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Is China's Yield Curve Signaling A Harder Landing?
Following our note on the flattening (and update on the steepening) in the Chinese yield curve (RMB 10Y - 2Y to be specific) last November, we have continued to keep an eye on the relationship between the Shanghai Composite and the bond market for signals that all is not well in the recent 'soft-landing' rally. While Chinese shares have seen their best January ever, the RMB curve has flattened quite notably. As Morgan Stanley points out in an FX Pulse update today, the yield curve is an early indicator for local shares, which should not be a surprise given the still restricted Chinese capital account. While we have seen this kind of divergence in the US (where given free capital flows the relationship between yield urves and the equity market has loosened over the past 30 years), in China the relationship is still tight and further flattening of the Chinese curve would call into question the equity market rally (and soft-landing thesis). The flattening RMB yield curve suggests the local bond market has become skeptical of Chinese growth prospects. Should the RMB curve flatten further from here, the anticipated decline of commodity currencies (AUD most specifically for US equity carry traders) could be sooner than expected.
(note: we know the illiquidity in the short-end of the RMB curve and have attempted to adjust for it in the data)
Chart: Bloomberg
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AUD is levitating for no reason. Decline is way passed due.
With all those cash reserves they have at hand they should be able to avoid hard landing. Unless the US shows them the finger and Chinese can kiss goodbye to their Americano holdings. Even Superman can't save them then!
That's true, imagining all the wallmart skyrocketing with their price and the food stamps will be in shortage. I say kiss goodbye for China propping up the trash dollar
There you have it. There is actually no sign of weakness. A slowdown? Yes! But he who takes that for a sign in order to shift his or her investment paradigm is up for some losses, in our opinion.
China is not weakening, so stop trying to mislead, Tyler. How about looking at Morgan Stanley's research et al... more often?
For professional reasons I probably see as many research papers (if not more) than you do, TD, but - and that's rather strange to me - you only seem to show and discuss those to and with your community that fit your investment strategy regarding PMs.
Some stocks are up forty (40%) per cent since October, beating PM by some cute multiple. I bet readers of this blog have missed that move entirely... Sad!
Here's a hint. When a ZH article title ends with a question mark, the answer is NO.
And if ZH's talking can drag down the market as it wished, S&P should be around 500 now. ZH is getting deparate now - trying to spin everything in a negative way. Too bad the market is not listening. Even a bitter divorced wife might eventually let her ex go. I don't see it happening to ZH.
I kind of guess the psychy behind this might be political rather than investment based. I personally hate to see the joker in WH gets reelected. And if the market is up and up, bad news for anti-osama people. But hey, can we just make some money while still having our political principles? The way this site is running is such a loser now.
if those down arrows can be used as hard currency, you guys would be RICH now. But I guess if this is the only thing you can do to get satisfaction, I will be happy to take more. LOL
The AUD has payback written on it. ZH overlay the ASX200 with the Shanghai and RMB 2/10s. Pure crystal ball. China meltdown has already started.
I don't think the issue is whether or not China has a hard or soft landing but that it has a decade long landing.
The phenomenal growth that China experienced over the last 10 years, will not be what we see over the next 10 years.
Further todays euphoria over job gains, is lovely. Seriously. Is some of it manipulated....absolutely. Holding denominater constant from 2008, we would be looking at an 11.8% unemployment rate. But the market is looking through that. So be it.
But todays data doesn't preclude that the trajectory over the next 10 years for the US is one of an attempting to engineer a soft landing for US living standards.
The real issue imho, is going to be the third largest economy in the world:Japan. At some point in next 5 years. What it looks like i have no clue.
Japan's future is simple and dire in my opinion. They either start having a hell of a lot of babies, adopt a very liberal immigration policy (unlikely) or they watch their entire culture slowly die off.
The day traders are pucking all over gold/silver today. Thank you guys, I have another big exchange of toilet paper for silver planned on Monday.
Let me try to get this straight in my mind, because I try to trade on facts and am getting killed. Lot's of people dropped out of the workforce at the end of the year. Gasoline consumption dropped about 7.5% in one month, which may confirm people not driving to work. They begin living off savings, or drawing retirement, which pressures their own or retirement account to sell to raise cash. Government receipts drop and payouts go up. Europe still screwed. Baltic Dry plummets as China traders realize the raw materials are no longer needed.
And the market skyrockets
What am I missing
Not a darn thing...other than TPTB can keep this Ponzi scheme going as long as they want.
What am I missing?
Your money... & what was your capital base...
bull trend that is now topping to 2011 highs. what does that mean? every trader in the world should study the history of the market, the crashes. Study 1987 crash and prelude to the 2008 crash. Also the 2010 crash, HFT momos panic on news reports. The current trend is reflecting the same characteristics.
make money. time the collpase
The last 3 years have been littered with a huge amount of traders who have assured us that this is really a bear market rally and not the start of a new bull run.
We've had countless of charts showing the similarity between now and previous drops/tops and all said that we were going down, not just down but really really deep.
Yet here we are, with S&P within distance of 1350 yet again.
Don't get me wrong, I'm on ZH's side most of the time but one ought to know by now that the markets can remain irrational for a lot longer than traders can remain solvent, as this has been stated and shown to be true in here many times.
"Time the collapse": good luck to you; i wonder how many bears' accounts have been blown up again recently because "this really is the top/it can only have one more leg up....".
Stay safe
My friend, you are not missing anything. This is the later stage of an impending financial collapse.
ANYONE who thinks that this makes sense is brain-dead. With integrated supply chains, metrics such as Baltic Dry and Fedex projections, we have an almost real-time view of the economy. Things are not getting better...
What you are seeing is that the numbers have been "adjusted". Europe is the freight train approaching and it's out of control. The great reset is on its way.
Baltic Dry = useless index.
People are floating old boats and trying to rent them. There is massive overcapacity as shipyards have build huge fleets of big ships with more fuel efficient specs over the last few years.
Track the volumes, not the prices.
Baltic may bottom soon, and uptick, but is still irrelevant as noone is making back their cost of capital. It's like the airline industry, buy the marignal survivors when noone is making money, and sell when they all start making money.
I reckon that the 'thinker' who junked you hasn't got any of the data needed to make an informed guess whether the drop in the BDI is due to:
1) a slowdown in goods needed to be moved around the globe
2) an increase in the supply of ships available
Yet, you dare to maybe disagree with ZH's article, so automatically you must be wrong.
What has happened to critical, i-will-make-my-own-mind-up-rather-than-just-believe-everything-including-ZH, thinking that is the trademark of this site, and should also be the trademark of its contributors/posters?
Nothing - best thing to do is to stay out of this crazed market.
Dose China need US Dollar for their domestic demand? No!
How large a component of GDP is domestic demand, moskov?
Domestic demand is easier to raise. Wage increase,cut tax.Stop buy treasury bonds with Chinese people's money. Is that so hard? No.High Tax is the major burden for Chinese demostic consumption
If consumer demand is so easy to raise why has China been so reliant on exports for so long?
Actually this may be the result of beijing's new initiative to shift pension funds into equities.
New paradigm, lol
I was reading earlier that there are problems in India too. Unbelieveably with official interest-rates at 8.5% the Reserve Bank of India is doing its own QE as explained below.
So what does it mean that the Aussie bonds are inverted through the 10 year?
Aussie bonds are safe haven flows as is the AUD. China goes and the Aussie housing market goes, you'll see the 10yr dumped Greece style, no doubt there at all. Same with Canada bonds/CAD. What will be interesting about the Aussie market is that it could sell despite rallies in EZ/US. Although, I think those markets are due for a massive correction very soon.
The bond yield curve flattening in this case reflects moreso the achievment the Chinese have had some success in fighting inflation (the reason short-term rates are so high), and the expectation of a loosening of monetary policy (which will help avoid a hard landing).
The Chinese are due to fall. There is no way the 2nd largest country in the world by GDP can continue in perpetuity to grow at an 8+ % annualised rate. But, before you call a hard landing this year or next, bear in mind that they (unlike the developed world) have very tight monetary policy, have 50+% of their GDP in foreign reserves, have been sending their kids to the developed world for 20+ years to get educated, have more control over their economy than any over major (thank you central planning).
They just have the ability, moreso than any other major country, to continue to pump the gas pedal.
Like the inevitable US & Euro bubble bursting, the Chinese will find a way to kick the can down the road.
the flattening yield curve is a ww.phenomenon.con
the banksters are going longBondz and heading for ZIRP so they can pawn off the next round of debt on those needing another fix
you know who you are
maybe pretty soon, maybe sooner than people think, mrMarket will administer another "counterpartyIntelligenceQuotientTest" which will be graded as follows:
trust me! L0L!!!
The A$ ain't gunna collapse until all our local industry has been gutted. TPTB have planned it that way.