Citi: "This Is Not A Healthy Chart"

We issued the first warning notice last December, in a post whose title said it all: "Global Deflation Alert: Chinese Credit Creation Tumbles To 27 Month Low." It showed the chart which we - and UBS - have argued is the only one that truly matters for global inflation (or deflation): China's credit impulse.

We followed it up two months later in February with "The Deflationary Canary: China Tier-1 Home Prices Post First Decline Since May 2015" in which we said that as a result of the ongoing slide in China's credit impulse, "expect further downside to home prices, not only in Tier 1 cities, but across the entire Chinese housing market" and added that "the last two time China's housing contracted, the result was a deflationary wave unleashed across the globe; in fact some have speculated that the reason for the near-bear market in late 2015 and 2016 as well as the Fed's derailed plans to hike rates in 2015 was largely due to the deflationary spark prompted by the sharp contraction in Chinese housing prices." In short: deflation, and poor economic data was about to spread across the globe.

Incidentally that was precisely the time the global economic surprise index tumbled, and prompted economists and analysts to ask if the "global coordinated recovery" is now over.

Then, just last week, we hammered it home again with "It All Begins And Ends With China: "Is The Global Reflation Cycle Ending?" in which we focused on the sharp decline in Chinese economic data, and arguing that the credit slump has finally caught up with the economy, and warning that the result would be a deflationary shockwave soon to be unleashed around the globe.

* * *

Fast forward to today when the "China problem" just made it mainstream thanks to an observations by Citi which this morning points out something and warns that "This is not a healthy chart."

The chart Citi refers to is the 5Y China government bond yield...

... and adds the following:

Back in November the PBoC introduced what some have termed ‘Yield Curve Control With Chinese Characteristics’ when the yield threaten to break hard above 4%, involving the provision of extra liquidity and other measures.  Since then yields have collapsed hard across the curve.

While some of the rally is likely driven by inflows seeking a home in the CGB market ahead of global indexation, the experience of other countries pre-indexation showed a very different trajectory from this. 

Citi's conclusion, incidentally, is precisely what we warned back in December, and then again in February, and then again last week:

"The bond market may well be signaling a very unhealthy period ahead for Chinese growth. The small RRR cut does not account for the move either. Copper, CLP and AUD are all vulnerable if the China slowdown thesis is correct."

Needless to say, if China is indeed about to undergo a "very unhealthy period", global growth is about to collapse, and deflation is about to take hold. Which we bring up only to help those on the fence about buying today's breakout in 10Y yields: if China is indeed the harbinger, it is more likely that 10Y yields slide back to 2% than make the 8bps move back up to 3%.

Comments

CashMcCall VK Thu, 04/19/2018 - 13:34 Permalink

They are self-funded you moron. China and Russia have no debt. China lends money to businesses, many of which carry substantial debt. But China doesn't have national debt, other than the US Debt it buys. 

On the other hand with Trump a supposed Republican you have more debt in a shorter span than any administration in US History. $4.43 Trillion in one year! Trump has made Obama debt look like a piker. And WWIII hasn't started yet... but not for a lack of Trump trying to start it. Worst most irresponsible liberal Warmongering president in US History. 

In reply to by VK

TheWholeYearInn Thu, 04/19/2018 - 13:07 Permalink

What's Citi worried about?

 

The very definition of an 'unhealthy chart' was when they dropped to under a buck back in 'o8 - '09

 

Then something funny happened. A magic negro got on the teleprompter and talked about 'PROFIT TO EARNINGS' ratios, & poof, everything was solved

 

So I guess that makes them experts now (especially considering all the 27 year olds back then have all been replaced with a new batch of 27 year olds, & so, well, this time its different).

CashMcCall Thu, 04/19/2018 - 13:26 Permalink

As I recall CITI was first to the TARP welfare slop bucket following their prediction that Banks were in great shape. 

China growth is in great shape. Domestic growth as attested by housing prices and demand was up 12%. While China may slow to allow USA and "US Allies" stuck in those awful Trade Deals with the USA,  to sink on its own Tariffs. 

Let me also add that Trump has now officially placed Tariffs on Steel And Aluminum even though the threat has essentially destroyed the global markets. But surprisingly, Goldman has been buying Aluminum Futures even when they hit a 7 year high. How did they know that such a stupid Trump Policy would be enacted? 

I guess goldman and schwartzman just got very good at trading all of a sudden when everyone else has been getting sliced and diced by these surprise Trump attacks on both companies and Trade. It was just a coincidence like Ichan selling his stocks that were dependent on imported steel. It is just one big fat orange coincidence. 

Agriculture futures today crashed even deeper. The US Farmer has been destroyed. Now Trump is trying to find them some TARP money through the USDA. Trump is a true scumbag with no intellect at all. 

Alexander De Large Thu, 04/19/2018 - 13:38 Permalink

Omg all these motherfucking charts.  Ew, data and numbers and axisesises.  Fuck off with that.

Just buy the shit.  The Fed is backstopping everything.  When the shit crashes again, all the remaining banks will become one, like how they reduced to the six there are now back in the day.  Ah the good old day lol.

People still read the Bible, bro.  And not even ironically lol.  Motherfuckers are stupid.  Just buy moar stawx.