On the heels of growing contagion concerns regarding shadow banking collateral and the "rehypothecation evaporation" [9] and this weekend's 'odd' Chinese trade data (big drop in imports, no doubt impacted by dramatic commodity invoicing swings), the PBOC has fixed the Chinese currency 0.36% in the last 2 days... the biggest strengthening in the currency since October 2012. It is unclear for now exactly what is going on but we suspect the panic button outflows as banks pull credit and unwind CCFDs are forcing China's hand to offset CNY selling pressure... and of course China does it in grand style.
China's biggest trade surplus since Jan 09... as imports tumbled 1.6% (against expectations of a 6% rise)
[10]
After weeks of weakening and comments on rising volatility and flexibity to tamp down the carry trade fervor, China has gone to the other extreme...
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Whether this is to kill off the last of the momentum-chasing muppers now following the CNY weakenin trend is unclear but one thing is certain, the coincidence of such a violent move with the rising credit contagion concerns in the warehouse probes is extremely interesting.
Barclays provides some more color:
Barclays expects depreciating CNY and recent govt probe into commodity financing to continue to discourage commodity imports for arbitrage purposes, according to note yesterday; despite sizable trade surplus and FDI, PBOC’s FX purchase slowed markedly in recent mos., suggesting reduced capital inflows from other channels and signs of capital outflows
First we are told this...
- *CHINA CASH CRUNCH IN JUNE LAST YR UNLIKELY TO REPEAT: LIAN PING
- *CHINA'S OVERSUPPLY OF PROPERTY MAY LAST FOR 1 YEAR: LIAN PING
Which likely means that is exactly what they are worried about... and then Premier Li is starting to worry...
- *PREMIER LI SAYS DOWNWARD ECONOMIC PRESSURE RELATIVELY LARGE
- *LI URGES GOVT TO RESOLVE PROBLEMS OF FINANCING, EXPORTS
- *LI KEQIANG URGES GOVTS TO ENSURE CHINA TO MEET ECONOMIC GOALS
- *LI KEQIANG SAYS HE WORRIES ABOUT IMPLEMENTATION OF POLICIES
And then there's this...
- *CHINA MAY LAND SALES FALL 49% TO 62.2M SQUARE METERS: SOUFUN
So - not good then!?
And then copper crashes to Friday's lows...
[12]