Even before China reopened from its 5-day holiday, regulators were pitching Chinese stocks as cheap (37.3x P/E) and less-margined (+108% YoY) and promised to "safeguard stability" in a "variety of forms" seemingly pouting cold water on The FT's recent report (and the malicious instigator of China's market crash). All of this is quite ironic, given China's chief central bankers admitted "the chinese bubble has burst." As stocks open, CSI-300 (China's S&P 500) has confirmed a 'Death Cross' which in 2008 was followed by a further 60% decline. More troubling, however, is the incessant rise in interbank rates as despite CNY530bn of liquidity injected in the last 3 weeks, overnight rates have doubled. China credit risk jumps to 2-year highs and AsiaPac stocks are generally lower at the open (as US futures dumped'n'pumped) not helped by Japanese weakness on BoJ tapering concern [13]s. PBOC strengthened the Yuan fix for the 4th day in a row - the most since Sept 2010.
After 3 days of stronger Yuan fixes into Wednesday of last week (before China closed), PBOC went even further - fixing Yuan 0.21% stronger, extending the streak to 4 days and 0.73% stroger - the biggest 4-day move in 5 years...
- *CHINA SETS YUAN REFERENCE RATE AT 6.3584 AGAINST U.S. DOLLAR
[14]
China's "S&P 500" just suffered a Death Cross (50-day moving average crossing below the 200-day moving-average)...
[15]
It did not end well on previous occasions and we note that Shanghai Composite is likely to suffer this technical signal within the next week also.
AsiaPac stocks are weaker...
- *MSCI ASIA PACIFIC INDEX EXTENDS LOSS TO 1%
- *FTSE CHINA A50 INDEX FUTURES FALL 1.1% IN SINGAPORE
Dow Futures algorithmically extinguished all the stops above Friday's highs and below Friday's lows before tumbling back to unch...
[16]
* * *
However, even before tonight's weakness began...
Speaking via the government's unofficial mouthpiece - Xinhua [17] - China Securities Regulatory Commission promised...
*CHINA'S ECONOMY IS STABILIZING, IMPROVING, NDRC SAYS
*NDRC SEES CHINA ABLE TO ACHIEVE ANNUAL ECONOMIC GROWTH TARGET
we want to continue to stabilize the market and prevent systemic risk as a primary task to stabilize the market - to repair market...
when violent abnormal fluctuations in the market which may lead to systemic risks, the China Securities Finance Co., Ltd. will continue to play a role, safeguarding stability in a variety of forms.
In addition, CSRC seemingly started pitching Chinese stocks as 'cheap' again noting that the P/E ration has tumbled (yeah but Shenzhen sticll 37.3x forward guesstimates) and laverage has dropped (yeah margiun debt is down CNY1 trillion but it is still up 100% YoY)...
Cheap?
[18]
However, most troubling of all is the doubling of overnight lending rates in the Chinese interbank market... Despite CNY 530bn in liquidity injections in the last 3 weeks alone...
[19]
SHIFON has doubled!!!!
[20]
Indicating Chinese banks are under massive liquidity stress... and implicitly the government too...
- *AG BANK, BOCOM CORE CAPITAL RATIO BELOW BASEL TARGETS: SCMP
- *MOODY'S: CHINESE BANKS WILL FACE RISING OP PRESSURE
[21]
China is now credit riskier than Italy, Spain, and Saudi Arabia.
* * *
Away from China, Japanese markets are turmoiling after BOJ Tapering concerns mount... [13] [13]
[22]
and not helped by Toshiba's massive accounting fraud loss...
- *TOSHIBA POSTS 37.8B YEN FY14 NET LOSS AFTER ACCOUNTING SCANDAL
Sending USDJPY plunging...
[23]
Paging Mr.Kuroda...
[24]
As everyone awaits South Korea's rate decision later this week... [25] The carnage in Korean trade is unmistakable in the following Barclays chart:
[26]
As for what this means for Korean monetary policy, no surprise here: more easing.
We now expect the BoK to deliver a further 25bp rate cut in Q4, most likely in October. We see an outside chance of an earlier move, at the 11 September meeting, but we continue to believe that the BoK will prefer to move after the initial delivery of the fiscal supplementary spending and the US FOMC meeting on 17-18 September. Also, we now expect the first rate hike in Korea in Q3 16, rather than in late Q1 16. Moreover, with key indicators for the services economy showing a healthy post-MERS rebound, we believe the urgency to act immediately is still low. We believe the existing focus on engineering a weaker KRW bias – possibly by stockpiling essential commodities such as fuel – will remain.
Of course, further easing by South Korea, or even an outright devaluation, means the ball will then be in the court of Korea's trade competitors, who will then be compelled to match the Korean move with further easing (or devaluation) of their own, and so on, until one can no longer sweep the global recession under the rug. It isn't called the global race to the bottom for nothing.
Charts: Bloomberg
