US Equities Tumble As PBOC "Stamps Out" Short Yuan Speculators With "Murderous" Liquidity Squeeze

Tyler Durden's picture

China/Hong Kong Money Market stress remains extreme - O/N implied rates spike to 82%, 1w to 38%...

A jump in the overnight cost for borrowing yuan in Hong Kong is "reflecting further PBOC efforts to stamp out speculation," according to Michael Every, head of financial markets research at Rabobank Group. Hong Kong-based Every told Bloomberg in an interview, following a massive spike in overnight borrowing rates for Offshore Yuan that "a 66% rate is murderous for others being swept up in this who are not speculating."


PBOC advisor Han earlier warned that short selling the yuan "will not succeed," adding that "it is pure imagination that the Chinese yuan will act like a wild horse without any rein." But as Every notes, the unintended consequences could be a problem, "imagine you needed access to CNH for other purposes for a few days," concluding ominously that "in other EM crises we see that central banks usually win a round like this, but lose in the end."

This move sent CNH ripping higher (as shorts were forced to cover) all the way to parity with CNY...


But once that was complete, Offshore Yuan selling recommenced and that is dragging US equities lower...


As we explaiend earlier, it is now extremely expensive to short the Offshore Yuan - which is exactly what The PBOC appears to have wanted - “It is pure imagination that the Chinese yuan will act like a wild horse without any rein,” said Han, adding that short selling the yuan “will not succeed.”



As the gap between spot (squeeze) and forwards widens...


Reuters reports that the offshore yuan (CNH) implied overnight deposit rate has hit a record high at 82%. This is squeezing CNH shorts... big time.

As a result, the CNY-CNH spread has narrowed



to patirty

Despite all the flatness and stability, Chinese stocks are extending losses... *SHANGHAI COMPOSITE FALLS 0.8% TO BELOW 3,000 LEVEL



As we detailed earlier, with Chinese equities tumbling in the face of PBOC's liquidity withdrawal (record spike in o/n HIBOR) and short-squeeze of CNH shorts (and carry traders), the sell-side is as confused as a CNBC anhcor at what is good and what is bad. UBS urges investors not to sell while JPM fears a structured-product-driven vicious cycle between EM and Chinese equities. Following a record-breaking surge in offshore Yuan against the USD (12 handles top to bottom) during the US session, selling has resumed into the fix. "Expectations the yuan will depreciate sharply should be seen as ridiculous and humorous," warned one Chinese official (who obviously did not get the memo of the last 3 weeks) as The PBOC injected CNY80bn and decided for the 3rd day in a row to hold the Yuan fix unchanged.


As we begin tonight's "trading", Chinese equities are deep in the red YTD:



"Expectations the yuan will depreciate sharply should be seen as ridiculous and humorous," warned one Chinese official (who obviously did not get the memo of the last 3 weeks)...



Offshore Yuan is selling back down a little after an epic day of squeezing...


Meanwhile, away from the actual dynamics of tonight's early moves, mixed messages from a desperate sell-side tonight with UBS proclaiming:


And JPMorgan warning of a vicous cycle of selling between China and EM equities:

Events in Chinese equity markets feel uncomfortably close to the June-August sell-off.


The Shanghai and Shenzhen indices are down 15% and 20%, respectively, in the first six trading days of 2016. MSCI China, EM and World are down 11%, 9% and 7%, respectively. Onshore investors’ confidence in the local policy is weak. Shorting of H-share futures increased when A-share circuit breakers kicked in. If HSCEI moves below 8000 (spot 8505) then we approach structured product strikes leading to H-share futures selling. To add to the discomfort, the CNH overnight rate spiked to 23% as aggressive PBoC intervention results in a shortage of offshore renminbi. Finally, the market was disappointed that post the record decline in FX reserves, there was no RRR cut.


Simply the market is unsure on policy and is technically weak, driving EM toward our bear case end 2016 target of 720.

Wondering why we care about China? Here's one reason... US and Chinese stocks are extremely correlated since The Fed slowed and then stopped its money-printing... (and that correlation has increased since August and The Fed's September "fold")


The jawboning started early


which is entirely incorrect...

And then this:



And finallyu there is this:


In other words - they are starting to coordinate!! Against The Speculators? Or The Fed?

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Hitlery_4_Dictator's picture

Gegory Mannirino UPDATE - Technical breakdown breakdown S&P 500 reached. Talks about how much money he lost.

johngaltfla's picture

Wake me when this Shanghai bitch hits 2K or lower.

BobPaulson's picture

Looking like a preplanned act to unload USD? 

CrazyCooter's picture

So, in short, they are saying, "This way is up. Check out our chart!"!HD.jpg



P.S. (EDIT) The only ones unloading are the insiders. Hold on to his leash ... wait right here for me ... he will show you some tricks he knows. (love that smirk!)

Bag. Holder.

MEXICAN DOG: The ZH meme for stuck with some shit you can't spell, can't say, and all it does is lick its balls.

Hitlery_4_Dictator's picture

LOL it did not go well for him, this is why I do not trade.

Montani Semper Liberi's picture

 How many times did Mannarino say "listen people"?

  I saw one of his videos recently, and he was looking rather pasty.

CrazyCooter's picture

You mean "patsy"?




abyssinian's picture

he keeps making bad calls and losing money, wouldn't be suprised to see him to pale white soon. 

Wile-E-Coyote's picture

Looks like he's started comfort eating, the boy is putting on weight.

Mentaliusanything's picture

Its called "Blow" for a reason digger. They fatten then fall.

Jezee Louise that was an easy mark

RadioFlyer's picture
RadioFlyer (not verified) Hitlery_4_Dictator Jan 11, 2016 8:47 PM

He's a solid guy, yeah, he lost some, but thats the game if you're playing in a rigged field.

db51's picture

That guy has a great head of hair.   Other than that...he was speaking fucking Greek.

Fish Gone Bad's picture

I am so glad I did not interpret that chart like he did.  Technical analysis works when it works and doesn't when it doesn't.  That flag formation looked like declining tops to me.  The whole world was getting sick at the end of December... not paricularly bullish.

abyssinian's picture

He was telling people oil bottomed at $36 and should start buying and the market will have a January effect and pop like a rocket last week.  Even on Wednesday he was saying he is confident that the market will pop.  Oh well, he made a lot of clueless people lose a lot of money. 

gmak's picture

Well. They've denied it twice now.  Just need once more for this to all go to h - e - double hockeysticks.

khnum's picture

Look Rocky I'll pull a rabbit out of this hat

thats nothing Ill pull a hair out of my arse



stant's picture

One day they will just let it float , hope its when the mackdaddys choking on one

zeropain's picture

already green,  you need wait after opex to crash the market and squezing of short out of there good shares.  i will happy to buy at 2000 and 2060.

RopeADope's picture

First the Chinese officials ignore reality, then they laugh at reality, then they fight reality, then reality wins.

zeropain's picture

yah there at stage three for the releif rally and after opex.

onearmedlove's picture

Your comment is ridiculous and humourous.

Cycle's picture

Expectations the yuan will depreciate sharply should be seen as ridiculous and humorous

PBOC-speak for "rope-a-dope."

Haole's picture

You know people have pretty short memories these days but I remember some of your calls a couple of years ago or so and IMHO you are worth listening to for a different perspective at the very least.

Can't upvote for some reason...

highwaytoserfdom's picture

Sum Ting Wong


"Sweet Caroline" "Sweet Caroline" "Sweet Caroline" "Sweet Caroline"

buzzsaw99's picture

still 3000 points overpriced imo

highwaytoserfdom's picture

PBOC-speak for "rope-a-dope." like that
"Rumble in the Jungle,"   now  FED/IMF  BRICS  who'd George who Frazier?

"Down goes Frazier"       

Yen Cross's picture

 Actually, things look rather placid tonight.

 I'm guessing the 1-4 hour charts are rebalancing.

 That DOESN'T mean the markets aren't many years overbought.

Catastrophus's picture

Don't remember if this has always been the case, but the Yahoo Stock Center charts for Asia are on a 15 minute delay now.  If they are trying to hide the facts...a lot of good a 15 minute delay is going to do them.

Dude-dude's picture

they don't have to pay as much fees - the instant quote package is the gold plan, 15 minutes delay package is the silver plan.  

tyberious's picture

Greggo was long for too long! 30-50% correction by the fall

Yen Cross's picture

 Here's something that caught my eye. My global F/X accounts don't trade usd/cny, but my U.S. accounts allow usd/cnh trades, albiet at higher margin levels.

 There's other ways to proxy the yuan, but I found it interesting.

Iam_Silverman's picture

"There's other ways to proxy the yuan, but I found it interesting."

True, but just because you can do something doesn't mean that it's a good idea for plebeian FX traders.

I look at it as trying to juggle knives.  Right when you think you have the rhythm down, the other CB tosses in another knife.  Or two.

GemRavager's picture

Why is a narrow CNHCNY spread a bad thing?

Bank_sters's picture

China's ppt is tryIng to stop capital outflows while stanching a gaping flesh wound of a market. Strengthening yuan = death knell for exports and stocks. A collapsing yuan and capital goes by by. So now they are playing the cool card. You see everything is a psychological issue with market participants.

Yen Cross's picture

 It isn't.. very astute observation.

NDXTrader's picture

It wouldn't be there if it got there by natural market forces. This is just illusion due to the PBOC scaring shorts out of the offshore so it appears that their fix is correct

Element's picture

Ladies and Gentlemen,

The opportunity to bug out ... has bugged out.

That is all.

IridiumRebel's picture

Scissors meet Shelter in Place.

khnum's picture

RBS says sell all but quality bonds,Morgan is advising use every bump up to sell,as for Shanghai Composite looks like kitty has been neutered.

Sweet Cheeks's picture

The Chinese government has instituted capital controls so the Chinese are investing in bitcoin.  Those ones and zeros are then easily transferred off shore under the government's nose.  That beats stashing jewels in the hems of skirts anyday. 

khnum's picture

Friend of mine is overseas Chinese drop a watch in a jewellers in my city and go to another shop in Hong Kong and collect $500.00 they are a little bit better organised than skirt hems,but your bitcoin point is taken crypto currencies are the main hope to get governments and central banks out of your funds the world needs to circumvent the current mob of bastards who decide what lives or dies financially