Did China just re-enter the currency wars? The Chinese Yuan dropped 0.29% overnight - its biggest drop since September and 2nd biggest devaluation since March - as the currency tumbles back in line with the PBOC's fixing for the first time in over 3 months. Despite 'hopes', S&P confirms the recent (and reconfirmed) rate cut doesn’t signal renewed government intentions to resort to aggressive stimulus to prop up economy. More troubling is the fact that China's huge corporate debt market appears to be freezing as over $1.2 billion in bond sales were scrapped or delayed last week [10] suggesting wall of maturing debt will find it increasingly difficult to roll-over and keep the dream alive (especially in light of Haixin's bankruptcy last week [11]).
CNY dropped notably overnight, now back in line with the PBOC fix for the first time in 3 months...
[12]
As Bloomberg reports,
PBOC will probably push USD/CNY fixing higher amid expectations for a weaker yen and euro, as well as the need for looser policy at home, according to Richard Iley, chief economist for Asia at BNP Paribas.
“China is losing the currency wars, steadily increasing the risk of another engineered bout of CNY weakness,” Hong Kong-based Iley says in interview today
Financial conditions are “uncomfortably tight,” and more easing will be required if real GDP growth is to “have any hope of being propped up close to politically mandated levels next year”
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And the fundaraising strains appear to be showing up in the Chinese corporate debt space (as Bloomberg reports) [10]
China’s companies scrapped or delayed at least 7.55 billion yuan ($1.2 billion) of bond sales since Nov. 20 as borrowing costs jumped, flagging fundraising strains even as the central bank eased monetary policy.
[13]
The yield on AAA rated corporate securities due in three years rose 17 basis points last week, the most in a year, to 4.43 percent. The increase comes as investors held more cash ahead of planned new share sales this week, with initial public offerings to lock up at least 1 trillion yuan, according to Australia & New Zealand Banking Group Ltd.
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but but but, QE and rate cuts and stuff...
