak up the first juice and leave the small banks (who need the most) floundering...
As Eimear Daly adds,
Under govt-protected financial markets, instabilities build up: a property market bubble, unprofitable lending, severe overcapacity and high levels of private and local govt debt
Taking the economy from govt control to unrelenting scrutiny of financial markets involves a shock
Even if China manages to bring its economy onto a slower growth path with limited turbulence, it will weigh on growth across EMs
Chart: Bloomberg
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so this is good for what...20 ES points tomorrow?
Gold surges $.50 on the news.
And will be hammered down $50 Monday on the news.
if i were trading this thing (and I'm not thank god) i think "day by day" has just become "millisecond by millisecond." what are the SMART banks...medium, small and big...doing? http://www.youtube.com/watch?v=rCY_Hjv7vKc just speculating by this of course. i think we'll know soon enough though. http://www.youtube.com/watch?v=6GA5AtPl5EY
How convenient. Just in time to fuck up any possibility of bilaterally equitable TPP. Lying sack of shit Asian politics.
I'm waiting for when the fed needs to untaper...
Well daaaaaaam who coulda seen that coming? Read about this prediction on ZH like what? Yesterday?
The half life of Conspiracy theory to conspiracy fact is tending towards zero... Long popcorn and CRT television
Until our lifetimes, only Captain Lightyear knew what exists beyond infinity. Perhaps the Central Banks are just trying to share his knowledge with us all. To QEinfinity, and beyond!
Another 1 percent on the NASDAQ tomorrow?
Here's the Shibor rate chart for anyone tracking China rates.
Shanghai Interbank Offered Rate
an inversion of that magnitude is normally a sign of recession. what if China's growth suddenly collapsed to two percent?
Meanwhile Japan doesn't care. While Abe funnels a ton of cash into his war-machine.
*JGBs: BoJ buys JPY400bn 5-yr 10-yr. JPY200bn 10-yr+ long-dated.
China is going to love that
"Japan will boost defense spending by 5 percent over the next five years to purchase new military hardware, including its first surveillance drones, US-made F-35 stealth fighters and Aegis combat systems"
http://rt.com/news/china-japan-military-defense-612/
Didn't this happens in June? PMs and China.
So what are the implications of a Chinese meltdown for us here in the US? We should see some deflation on things that we need. Multinationals may suffer a little. Increased sabre rattling with Japan? Will they buy more treasuries since they may lack better alternative investments? Is there a downside for us?
Deflation of anything (greater affordability) would result in panic at The Fed. People might put off buying food and oxygen because prices are going down.
is this just year-end adjustments or are we looking at something seriously whacked?
Yes
Pulling the punch bowl old style. China is doing the right. Imprudent bands should face the music of high repo rates. That is the only way to teach bankers to be careful. If they can not go bankrupt or face difficulties bankers will do the wacko stuff they did in the West.