In "Significantly Great News" China Parts Ways With Yellen, Refuses To Hike, For Now

When the Fed last hiked rates by 25bps in March, China's central bank followed suit almost immediately by engaging in a "soft" hike, raising the rate on its various reverse repo operations by 10bps.

But not this time: when the PBOC announced its daily reverse repo operation last night, which saw a net injection of CNY 90 billion in the market, traders were only looking at one thing: whether the PBOC would again raise rates on its various reverse repos. It did not, and as we remarked last night, the PBOC instead kept all open market operation rates unchanged at 2.45%; 2.6%; 2.75% for 7/14/28 day repo.

As JZ Securities' chief economist Deng Haiqing summarized, the PBOC’s decision not to follow Fed is "significantly great news" for bonds.

Why did PBOC chair Zhou Xiaochuan "break stride" with Yellen? For one, it is possible he is simply late - after the Fed raised rates in December, the PBOC didn’t follow suit until February.

However, this time, Bloomberg thinks the split may be for real: it suggests "Zhou sees more autonomy to address domestic challenges, with the yuan holding stable and tighter capital controls keeping outflows at bay. More independence allows China’s policy makers to shrug off Fed tightening for now, as there are already signs growth will slow in coming quarters amid curbs aimed at cooling the property market."

Helping the PBOC's "independence" is the recent blow out in spreads between China and the US. The yield gap between U.S. and Chinese 10-year sovereign bonds widened to a two-year high of 150 basis points on June 6, compared with less than 90 on March 15. That means there’s less appeal for moving money to the U.S., easing the pressure on outflows.

Of course, that in itself is hardly a glowing sign of Chinese stability: as explained last night, surging rates mean that Chinese corporations face their own day of default reckoning as they seek to rollover billions in short-term debt among Beijing's ongoing effort to deleverage the economy. However, for the PBOC that bridge will be crossed when the time comes.

Another potential reason for the PBOC's decision is that it believes its capital controls are sufficiently sturdy to prevent further capital flight. The PBOC charting its own course "protects China from being exposed to uncontrollable risks" said Lu Zhengwei, chief economist at Industrial Bank Co. in Shanghai. "The central government would like to press ahead with deleveraging, and it wants to ensure the process is smooth and stable. Capital control measures have allowed them to do so."

Also opining on the decision, Ming Ming, a former central bank monetary policy official told Bloomberg tgat "the PBOC raised rates in March because it wanted to curb financial leverage, and now it doesn’t have that intention as previous measures have already proven quite effective."

The good news, if only for now, is that the Fed's policy does not have instantaneous global implications. "Fed decisions are becoming less influential to China’s monetary policy now than at the beginning of the year," said David Qu, an economist at Australia & New Zealand Banking Group Ltd. in Shanghai. "That allows policy makers to focus more on challenges at home."

Then again, looking at the red among equities morning, including the drop in Chinese markets and commodities, the PBOC may be dragged right back into the hiking fray as it finds that being pegged to the dollar means just that.

Not convinced? Here are a handful of other opinions from analysts this morning, courtesy of Bloomberg:

First Capital Securities (Shen Bifan, fixed-income analyst)

  • Considering that the interest-rate gap is already quite large, keeping costs steady shouldn’t lead to capital outflows
  • There’s less pressure on the PBOC to use rates to lend support to the currency because the introduction of a counter- cyclical factor to the yuan’s fixing has led to a strengthening exchange rate
    Also, as the economy is flashing signs of cooling and June is a month which usually faces liquidity stress, the PBOC may not want to bring additional pressure to the market
  • Even if the PBOC tightens, it probably won’t have any material impact on markets as expectations of credit and supervisory tightening are already priced in

Citic Securities (Ming Ming, head of fixed-income research)

  • The PBOC raised rates in March because it wanted to curb financial leverage, and now it doesn’t have that intention as previous measures have already been quite effective
  • Optimistic about bonds as market conditions will improve in June and in the third quarter

ABCI Securities (Yao Shaohua, economist in Hong Kong)

  • The PBOC remains on hold so far as the yuan stays relatively strong against the dollar and outflows ease
  • Capital control measures also help put an extra buffer; as long as the economy and the currency keep stable, the Fed is unlikely to cast a big influence over the PBOC

AXA Investment Managers Asia (Aidan Yao, senior economist)

  • Don’t have a very strong internal or external justification for the PBOC to follow the Fed now
  • The yuan depreciation pressure is no longer as intense as in the past and, if anything, the currency has been appreciating in the past two weeks

JZ Securities (Deng Haiqing, chief economist)

  • PBOC’s decision not to follow Fed is "significantly great news" for bonds
  • Chance that bonds may enter a "slow bull" market, as some investors are pessimistic about the economy


ejmoosa Thu, 06/15/2017 - 08:03 Permalink

Yellen says we have no inflation.  My home's assessment rose 28%, or more than 120k in one year.That sounds more like hyperinflation to me.

Endgame Napoleon johngaltfla Thu, 06/15/2017 - 09:16 Permalink

A lot of young people get around that by renting larger houses in big groups. They are boarding houses, as someone on here said, mostly for young, unattached people.

If you are in your youthful, post-college days before most people are married, have reproduced or are living with mates, and if you have a lot of friends that you used to hangout out with and party with in college, this is a way around unaffordable apartments in safe areas of cities.

Another way to accomplish the same goal is have sexual intercourse out-of-lock, producing enough babies to get most of your rent paid by Uncle Sam. You can get a mixed-income apartment unit in a safe area of a city.

If nothing has exited your birth canal, or if you lack a birth canal, you have to pay full price, i.e. the same unaffordable market rate as for any other apartment in that area.

It is much much much easier for mommas since they also get their other bills paid by taxpayers for copulating/reproducing, with the addition of a huge chunk of change at tax time.

Their boyfriends often actually live with them, paying some bills although their addresses are listed elsewhere so that the mommas can get maximum monthly welfare.

The grandbaby-fever grandparents are often paying the SUV bills of the poor, single mommas, explaining the huge number of new SUVs in the parking lots. It is easier to help your "struggling" daughter with more luxuries when her bills are mostly covered by taxpayers as a reward for sexual intercourse and reproduction.

Whereas, as a childless renter at the same low wage level, you get less than $300 at tax time in a return, not $6,269 like a momma, and taxpayers do not cover your other major monthly bills anymore than they cover your rent.

These mixed-income (tax-credit) apartments are nicer and are located in safer areas of the city than most college grads can afford, especially with "studies" degrees OR degrees requiring the exact same classes on the exact same college campuses.

Liberal arts degrees, including those from accredited state universities, are often equally useless unless you are going to land and keep a government job, like the teaching jobs for mommies who want to be off with their own kids in the summers or a social services job in a building where 80% of the people who make it through the bully gauntlet to get civil servant status are -- for some mysterious reason -- Black.

Private college degrees in any subject, including the "studies" degrees from the Ivy League and Ivy League Lite schools, which inspired the state college versions, will probably always be more valuable. Elites send their kids to those schools.

When their kids all land big jobs at 23, or when they land the jobs at the moment they plan to start a family, with the mom missing ton of work in excused absenteeism, elites have to produce a reason. A degree in a iberal arts area is more valuable in that case.

At the bottom of the wage pool, the only reason they need for hiring and retaining only or mostly their fellow, absentee mommas in the many female-dominated jobs is the birthing or womb productivity in of itself.

The rewards for copulation/reproduction, done strategically, are high--much higher than for degrees or "legally required" certifications. The rewards for womb productivity are higher than the wages in most jobs and certainly higher than hard work, all-day attendance and production.

As a momma-clique worker, you have your low wages and a better range of jobs to choose from, with a 90% to 100% hiring-and-retention rate of fellow, backscratching, absentee moms.

As a mom or as a working parent, you get to take off a ton of mornings, afternoons, days and weeks in these jobs, with no firing and no punishment. All that is required is to have reproduced.

Your momma-absenteeism privileges make up for the low pay that you are able to accept due to your free or reduced-cost housing, your free EBT groceries, your free energy bill, your free monthly cash assistance and your Child Tax Credit between $3,337 (one child) and $6,269 (three or more) every year at tax time to spend on mom indulgences.

If your womb is not productive, you are going to need to find other ways to afford unaffordable housing, as the wages that most employers pay to anyone but a couple of managers are too low to cover rent, particularly since so many of the jobs are part-time, temp or churn-mobile.

Whereas, those in their young, fertile years who have sexual intercourse and produce children out of wedlock have money coming in from Uncle Sam and the U.S. Treasury Department to cover their bills between low-wage, churn jobs.

You don't as a childless person with an absent or unproductive womb, not even the UC that you must pay into in the many cases where the absentee bully-mom cliques fire people who are not in their corrupt, frequently absentee. back-watching gangs by attrition, i.e. by bullying them into quitting. The "skills" to bully non-clique members out of the workplace door are very valuable and very finely honed among "busy working," absentee parents in America.

In reply to by johngaltfla

junction ejmoosa Thu, 06/15/2017 - 08:11 Permalink

I beg to differ, hyperinflation is when the price of the drugs doxycycline and colchicine go from a nickel a pill to $5 a pill, as has happened in the past 5 years due to corrupt market forces.  Higher real estate assessment valuations can be because of political pressure on assessors to raise real estate tax revenue. 

In reply to by ejmoosa

ejmoosa junction Thu, 06/15/2017 - 08:18 Permalink

I am not saying the values went up because of greed.  I believe that at some point the fiat currency is going to show it's true worth, and I do not believe it will be shown evenly across our economy.  It makes sense that the first evidence will be seen in assets with the highest values:real estate and stocks.

In reply to by junction

Money_for_Nothing ejmoosa Thu, 06/15/2017 - 08:34 Permalink

It makes sense that people riot when food is too expensive. Raise interest rates and house prices drop. Lower interest rates and the price of houses climb. Which gives the local governments more money to piss away on frivolities. It is amazing how much time and effort is wasted in making things more difficult because some dumb ass thinks it looks pretty. Most of our leaders are nothing of the sort.

In reply to by ejmoosa

Money_for_Nothing junction Thu, 06/15/2017 - 08:27 Permalink

Not corrupt market forces. Corrupt government forces. If you think more government will fix this you are mistaken. See the blog for an explanation of pre-bribery with examples. Pre-bribery is when an industry treats a retired bureaucrat or politician like royalty and showers said retired individual with gifts and favors for their "expertise". Bureaucrats and politicians that aren't retired get the message.

In reply to by junction

ejmoosa junction Thu, 06/15/2017 - 08:30 Permalink

Also, the government officials must vote each year here to set the millage rate.  If the rate collects more than last year overall from the area(county, city) it is a tax increase.  So I do not think there is that sort of pressure to raise property values.  They are required to publish a "rollback rate", which is the rate at which with the new tax digest, it is revenue neutral.Residents clearly know who raises their taxes.

In reply to by junction

Money_for_Nothing ejmoosa Thu, 06/15/2017 - 08:44 Permalink

Insiders know or can pretend to know and disseminate the information for political gain. If what you said is true your politicians would be the first politicians I know of to have a non-deceptive system set up. Not likely and if true won't last long. Most likely the bureaucrats are deceiving the politicians who have pretty hair and good voices and speechwriters.

In reply to by ejmoosa

junction Thu, 06/15/2017 - 08:03 Permalink

China is going to go its own way.  Now, back to the Scalise shooting:
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Just like Murder Inc. in the 1930s, the NWO has killers available with one difference.  Most of these hit men are psychotic misfits of one sort or another, many of whom came to the attention of the NWO's assassination bureau by referrals from their agents in the U.S. Army, local police departments or at psychiatric treatment facilities.  These killers are unpaid, cannot be easily traced back to their handlers and are disposable one-use assets.  Congressman Steven Scalise was one of many potential targets on the NWO kill list.  His complaints about one of the NWO's profit centers, human trafficking for sex and the illegal organ harvesting trade, made Scalise a prime target. When the Grenfell Tower apartment block caught fire Tuesday night, the live feed video showed a steel building built in 1974 burning down to its steel superstructure but still standing.  That video put to the lie the collapse of the World Trade Center buildings, also built in the early 1970s.  The NWO needed a distraction. Scalise fit the bill, he was a wild card, a congressman who was not an NWO puppet.  The network evening news shows blacked out all other news, even the unprecedented London tower block fire, to cover the Scalise attempted murder.  So this shooting kills two birds with one NOW manipulated gun man, helping to continue the cover-up of the 9/11 controlled demolition of the World Trade Center complex and removing a loose cannon from Congress for now.  As well as sending a message (in the form of sharp rifle reports) to others in Congress that the NWO can target anyone.  

Money_for_Nothing NumNutt Thu, 06/15/2017 - 08:57 Permalink

I once saw a TV program that featured Jack Anderson on the Moon landings. The conclusion Jack Anderson came to was that NASA may have went to the Moon but that the pictures and TV images were not shot on the Moon. Can find no record of that program ever being made. The last Jack Anderson interview was on Coast-to_Coast radio program and he indicated he knew more but couldn't talk about it. People claiming to be government agents seized Jack Anderson's notes from his home shortly after Jack Anderson died. Jack Anderson was the one that Nixon joked about that they needed to kill.

Lots of things seem to be dramas put on by agencies. You will know the tragedy yesterday is one of those dramas if the rubble is quickly demolish and hauled off to remote dumps.

An aluminum foil hat? There are youtube videos which will show you how to make a stylish one.

In reply to by NumNutt

johngaltfla Thu, 06/15/2017 - 08:04 Permalink

They can't hike because it would trigger a liquidity squeeze greater than the one they have now. The implosion of their shadow banking system AND malinvestment will be one of the events which destroy global liquidity and accelerate a crash already set in motion.

decentraliseds… Thu, 06/15/2017 - 12:10 Permalink

 Almost all the world’s economic and political problems revolve around the hegemony of a global corporate cartel, which is headquartered in the US because this is where their dominant military force resides. The US Constitution is therefore the “kingpin” of an all-inclusive global financial empire. These fictitious entities now own the USA and command its military infrastructure by virtue of the Federal Reserve Corporation, regulatory capture, MSM propaganda, and congressional lobbying. The Founders had to fight a bloody Revolutionary War to win our right to incorporate as a nation – the USA. But then, for whatever reason, our Founders granted the greediest businessmen among them unrestricted corporate charters with enough potential capital & power to compete with the individual states, smaller sovereign nations, and eventually to buy out the USA itself. The only way The People can regain our sovereignty as a constitutional republic now is to severely curtail the privileges of any corporation doing business here. To remain sovereign we have to stop granting corporate charters to just any “suit” that comes along without fulfilling a defined social value in return. The "Divine Right Of Kings” should not apply to fictitious entities just because they are “Too Big To Fail”. We can't afford to privatize our Treasury to transnational banks anymore. Government must be held responsible only to the electorate, not fictitious entities; and banks must be held responsible to the government if we are ever to restore sanity, much less prosperity, to the world. It was a loophole in our Constitution that allowed corporate charters to be so easily obtained that a swamp of corruption inevitably flooded our entire economic system. It is a swamp that can't be drained at this point because the Constitution doesn’t provide a drain. This 28th amendment is intended to install that drain so Congress can pull the plug ASAP. As a matter of political practicality we must rely on the Article 5 option to do this, for which the electorate will need overwhelming consensus beforehand. Seriously; an Article 5 Constitutional Convention is rapidly becoming our only sensible option. This is what I think it will take to save the world; and nobody gets hurt: 28th Amendment 28th Amendment: Corporations are not persons in any sense of the word and shall be granted only those rights and privileges that Congress deems necessary for the well-being of the People. Congress shall provide legislation defining the terms and conditions of corporate charters according to their purpose; which shall include, but are not limited to: 1, prohibitions against any corporation; a, owning another corporation; b, becoming economically indispensable or monopolistic; or c, otherwise distorting the general economy; 2, prohibitions against any form of interference in the affairs of; a, government, b, education, c, news media; or d, healthcare, and 3, provisions for; a, the auditing of standardized, current, and transparent account books; b, the establishment of state and municipal banking; and c, civil and criminal penalties to be suffered by corporate executives for violation of the terms of a corporate charter.