China Contagion Spills Over To Hong Kong Banks As HIBOR Explodes To Record High, Stocks Tumble

Tyler Durden's picture

Chinese stocks are trading at the lows of the day after Overnight HIBOR rates (Hong Kong's interbank borrowing rate) exploded a stunning 939bps to a record high 13.4%. It is clear that banks are utterly desperate for liquidity and/or are extremely concerned about one another's counterparty risk. This has dragged HSCEI down 5% (to its lowest since Oct 2011).

Something just snapped...

 

Evidently the pressure between On- and Off-shore Yuan was too much for banks to bear...

 

Smashing Hang Seng China Enterprise Index down 5% to its lowest since October 2011

 

But US equities are being bid by an invisible hand once China closed for lunch...

 

Chinese Default/Devaluation risk just jumpe dback above 120bps (highest since August collapse)

As we explained earlier, as Asian markets opened (ahead of the Yuan fix), they were in turmoil with FX markets crashing (JPY rallying as carry trades unwound), equity markets tumbling (Dow, Nikkei, and China A50), commodity carnage (crude and copper carnage) as Gold and bonds were bid. With offshore Yuan sliding ahead of the fix (and Onshore Yuan 3 handles cheap to Friday's fix), CFETS RMB Index dropping below 100 for the first time, and following Friday's 'token' stability, The PBOC decided to hold Yuan Fix practically unchanged for the second day. USDJPY and equity markets jumped on the news, then quickly faded.

 

We have seen this "stability" before...

 

Asian stocks collapse to lowest since October 2011...

 

Chinese media is pushing rumors of rate cuts and urging people that they do not need USD (despite the lines we noted earlier) demanding theyhave more patience... (via People's Daily)

More patience is needed for the Chinese economy which is in a transition period, as it transfers from old to new economic growth drivers while also facing a backdrop of a slowing global economy, the People's Daily reports citing academics. It would be too opinionated to judge that the Chinese economy would suffer a hard landing based on short-term fluctuations as many factors have had an impact on the yuan's recent depreciation and the stock market's falls.

 

"The fundamentals of many economic crises is the psychological panic problem, and we need to take good care of the market and foster new drivers; conclusions on the Chinese economy can't be made in a rush based on the short-term or partial changes," said Zhang Tiegang, professor at the Central University of Finance and Economics.

Yeah - all psychological.

Offshore Yuan was tumbling before the Fix...

 

As were Chinese stocks:

  • *FTSE CHINA A50 JANUARY FUTURES SLIDE 3%

Of course, The Keynesian have a solution for all this...

  • *STIGLITZ: RECENT CHINA MARKET VOLATILITY ISN'T CATACLYSMIC
  • *STIGLITZ: CHINA NEEDS DEMAND BOOST TO AVOID DEEPER DOWNTURN

It's that simple eh?!

The reaction to PBOC "stability" is not good:

  • *MSCI ASIA PACIFIC EX-JAPAN INDEX DROPS 1.7%, EXTENDING LOSS
  • *CHINA SHANGHAI COMPOSITE SET TO OPEN DOWN 1.7% TO 3,131.85

And Dow futures jumped 80 point and then dumped 100...

 

Chinese stocks are tumbling...

 

And ChiNext is now down over 21% YTD...

 

*  *  *

As we detailed earlier, markets were turmoiling into the China Fix...

China ripples may be turning into tsunamis. As FX markets creep open, something serious must have snapped. The South African Rand just crashed 10% - the biggest single-day drop since Lehman - to new record lows. At the same time, carry trades are being unwound en masse, smashing USDJPY down to 116.75 (strongest Yen in a year). Somebody do something!!!

 

The South African Rand crashed 10% to a record low against the USD of 17.9169. This 10% collapse is the largest on record outside of the immediate post-Lehman move...

 

Don't forget - As goes the South African Rand, so goes The World?

 

Korean Won plunges to its lowest since July 2010...

 

And Yen is surging...

 

Smashing Nikkei futures down over 500 points from Japan's close....

 

As USDJPY tumbles so US Equity markets are slumping...

 

And crude is carnaging...

 

Copper flash-crashed at the open and is now retesting...

 

It appears people were expecting some Chinese intervention over the weekend... and so far have been disappointed.

For now, Gold is bid as a safe haven...

 

Charts: Bloomberg