Reactions To China Rate Cut Trickle In: "China Is Getting More And More Desperate"

Tyler Durden's picture

To say that China, which a few days ago reported GDP of 6.9% which "beat" expectations and which a few hours ago reported Chinese home prices rose in more than half of tracked cities for the first time in 17 months, stunned everyone with its rate cut on Friday night, meant clearly for the benefit of US stocks, as well as the global commodity market, is an understatement: nobody expected this.

As a result strategists have been scrambling to put China's 6th rate cut in the past year (one taking place just ahead of this weekend's Fifth plenum) in context. Here are the first responses we have seen this morning.

First, from Vikas Gupta, executive vice president at Mumbai-based Arthveda Fund Management Pvt., who told Bloomberg that "China rate cut will spur fund flows to EMs." He adds that "the move rules out U.S. rate increase this yr; Fed’s “hands are getting tied" concluding that "easing shows China is “getting more and more desperate” and that “things are really bad there."

While there is no debate on just how bad things in China are, one can disagree that the Fed's hands are tied - after all the Fed's biggest "global" concern was China. The PBOC should have just taken that concern off the table.

The second reaction comes from Citi's Richard Cochinos:

Bottom line: Impacts of China rate announcements on the G10 are falling. Investors remain cautious ahead of this weekend’s announcements, and what policy cuts imply for the region.

 

One day after a dovish ECB, China cuts interest rates by 25bp and RRR cut by 50bps. Accommodative policy begets accommodative policy it seems. Our economics team has been expecting further policy accommodation out of China, the issue was just a matter of timing. Unlike other major central banks, the PBOC doesn’t announce policy on a set schedule – but this doesn’t mean there isn’t a pattern to it. Before today, it had announced cuts to the RRR or interest rate six times in 2015 – the last being on 25 August. So today was a surprise in terms of action, but not completely unexpected. We prefer to see the easing can be seen in the larger picture of China adjusting to weaker growth in a systematic and controlled manner, rather than a reaction to a new economic shock.

 

This view helps explain the muted reaction in the G10. So far, AUDUSD (0.27%) and USDJPY (0.18%) have borne the bulk of price action, but we note price action so far is muted relative to April, June or August.  Clearly stimulus is beneficial to both Japan and Australia – but we are cautious not to sound too optimistic. Today’s rate cut comes ahead of this weekend’s Fifth plenum, and previous ones haven’t been sufficient to reverse the economic slowdown. Additionally, this weekend it has been expected GDP targets for the next 5-years will be announced (currently at 7%, but broadly expected to fall), along with other fiscal plans and goals. Without knowing the full baseline of what China expects and is working towards, it is difficult to chase price action. The main drivers of EM Asia lower has been poor growth and trade in the region – hence we main cautious. Policy adjustments now could be a way to soften the impact of further weak economic growth.

And finally, from MarketNews:

The PBOC will cut its key one-year lending rate by 25 basis points to 4.35%, the bank said on its website, and make a similar reduction to its one-year deposit rate, taking it to 1.5%. Reserve ratio requirements for China's domestic lenders were also trimmed by 50 basis points and the PBOC abolished a ceiling on banks' deposit rates, the so-called final step of China's interest rate reform.

 

The triple-set of moves provides a much better assessment of the impending weakness in China's economy, it seems, than the various indicators scrutinized in Europe over the past few weeks, which continue to suggest minimal impact from the slowdown.

 

They may also better explain the surprisingly dovish stance articulated Thursday by ECB President Mario Draghi, who emphatically flung the door to further monetary easing measures wide open and suggested the Bank might even consider a re-think of its "lower bound" assessment on key interest rates.

And therein lies the question: just how bad are things in China (and Europe for that matter) for the PBOC to act (and the ECB to hint) with the urgency of a world hanging on the edge of a global recession. We'll find out next Friday when the BOJ become the third bank to join the global easing train.

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Impoverished Psychologist's picture

So the printing baton has been passed again, it will go to and fro across the Pacific until all the tangible assets are owned by the 0.01% and you have a GMO rusk to chew on bought with the last remaining balance on your new WORLDGOV EBT card...

AlaricBalth's picture

China cuts rates and it is considered desperation. The US and Europe slash rates to ZIRP and NIRP and it is considered economically prudent.
What a farce!!!

EscapeKey's picture

chinese inflation targets are higher, though.

but yeah completely agree that the west acts like a bunch of hypocrites. what else is new?

Antifaschistische's picture

it's interesting... Home prices rising is considered a good thing...in a country where many people live in not-so-good conditions. You would think "affordable housing" is more important.

goes to show you who's getting goal-seeked.   Mega developers want prices rising.  consumers ALWAYS want lower prices.

Pliskin's picture

A farce that SO MANY ZHers buy into, because they still want to believe that they are part of the exceptional people, when in reality they are part of the biggest pile of shit, indebted country on earth, and desperately clinging to the idea that they are the number one people, when in reality they are HATED worldwide for their big mouthed, fat assed, gross incompetence, bullshit...

Time will tell, let's just see what fucking happens!

 

Handful of Dust's picture

Will China get as desperate as Bernanke and ZIRP their peeples?

NoDebt's picture

Hey.  Hey!  Watch it there, buster.  It may be a pile of shit but it's OUR pile of shit.

"Don't sell yourself short, judge.  You're a tremendous slouch."

Kayman's picture

Pliskin:

1. "exceptional people" "shining city on a hill" are B- rated drivel designed to keep the sheeple in line by our exception overlords. Damn few "ZH" people buy that line of bullshit.

2. I think most people with their feet on the ground, long ago realized our overlords have squeezed the lemon dry. 

3. Maybe cut back a little on the beer-its clouding your goggles

4. And don't let the trolls cloud your judgement. Smash them or ignore them.

K

Pliskin's picture

Don't tell me to cut back on the beer you cucking funt, I'll smash your face in.....I love you man, let's be friends forever...why does my father hate me...Sob, sob, sob....

 

...but , yeh, I get your other points.

 

FireBrander's picture

"nobody expected this."

Hilarious! Seriously? What did you expect?

"China announced today that it is "over". That their "miracle" economy was all a fraud based upon ever greater levels of debt fueled by cheap money and lax regulation. Beginning today, sound money policies will be put in place and we fully expect the "value" of everthing to come crashing down as true market forces search for true values".

Dream fucken on!

PS. Who actually believes "numbers" put out by the Chinese government? Any Government for that matter? I know what I see and experience. Chinese products are shit, "Made in Anywhere Else" is starting to pop up on the shelves more and more while Chinese "business people" are paying MILLIONS in CASH for hard assets in other country's as well as making sure their children are NOT born as Chinese citizens....RED FLAGS AND SIRENS PEOPLE!

Kayman's picture

FireB

China makes shit that falls apart in your hands, Walmart buys it and sell it to some other dumb shit and leverages their economy on U.S. dollars. If you don't believe it, then tell me when China gets enough of a backbone to end the dollar peg.

They know it is all fake; they are just better with a poker face when they are lying.

quadratic_equation's picture

Relax Kayman, don't put down Walmart too quickly; that's where I buy ammo and they're mostly US or Russian or Turkish never Chinese, and ammo is one of the most important commodity.

Calmyourself's picture

Firebrander is correct the real story is the capital flow out of China by people who have a much better grasp of facts on the ground.

JustObserving's picture

China has a massive real estate bubble.  The land value of Beijing alone was worth around $20 trillion.  If that bubble collapses, China may not recover for decades.

Real estate in China is worth about $200 trillion.  All the gold bullion in this world is worth about $2.35 trillion today.  So for the Chinese, it makes sense to buy gold now as Yuan weakens

TeamDepends's picture

Looking for gold to close above 1180 and silver above 16 and stay there. If this happens, it's game on baby!

FireBrander's picture

Gold is still oscillating within a strong 2 year old down channel. The long term chart is ugly. It will break the channel at some point, but the odds are for a break to the down side. I’m still looking for that $900 level test.

http://www.kitco.com/LFgif/au00-pres.gif

 

DeadFred's picture

Watch the response to the takedown that's happening now. In the last month or two attacks on gold and particularly silver have been soundly rebuffed. If by end of day the morning's highs are regained and surpassed in means the psychology has changed. Gold has technically broken out on your chart but is remains to be seen if it will be sustained.

FireBrander's picture

To sum up gold today, there is no clear direction. I only invest in "clear directions"...when the heard runs, I join in. Don't fight the trend...no matter how "right" you think you are, if the trend is against you, it will bury you..

Calculus99's picture

Agree, the charts suggest no real upside in regards to a proper bull market. The shorts still have control of this market from both a monetary point of view  and perhaps more importantly a psychological one. 

Charts take time to setup properly, we're not there yet with Gold. Give it a few more months and we could be. Be patient Gold bulls. 

Pliskin's picture

Yes China's cities do have alot of pollution, but to state that there's alot of kids with birth defects...I haven't seen 'em, and me and four of my friends all have very healthy young kids here in China..You don't see too many people with Down's Syndrome here, last time I was in the U.S. and U.K. they're all over the place...mongs everywhere that meets the eye...and as for your bullcrap about Chinese not wanting to have kids because of pollution, BULLSHIT, the illusions and mirages are your own my friend.  Get your head out of FOX/Sky news and travel a little before you start spouting off about shit you, very obviously, know little about!

 

Pliskin's picture

...and YES, I know Down's Syndrome is different to birth defects (Of which there's plenty in U.S.A. - Thanks Monsanto) My point is the U.S. has far more fucking retards per head than China does, shop at Walmart much?

Kayman's picture

Pliskin

Not to acid rain on your parade but Germany had completely eliminated defective children for a while.

Just because the Chicoms remove the defects at the hospital doesn't mean they never existed.

Likely in such a great nation and such a great people they must have developed an immunity to toxins ripping up their DNA, n'est pas ?

Pliskin's picture

I never said they were a great nation or a great people, just tellin' ya what I've seen on the ground...

China less mongoloid fucking retards than U.S.A./U.K.

Yep, probably get rid before their born, oh the humanity of it!!! 

#mongoloidslivesmatterU.S.A

Winston Smith 2009's picture

Pliskin, I'd like your opinion about the content of this web site:

http://www.theepochtimes.com/

strangewalk's picture

Most Chinese preempt children with defects, or drop em off at the liquidation camps (orphanages). China also has the highest cancer rates on earth by far according to the World Bank and NGOs operating there. 

FireBrander's picture

Is the Chinese government really interested in tallying, and releasing, cancer and birth defect rates? Numbers that would demonstrate how they're killing people for profit?

In the USA, we definitely tally and release, dare say fudge higher, disease rates...lots of money to be made scaring the masses into maximizing their use of the "Health Industry".

Impoverished Psychologist's picture

SWEEPSTAKE: Which iteration of the Iphone will be last before the system goes dark?

I'm going with 11

E.F. Mutton's picture

Rearranging the deck chairs on the Titanic is passe.  Just 3D print more!

Monetas's picture
Monetas (not verified) Oct 23, 2015 7:37 AM

China GDP 6.9% = US unemployment rate 5.1 % .... source Wickedpaedia ?

yogibear's picture

Look at the way unemployment is calculated now vs how it was calculated in 1980. 

Apples and oranges.

Monetas's picture
Monetas (not verified) yogibear Oct 23, 2015 7:46 AM

It's worse than that .... apples and oranges .... are both fruits ?

yogibear's picture

Currency wars, then real wars.

The banksters gamble.

At risk billions of people. 

Anyone thinking the Fed will raise rates unless forced should look at what China and the ECB is doing.

FireBrander's picture

I expect the FED to raise rates just to "save face". When the "uneducated" (you and I) criticize the FED, they could give a shit less...but when their peers start, softly, speaking of how the FED is "out of tools" or, gasp, "making an error"...well, now, their reputation is at stake...so to show the world they "know what they're doing", they'll raise rates .25% and bask in the cheers from their peers and the markets will rally as the FED still has their back.

jerry_theking_lawler's picture

I agree, .fed will have to raise rates. They should've done it in September, October at latest. December is a must.  People will rejoice...but I think that if things look 'ok' after the raise there is going to be a little repricing of risk to a higher level for fear that the .fed may go higher.  Any higher than the .25% and it is basically game over for most....

The best part about this is that we will know in about 3-4 months the general direction. If no rate increase by then there will probably never be another rate increase within this 'system'.

Monetas's picture
Monetas (not verified) Oct 23, 2015 7:42 AM

Cochinos is Spanish for pigs .... Ricardo Pigs .... is this a real person ?

El Hosel's picture

Better call in Super Mario, he can talk the talk.

CHoward's picture

The Fed's hands aren't tied, they just don't have the balls to do anything.

Vendetta's picture

they've got the balls to destroy the US from within and a plethora of bought and paid for politicians to make sure it happens

bluez's picture

Maybe the Chinese are just tougher than Americans, who have let their family relationships, neighborhood relationships, and general "social contracts" disintegrate for many decades.

If the Chinese have better social cohesion, they will survive economic storms without everybody shooting each other. That would make the real difference.

Pliskin's picture

Yeh, but that's not the rhetoric 'this' Tyler's' trying to push....so..Shhhh!

Raoul_Luke's picture

The Fed will not raise rates in December.  In fact, they might end up going lower (NIRP).  The US is not going to raise rates on an island - the $ would be crushed and our economy even slower.

TradingTroll's picture

USD would rise and economy slows. ..fixed it

jimymac's picture

China set the trap and are in control of this currency war, in my view. It wasn't strategic to disinclude China from SDR.

gcjohns1971's picture

We know that the Fed and the ECB administer untenable debt-based fiat currency systems, who have reached the end of their life-cycle and now delay while they dicker over the terms of collapse.

China, however, has been sold as the clean sheet, where 'Good' assets can retreat and continue to perform as the west collapses.  It has been advertised as the 'Good Bank' to preserve real wealth while the 'Bad Bank' of untenable promises in the west collapses.

China has even been advertised as imminently ready to present a true hard currency to the world, backed at significant percentage by gold, and cemented at that percentage.

However,  what we're seeing in China (and Russia) is completely congruent with what  we see in the Fed and ECB, the Dollar and Euro respectively, and completely incompatible with an impending hard-commodity-backed currency.

Currency devaluation and centralized interest rate control are not compatible with a hard-fixed-exchange commodity-backed currency.  They are, in fact, the polar opposite.

aztrader's picture

More desperation from the central banks.  This will do nothing for their economy.  Just protecting all that leverage out there..........

quadratic_equation's picture

Don't worry about China's economy, the Chinese will be just fine.  They' ve all moved to California and collecting SSI and whatever government subsidies they get at American taxpayers expense.  Heck, you can visit my neighborhood and see mostly Chinese senior citizens who doesn't speak a word of English, you know for sure never worked a minute of their lives in the US and paid taxes.  BTW, my neighborhood is a nice perhaps upper middle class area in CA.  Chinese are like the Mexican illegal aliens except they live in nicer neighborhood not in the ghetto like the Specs.