US Equities Tumble As PBOC "Stamps Out" Short Yuan Speculators With "Murderous" Liquidity Squeeze
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...
- *CNH-CNY SPREAD NARROWS BELOW 100 PIPS FOR 1ST TIME SINCE NOV.
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
- *OFFSHORE YUAN STRENGTHENS 0.6% TO TRADE AT PARITY WITH ONSHORE
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:
- *SHANGHAI MARGIN DEBT BALANCE DECLINES MOST IN FOUR MONTHS
"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)...
- *PBOC TO INJECT 80B YUAN WITH 7-DAY REVERSE REPOS: TRADER
- *CHINA KEEPS YUAN FIXING LITTLE CHANGED FOR THIRD DAY
- *SHANGHAI MARGIN DEBT BALANCE DECLINES MOST IN FOUR MONTHS
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:
- INVESTORS SHOULDN'T SELL CHINESE STOCKS AT THESE LEVELS: UBS
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
- *YUAN FALL TO STIMULATE CHINA'S EXPORTS: SECURITIES JOURNAL
which is entirely incorrect...
And then this:
- *EXCHANGE RATE NOT DETERMINING FACTOR FOR EXPORTS: SEC. JOURNAL
Confused?
And finallyu there is this:
- *PBOC'S ZHOU ATTENDS BIS MEETING
In other words - they are starting to coordinate!! Against The Speculators? Or The Fed?
(9 votes)
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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.
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
RBS... Let's me see.. Oh yes RBS.. I remember them when they were whole and not assholes. Never trust Goldman or RBS (Royal BULLSHIT)
I need to pay 82% to short squeeze? That'll last like two days.
Injecting 13 billion US to fight short selling for a day?
How much will they spend on top of that to keep their stock market off the carpet as well?
The burn rate is reaching incredible heights and lots of government money is being inserted directly into the pockets of various in-the-know private parties.
Reverse QE of what? say 100 billion USD per month? or 200? Selling Treasuries like there is no tomorrow. Oh wait...
if, of course, they're actually spending as much money as they say they are.
They may have taken a leaf from the Book of Fed.
Just a temporary stop on the road to herding everyone into the $. Come on people... into the pen you go.
Emerging markets are exporting their inflation.
They borrow in expensive $usd denominated credit lines. These aren't sophisticated financial engineers.
The middlemen, " Fake Banksters" need to pay their Overlords.
FX Team USA: "Boys, how about we go for some Chinese takeout?" [laughter in room]
Which kind of ignores why it's happening in the first place.
People get greedy. [desperate] and make bad decisions.
I might be giving China to much credit, but this a convenient excuse to sell treasuries.
If the Chinese were holding gold they wouldn't care about the exchange rates.
Squid
Don't miss the battle of the Central Banks. Stay tuned to ZH.
If you look at a chart of the Shanghai Composite from 2011 till today, you'll see that it spent 95% of its time below 3000. It only moved above that mark in December 2014 when GS started to blow up the Shanghai Bubble.
So really everything in the Shanghai Composite after January 2015 is bublicious (GS) and not to be used for comparisons. The writer gets a demerit for that.
"YTD the Shanghai composite is deep in the red." But wasn't last year the year of the margin bubble? The bubble that occurred when China opened up trading of its 'A' shares to foreign investors in the last 1/2 of 2014 and the Jew crew from GS moved in.
Last summer the PBoC made it clear that it hated short selling of their stocks. Well, apparently they hate shorting their currency just as much.
It's not surprising to see
They wanted it done and it got done.
You underestimate the determination of PBoC to do something at your own risk.
This Senator has some balls,he is not afraid to say the the way it is.A little of subject.
https://www.rt.com/usa/328590-senator-saudi-arabia-turkey-threat/
Trilemma of Monetary Policy is that you cannot have an independent monetary policy by fixing exchange and curbing capital flows. Your balance sheeet get burned buying/selling currencies with capital controls. This is what is going on and the cute part is that China has a balance sheet that amplify the the headwinds through its economy. Too late to build the financial structures to absorb the reverberations. (like a truck wihout absorbers). It is also fun that as a major center of the global real economy, it spread the virus through now the much meshed global links (physical and virtual).
This is capital consumption par excellence with nations exporting and exacerbating with more controls the debris. (Most nations have not inoculated themsleves with robust balance sheets so the tears magnify within). Inevitably, even more power is handed over to the faceless global markets who take no prisoners. Be at the right place at the right time to ride the trends that are so apparent.
PPT is up early !
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Better look again