China Liquidity Crisis Deepens, Spreads Across Asia

Tyler Durden's picture

Having exposed the deepening liquidity crisis in China previously, tonight's action across AsiaPac money-markets suggests - despite US equity record highs - all is very much not well below the surface of the global financial system. Short-term China repo rates have exploded to 20-month highs, Hong Kong Dollar money-market rates have jumped to the highest since May 2009, and Yen basis swaps are showing the most extreme demand for dollars since Lehman...

China liquidty conditions have gone from bad to worse with 14-day repo spiking to 6.00% - the highest in 20 months...

To be clear this means a Chinese bank was willing to pay 6% to ensure liquidty for the next 2 weeks (compared to 2.5% yesterday!)

Also notable is the upward pressure this has put in Offshore Yuan versus the dollar...


Pushing Hong Kong Dollar HIBOR up to its highest since May 2009...


It appears that Japan is suffering too as USD-JPY basis swaps have crashed to record lows - the most desperate demand for USDollar liquidity since Lehman...


Finally, it's not just AsiaPac as our index of global dollar liquidity (BIS' new 'fear' index) is in grave trouble, trumbling to 4-month lows...



As we noted previously, quoted by Bloomberg, Wu Sijie, bond trader at China Merchants Bank said "tightening interbank liquidity and the expectation of even higher short-term borrowing costs are driving up swap costs and affecting sentiment on the cash bond market."

Meanwhile, signalling no change at all in its posture, overnight the PBOC drained funds in open-market operations for the fourth consecutive day, bringing the total withdrawal to 130 billion yuan.

Why is all of the above relevant? Because while so far the global capital markets have been immune to the substantial tightening in financial conditions resulting from the sharp rise in the US Dollar and US interest rates, a similar tightening in China - which is now clearly taking place - will be far more difficult for global risk assets to ignore.

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Seasmoke's picture

DePeg and go to Gold now !!!!!!!

froze25's picture

2.5% to 6%in a day seems like a giant move.  Could this be the Start of the unraveling ? 

Arnold's picture

10% eventually for short term money, I know a guy named Guido,...

HRH of Aquitaine's picture
HRH of Aquitaine (not verified) Pinto Currency Nov 30, 2016 2:52 AM

Off topic: RBS / inflection point for UK banks as they failed the stress test.

Stock price decrease directly ahead.

s2man's picture

Well,  this is going to be fun.

Dr. Engali's picture

I'm having a liquidity crisis myself. I'm out of beer.

wisehiney's picture

You cannot scare us away with such a decoy/distraction, nor fool us.

Search party will be there soon.


Arnold's picture

Renting inexpensive beer is a better cost / return option.

froze25's picture

Had one my self over the weekend, hit the toilet about 10+ times.

zorba THE GREEK's picture

The world wants our dollars, praise the lord, finally the world wants something we produce.
Let's get those printing presses rolling. Hire more printers. Put on another shift. The U.S.A.
is back in the manufacturing business.

Pinto Currency's picture

It's short term demand to pay off US dollar denominated debt as economies slow globally. The debt will crush everyone in the end.

zorba THE GREEK's picture

The profit margins are fantastic. A hundred dollar bill cost 8 cents to print and we can sell them worldwide for $100 each. We are all going to be so rich. Happy times are here again.

wisehiney's picture

Zorba, I am afraid that Dionysus is running rampant here!

fbazzrea's picture

8 cents/ea?? sounds a little high for the volume production Merika cranks out. you must be on an accelerated depreciation schedule.

but still... not bad. $0.92 net

and how much of that do we get to keep? ohhhh... i see.

the banksters are all going to be richer. yeah, happy times...

oh yeah... hope our customers don't want to spend 'em. they might want their own money back.

wisehiney's picture

Does anyone remember that I said these mofos are going to do the same thing as last august, scream from one extreme to another.

Just remember that your bronc has got to eat too. So don/t puss out on your beloved manipulators.

Be right.

And sit tight.

Yen Cross's picture

  That helps to explain why usd/jpy got stop hunted before the Tokyo fix. It's EOM, so there's flows, but that was pretty obvious, with no real macro on deck today.

 There's some $usd Fed. jawboning on deck tomorrow. Also BUBA flows with the euro.

JackT's picture

Just be thankful for each additional day that this hot mess doesn't melt down.

bustdrs's picture

Today we've had the most "since Lehman" numbers on ZH, since Lehman.
Loved that minus 24.9% YoY Aussie house start drop.

DarkLordofSadNews's picture

I have friends with 11 properties with cash flow positive in aus ..well ahed of the game as well 15 years 3 mil in equity notbad eh!

Snaffew's picture

the australian market is crashing right now....that is going to be a dire situation.  Your friend's property values will be halved soon enough imo.

Lost in translation's picture

How did China get into a liquidity crisis? Where is the money going - abroad in the form of capital flight?

I thought the PBoC just printed when they needed to...

Can someone please explain this?

House_Wife's picture

As someone living in China, thank baphomet that I took advantage of their 99.9% gold jewelry to the extent I did.

Sky flyer's picture

OT but just saw where Mumbai banks are running out of currency notes tonight.

Snaffew's picture

meanwhile...hang seng and the nikkei indices continue to surge on.

bidaskspread's picture

Rising rates? Wonder if all that Chinese pledged collateral for foreign investments is still worth par.... Margin calls a coming.

Yen Cross's picture

 The end of month $usd buying, is starting to look pretty silly.


Grandad Grumps's picture

Even with the above, it seems tha they will be hard-pressed to crash the system by Saturday ... barring an unforeseen event.

Oleg the Man's picture
Oleg the Man (not verified) Nov 30, 2016 5:35 AM

China? Meh, all eyes on France

SmittyinLA's picture

Chinas 50B a month US trade surplus was actually Israel's, they only got operating expenses, and they set nothing aside for worker pensions or environmental damage, China is like a sub-prime Escalade with 180000 miles  and 5 years of payments left  they need a .Muslim war to fix their shit too.

Cue the Senkakus


Let it Go's picture

One of the most important things to remember about the global currency system is that by design it is fairly closed. This means relative value tends to merely shift back and forth between the four major currencies that dominate the system, this is the main reason currencies appear more stable than they really are.

It only becomes a real problem for governments to deceive us as to the real value of our currency when this bond is broken. Unstable currency markets can be a precursor to massive shifts in value and a sudden drop in confidence. It is logical to think that in such a situation insiders would be the big winners. More on this subject in the article below.

Nomad Trader's picture

Agreed. And you can add tightening interest rates to that concept since if one raises they will all raise. Today proved that to me and my long TMV is paying me for it. After 15 years trading it is still one of the best trades I've ever seen. Maybe in 3 years I'll take a look at if I want to still hold it. But honestly I think I'll never sell TMV.

Nomad Trader's picture

This is by far the most important article in ZH in the last 3 weeks.

radbug's picture

Imperial Spain did this post-1610, after Potosi petered out & the money went bad. It closed up and had a 40 year import replacement boom, while its Tiger supplier economies all had civil wars. No wonder everyone outside America is fleeing to America.