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China Folds, "Un-Tapers"; But Repo Rates Remain Elevated

Tyler Durden's picture


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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Mon, 12/23/2013 - 22:09 | Link to Comment fonzannoon
fonzannoon's picture

so this is good for what...20 ES points tomorrow?

Mon, 12/23/2013 - 22:18 | Link to Comment Ignatius
Ignatius's picture

Gold surges $.50 on the news.

Mon, 12/23/2013 - 22:43 | Link to Comment LetThemEatRand
LetThemEatRand's picture

And will be hammered down $50 Monday on the news.

Mon, 12/23/2013 - 22:24 | Link to Comment disabledvet
disabledvet's picture

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? just speculating by this of course. i think we'll know soon enough though.

Mon, 12/23/2013 - 22:14 | Link to Comment monad
monad's picture

How convenient. Just in time to fuck up any possibility of bilaterally equitable TPP. Lying sack of shit Asian politics. 

Mon, 12/23/2013 - 22:19 | Link to Comment TaperProof
TaperProof's picture

I'm waiting for when the fed needs to untaper...

Mon, 12/23/2013 - 22:17 | Link to Comment Crawdaddy
Crawdaddy's picture

Well daaaaaaam who coulda seen that coming? Read about this prediction on ZH like what? Yesterday?

Mon, 12/23/2013 - 23:29 | Link to Comment IPA
IPA's picture

The half life of Conspiracy theory to conspiracy fact is tending towards zero... Long popcorn and CRT television 

Mon, 12/23/2013 - 22:45 | Link to Comment LetThemEatRand
LetThemEatRand's picture

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!

Mon, 12/23/2013 - 22:53 | Link to Comment Hindenburg...Oh Man
Hindenburg...Oh Man's picture

Another 1 percent on the NASDAQ tomorrow? 



Mon, 12/23/2013 - 22:58 | Link to Comment Yen Cross
Yen Cross's picture

   Here's the Shibor rate chart for anyone tracking China rates.

   Shanghai Interbank Offered Rate

Tue, 12/24/2013 - 00:51 | Link to Comment disabledvet
disabledvet's picture

an inversion of that magnitude is normally a sign of recession. what if China's growth suddenly collapsed to two percent?

Mon, 12/23/2013 - 23:06 | Link to Comment chump666
chump666's picture

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"

Mon, 12/23/2013 - 23:14 | Link to Comment swanpoint
swanpoint's picture

Didn't this happens in June? PMs and China.

Mon, 12/23/2013 - 23:20 | Link to Comment FredFlintstone
FredFlintstone's picture

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?

Tue, 12/24/2013 - 21:14 | Link to Comment The Final Straw
The Final Straw's picture

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.

Tue, 12/24/2013 - 01:50 | Link to Comment Frank N. Beans
Frank N. Beans's picture

is this just year-end adjustments or are we looking at something seriously whacked?


Tue, 12/24/2013 - 02:37 | Link to Comment Central Wanker
Central Wanker's picture


Tue, 12/24/2013 - 07:18 | Link to Comment WhiteNight123129
WhiteNight123129's picture

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.


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