Sun, 25th June 2017

Anirudh Sethi Report


Archives of “chinese yuan” Tag

China Reserves Jump Most In 3 Years to $ 3.03 Trillion

In all the drama surrounding the French elections, few noticed the PBOC’s announcement that China’s FX reserves rose for the third straight month in April, increasing by $20.45 billion to $3.03 trillion, more than the $11 billion expected and the single biggest monthly increase in three years going back to April 2014, on the back of a weaker dollar and increasingly more draconian capital controls on outflows.

Cited by the WSJ, some economists attributed April’s increase to a dollar that continued to decline in the past month especially after Trump said the U.S. currency “is getting too strong.” The value of other currencies in China’s reserve basket, including the euro, the British pound and Japan’s yen, similarly played a significant role in the rise, said Yan Ling, an economist with China Merchants Securities.

Besides USD softness (USD has weakened against the CFETS basket by over 2% year-to-date through April) and perhaps stronger RMB sentiment, the capital flow management measures introduced over the last several months have also contributed to the slowdown in outflows, Goldman speculated in a Sunday note. That could reverse, as there may be incremental relaxation of the capital account as the flow situation has improved and an overly tight capital account could hinder legitimate international trade and the authorities’ long-term RMB internationalization goals.

China’s FX reserves end-Dec USD 3.011trln vs USD 3.052trln prev

Chinese FX reserves data published a short while ago 7 Jan

  • total reserves now near 6-year lows
  • gold reserves USD 67.878bln vs 69.785bln prev
  • gold reserves 59.24mln troy oz vs 59.240mln prev

A drop in reserves of $41bln, albeit less than the $51bln expected versus a $69bln drop in November and the 6th straight month of declines.

The PBOC has now been forced to reduce its reserves by half a trillion USD since Aug 2015 after it devalued the yuan in a surprise move.

Plenty of fun and games this past week for the offshore and onshore yuan with o/n depo rates surging above 95% at one point.

Yesterday the PBOC hiked CNY by the biggest amount in 11 years vs USD and the onshore pair closed at 6.9230. The Chinese MOFCOM also had this to say on outflow curbs.

People’s Bank of China sets yuan reference rate at 6.9526 (vs. yesterday at 6.9498)

CNY mid rate for the day, little bit weaker for the yuan

Open  market operations (OMOs):
  • inject  10bn yuan via 7-day reverse repos
  • inject  10bn yuan via 14-day reverse repos
Small injections (which mean today is a net drain); watch for more stress in HK yuan borrowing markets today. Yesterday saw surging rates for overnight (and longer) yuan borrowing. Likely we’ll see the same again today.
By limiting injections into money markets the People’s Bank of China makes borrowing yuan more expensive and therefore shorting yuan more expensive. The PBOC is trying to discourage yuan shorts. 

China’s True FX Outflows Since August 2015 Are $1.1 Trillion, Double The Official Number

Two months ago, when looking at an alternative measure of Chinese capital outflows using SAFE data, Goldman found that contrary to official PBOC reserve data, “China’s Capital Outflows Are Soaring Again”, having hit $78 billion in September.

Over the weekend, and following the latest PBOC data which revealed an outflow of $56 billion in November (which was only $34 billion when FX adjusted), Goldman repeated its FX flow calculation using SAFE data, and found the China continues to mask the full extent of its outflows, which in November spiked to $69 billion, and that “since June, this data has continued to suggest significantly larger FX sales by the PBOC than is implied by FX reserve data”, once again suggesting that China is eager to mask the true extent of reserve outflows, perhaps in an attempt to not precipitate the feedback loop of even further panicked selling of Yuan and even more outflows, and thus, even more reserve depletion.

According to Goldman’s MK Tang, money has been leaving in yuan payments for 14 consecutive months, while the central bank’s yuan positions have slumped the most since January. The situation could get worse, said Banny Lam, head of research at CEB International Investment Ltd, cited by Bloomberg.

PBOC sets USD/CNY mid-point today at 6.8796 (vs. yesterday at 6.8692)

People’s Bank of China says TGIF!

More USD strength overnight = a higher USD/CNY mid rate setting again today.
11th day in a row of a lower CNY against the big dollar
In OMOs:
  • injects  125bn yuan via 7-day reverse repos
  • injects  120bn yuan via 14-day reverse repos
  • and injects 25bn yuan through 28-dayers
The Wall Street Journal had a piece up overnight (my overnight, K?)
  • Officials and analysts say the Chinese government is increasing tolerance of a cheaper yuan
  • The fast depreciation lately underscores bigger concerns among Chinese policy makers and economists about the country’s economic situation … officials and analysts say a weaker yuan would be the price of using easy money to prop up growth and to prevent a precipitous drop in housing prices
  • The result could be a yuan feedback loop driven primarily by internal forces
  • The rapid run-up in property prices in many cities, for instance, is sending more Chinese looking to foreign markets to park their money, potentially exacerbating capital outflows that would further drive down the yuan

China press on the yuan – unlikely to fall sharply for long

Bloomberg with headlines from Financial News

  • Yuan is unlikely to depreciate sharply for long
  • China’s FX reserves are big enough to combat yuan fall
Eco Info Daily has this:
  • China must interfere in the yuan market when necessary
Looks like instructions have been issued to the press to bolster the yuan.
Yesterday I posted a couple of charts showing the CNY fall against the USD, but relative stability against its basket. ICYMthem:

People’s Bank of China sets yuan reference rate at 6.7858 (vs. yesterday at 6.7736)

USD/CNY mid rate, higher (weaker CNY) after the overnight USD strength

Open market operations (OMOs)
  • PBOC Inject 95bn yuan through 7-day reverse repos
  • PBOC Inject 65bn yuan through 14-day reverse repos
  • PBOC Inject 35bn yuan through 28-day reverse repos
More big cash injections into the money market today, following a big week
  • A net 595bn yuan injected this week (compared with net 95.5bn injected the previous week)

Offshore yuan at a 6 year low today

The offshore yaun, CNH, is not subject to trading restrictions like the onshore (CNY) is.

The USD/CNY is limited to a plus or minus 2% range of its daily reference rate  The PBOC stands ready to buy or sell CNY at the extremes of the daily band
USD/CNH, though … its free of this band
Today the USD/CNH has fallen to a six year low, as markets expect continued yuan devaluations from the People’s Bank of China 

Hibor rises again -Zooms by 80.28 basis points from Friday’s level

Hong Kong’s daily benchmark for offshore interbank renminbi loans has ticked higher, pushing the cost of lending back above the elevation hit by a sudden spike on Thursday.

The overnight CNH-Hong Kong Interbank Offer Rate (Hibor) came in at 5.5155 per cent on Monday, up by 80.28 basis points from Friday’s level and exceeding that seen on Thursday, when the rate jumped 3.88 percentage points from a reading of 1.57 per cent.

The interbank rate in Hong Kong is far less important than Libor, the US-dollar counterpart set in London every day that acts as a crucial lending benchmark.

But a spike in Hibor would track with a scenario in which the People’s Bank of China intervened in the CNH market itself or had mainland banks sop up liquidity on its behalf to prevent greater pressure on the Rmb to devalue – possibly to keep it from passing the Rmb6.7 mark against the dollar ahead of special drawing rights (SDR) operations set to begin on October 1.

That’s one possibility mooted by Societe Generale analyst Jason Daw in a note today, the other being that swaps/forwards used in intervention last August following major devaluation prompted by a new fixing scheme for the currency’s trading band aren’t being rolled over, sucking CNH liquidity out of the market – though allowing those to expire would still be the PBoC’s call to make.

If the latter is the case, he says, “front-end points could become more volatile over the next year as previous intervention flows mature.”

People’s Bank of China sets yuan reference rate at 6.6873 (vs. yesterday at 6.6727)

PBOC injects 20bn yuan via 7-day reverse repos

& injects 10bn yuan via 14-day reverse repos 

A weaker CNY today from the People’s Bank of China
Meanwhile, in Japan, 10 year JGB yield is higher (to its highest since March this year)