"A Complete Mess" - China Stocks, Bonds, Commodities Crumble As Trade Data Disappoints

Tyler Durden's picture

The forced deleveraging of China's WMP-driven excess was not helped overnight by disappointing trade data as both import and export growth slumped.

April Imports grew at just 11.9% YoY (in USD terms), dramatically less than the 18.0% expectations and well down from March's 20.3% growth.

April Exports grew at 8.0% YoY (in USD terms), less than half the growth of March (16.4% YoY) and well below the 11.3% expectations.

 

Bad news also hit the energy space after Saudi officials desperately triued to talk up OPEC production cut deal extensions, China's trade data showed a collapse in oil demand in April (down almost 12%)...

 

And the result was clear...

As Bloomberg details, April trade data add to the impression of a deceleration in China's economy heading toward 2H. Export and import growth slowed, and missed expectations, despite a lower base for comparison. Trade data are volatile, but the latest numbers are consistent with signs of a slowdown from April business surveys. If the peak for 2017 growth is already in the past, China’s space for progress on a challenging deleveraging agenda will be limited. Diminished scope for higher interest rates will also add pressure for yuan weakness.

This piled on the pressure across the entire China capital markets space with commodities (4 month lows), stocks (7 month lows), and bonds (22 month high yields) all tumbling further...

 

The soaring cost of debt has created yet another vicious circle as China bond issuance has collapsed. In April, the number of aborted issues rose to 154, up from 94 in March, 32 in February and 31 in January.

These signs of mounting stress in China’s $9.3tn bond market come less than a month after the country’s banking regulator, Guo Shuqing, was quoted as supporting a campaign to sort out chaotic practices, and threatening to resign if the banking system became “a complete mess”.

As The FT concludes, April’s increase in cancelled bond issues continues a trend of collapsing bond issuance volumes in the first four months of the year:

“The collapse in domestic bond issuance is a clear consequence of efforts to rein in shadow banking generally and wealth management products specifically,” said Gene Frieda, global strategist for Pimco, the US investment management firm.

 

“This adds to an already sizeable credit tightening impulse baked into the cake for the second half of this year.”

 

“The question now is not if China’s economy will slow, but rather how fast,” Mr Frieda added.

As we noted previously, one wonders how long implied vol for the Yuan can decline (and spot remain stable)...

And we know what happens after that.

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TheMayor's picture

Typo in story:

 

Bad news also hit the energy space after Saudi officials desperately triued

Haus-Targaryen's picture

So I like to think I have a pretty good understanding of things, but I have no shame in asking when I don't have a clue.  

Concerning the last chart on the page --- are the Tyler's implying USDCNY will decrease to meet volume (Yuan appreciating against USD) or will USDCNY volume increase (unlikely given article) to match exchange rate?  

I am a bit left in the dark re; the last sentence of the article.  Someone wiser than me, please educate me on this.  

EDIT - Think Tylers saying PBOC will stimulate USDCNY volume by devaluation to a exchange rate grater than 7 to 1.  Correct?  

The flatlining of the USDCNY is merely the PBOC holding it down until it can control the devaluation?  ITs akin to holding a beachball under the water level, and pushing it farther down until arms give out?  Yes?  

EDIT 2 - How would such devaluation affect arbitrage on the SGE?  

 

LawsofPhysics's picture

I think this is a fair assessment with one modification...

...there are multiple beach balls being held under the water line...

MFL5591's picture

US paper money backed by nothing is the king of the hill.  This shit is laughable!

Ghordius's picture

my two cents are that you are focusing too much on the FX side

see there, the imo key sentence is this:

"“The collapse in domestic bond issuance is a clear consequence of efforts to rein in shadow banking generally and wealth management products specifically,” said Gene Frieda, global strategist for Pimco, the US investment management firm "

now, what does "efforts to rein in shadow banking and WM products" mean? it means a decrease of credit, less leverage. leading to less bonds being bought... on credit, with leverage

(in this, note that it's usually a banker or a wealth manager that criticises this kind of thing)

Haus-Targaryen's picture

Understood.  So how can the PBOC maintain demand for debt?  They only have so many tools at their disposal. 

Ghordius's picture

excellent question. leads me immediately to think about those 3'000 billions of US Treasuries that became some 2'700, lately

what I mean is that the PBoC has reserves and does not follow an independent policy from any other part of the Chinese state, while the Chinese economy is still quite dominated by state-owned banks and state-owned industries

in short, there is practically no tool they have not at their disposal, all tightly controlled by the government, as far as I can see

so if they have problems (and they seem to have huge ones), they'll "bleed to death", imho, so I'd suggest to watch out for those reserves as the true "canary in the coalmine"

Haus-Targaryen's picture

So they dump treasuries in exchange for RNB and play with it along those lines.  

As long as the Japs continue to buy everything with freshly minted Yen, I guess this can go on for a while. 

*Le sigh* 

Ghordius's picture

"go on for a while" = "playing a long game" is practically the definition of every Asian strategy, steeped in Asian cultures

note in this that the key principle of Japan's "long game" is twofold: access to resources at any cost and "don't let foreigners get any Japanese sovereign bond"

remember when Kyle Bass was looking for ways to "short Japan, the bug in search of a windshield"?

he had to find all kinds of related, indirect trades for that. he shorted non-Japanese things related to supply lines to/from Japan

more importantly, he was impatient, fed up and gave up

the Chinese proverb about this kind of things is that you have to lie under the shade of a tree and patiently wait until the corpse of your enemy floats by. the more you go towards the East, the more Patience becomes an acknowledged virtue

spanish inquisition's picture

I remember a news blurb years ago when the CEO of a Japanese company said something like "..we have an 800 year long range plan..."

LawsofPhysics's picture

You sir are an optimist. Go ahead, sell all those bonds and reserves PBoC!!!!!  Let's clear all this bullshit DEBT/paper already!!! China would have been in a much better position, had they not created exponentially more bad debt/paper than The Fed...   ...(that's one large motherfucking beach ball).

fuck em.

http://brucewilds.blogspot.com/2017/04/china-still-adding-liquidity-to-s...

 

Ghordius's picture

the pessimist sees me as optimist, the optimist sees me as pessimist. I try to be a realist, so... yes, that's me for you

yes, you are right. the FED. by the immense power that it wields with the US Treasury... it kind of allows other huge mountains to look kind of normal

yes, the FED and the US Treasury kind of define "normal". all the rest... compares to them

and the relevant comparison in this case is that the PBoC has reserves (denominated in USD)

LawsofPhysics's picture

so you are sugesting defaults are coming then? With less bonds being bought interest rates must go up!!!

I call bullshit.

CorporateCongress's picture

They are talking about implied volatility, not volume of trades. They're trying to say that while all looks stable on spot (and hence vols are dropping) that will change on the next spike they expect. After a period of (fake/manufactured) stability the spikes tend to be larger as the market suddenly rebalances.

 

My 2 cents

Captain Sensible's picture

" LE TOP"   peut etre 

HRClinton's picture

Le petit mort, Ona Top?

-Bond

Seasmoke's picture

Gold. China. What are you waiting for ???

BigFatUglyBubble's picture

Probably still buying as much as possible at suppressed price.

ArthurDaley-OldieTimeTrader's picture

Look at the monthly chart on Bitcoin may be two more months at most before the mother of all parabolic collapses arrives. All the Bitcoin muppets will have the rug pulled on them in that market.  Rotation will then be obvious and the first (and last) real refuge of money, precious metals will come to the front..

HRClinton's picture

They think and hope that they can outmaneuver the Globalist bankers through peaceful and smooth means. 

Because nobody wants their punch bowl and lifestyle taken away. Perfectly understandable, but pure Ostrich Politics. 

He who adapts and front-runs first... fares best.

syzygysus's picture

Can you hear that?  Can you hear the electrons screaming as they turn into 1s and 0s in the digital printing presses of the central banks?  Oh the madness..

LawsofPhysics's picture

the sound of inevitability...

HRClinton's picture

If you have to shoot, shoot! Don't talk about it!

There are those with guns, and those who dig.

LawsofPhysics's picture

The number of consumers on the planet cannot be greater than the number of producers...

Once trade stops crossing borders, troops will...

Let it Go's picture

At some point just pumping more money into a corrupt system no longer works. The Chinese economy is being propped up by a stack of newly printed money. In a world where money flows across borders at the press of a button, it doesn't matter which major central bank is adding money to the system the effect is the same. Today money printed and injected into the economy of any country drives markets higher across the world by distorting demand and prices.

Those who doubt the power of cross-border money flows need only look to Vancouver Canada which has been forced to implement a foreign buyer tax in an effort to halt the rise in housing prices inflated by "hot money" from China. Toronto's housing market has also gone crazy with prices soaring 33% from the prior year. For more on just how much China is expanding its money supply see the article below.

http://brucewilds.blogspot.com/2017/04/china-still-adding-liquidity-to-system.html

LawsofPhysics's picture

^^^THIS!!!!!!!!!

Good luck to all communties that stand in the way of Chinese expansion.

Ghordius's picture

"In a world where money flows across borders at the press of a button..."

are we still talking about China? with it's currency controls?

HRClinton's picture

"People with ropes around their necks don't always hang." -Tuco the Ugly.

ThanksIwillHaveAnother's picture

Smells a little like 2007 with 1987 thrown in for good measure.

ArthurDaley-OldieTimeTrader's picture

There are several saving graces at the moment. S&P 500 at ATH. Nasdaq at ATH. Bitcoin ATH. These Icaruses will collapse along with fiat currency then the only refuge is precious metals and their mining counterparts..

 

Ricki13th's picture

If this continues then interest rates on those bonds are going to spike. No way China let that happens unless they are ready to transition to a gold based economy and screw the old system that will mess up the US economy already.

Hongcha's picture

Flat.  ZZZZzzzerohedge.

DaBears's picture

It's painful to watch people sell physical gold for USD, it's more painful to watch people sell physical gold for toilet paper such as Yuan or Zimbabwe dollar. China is running  out of greater fools in their "great" ponzi scheme. However we still have plenty to go around here and worldwide for Wall $treet. China mayhold $0-$3 trillion FX but that's  about $0-$2100 worth of USD per Chinese capita, when the dumping begins, that "great" ponzi scheme of theirs would collapse faster than "Hellary's winning poll numbers" in November.

mendigo's picture

Actualy if looking at first charts of import and export growth for last 5 years they seem to have hit about the mean.

The series appears very volatile so lots of fodder for running in hydterical circles.

The mistake was in showing some context. Next time shorten to time scale and should draw on chart to emphasize that it is declining.

Serious shit is happening. But enjoy the in flight entertainment.