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Sat, 25th February 2017

Anirudh Sethi Report

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Archives of “renminbi” Tag

China Just Created A Record $540 Billion In Debt In One Month

One week ago, Deutsche Bank analysts warned that the global economic boom is about to end for one reason that has nothing to do with Trump, and everything to do with China’s relentless debt injections. As DB’s Oliver Harvey said, “attention has focused on President Trump, but developments on the other side of the world may prove more important. At the beginning of 2016, China embarked on its latest fiscal stimulus funded from local government land sales and a booming property market. The Chinese business cycle troughed shortly thereafter and has accelerated rapidly since.”

DB then showed a chart of leading indicators according to which following a blistering surge in credit creation by Beijing, the economy was on the verge of another slowdown: “That makes last week’s softer-than-expected official and Caixin PMIs a concern. Land sales, which have led ‘live’ indicators of Chinese growth such as railway freight volumes by around 6 months, have already tailed off significantly. “ 

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.

Bitcoin Surges Above $1,000 As China Unveils New Capital Controls

As noted yesterday, for the first time in three years, and only the second time in history, bitcoin rose above $1,000 in Yuan-denominated Chinese trading, however it was limited to the lower side of this “round number” psychological barrier in US trading, as BTC flirted with $999.99 for most of the day on the popular Coinbase exchange, without crossing it.

Overnight, however, Chinese demand proved too great and US markets had no choice but to arb the difference. So with Bitcoin trading in China at an implied price of over $1,050 at this moment, bitcoin finally soared above $1,000 in the US as well, trading just around $1,024 on Coinbase as of this moment.

 

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.

China to start direct trading between yuan and 7 more currencies from 12 Dec

PBOC out with the announcement a short while ago 9 Dec

I included it in another post but probably worth a separate mention.

PBOC announces that China will start direct trading between yuan and 7 more currencies from 12 Dec:

  • PLN
  • SEK
  • TRY
  • MXN
  • NOK
  • DKR
  • HUF

CFETS, the part of the PBOC that runs the interbank FX market, says the aim is to facilitate bilateral trade and investment with these countries and lower exchange rate costs.

Previously the US $ has been used to determines the cross rate for the yuan against these ccys.

China says they will further advance supply-side structural reforms in 2017

Reuters reporting statement published on Xinhua 9 Dec

  • will further open its economy in 2017
  • will work proactively to attract foreign investment
  • certain that China will complete its key economic targets for 2016

PBOC also announces that China will start direct trading between yuan and 7 currencies from 12 Dec inc

  • PLN
  • SEK
  • TRY
  • MXN
  • NOK
  • DKR
  • HUF

CFETS the part of the PBOC that runs the interbank FX market says the aim is to facilitate bilateral trade and investment with these countries and lower exchange rate costs.

Previously the US $ has been used to determines the cross rate for the yuan against these ccys.

PBOC sets USD/CNY mid-point today at 6.8794 (vs. yesterday at 6.8958)

USD/CNY reference rate for Friday

  • PBOC to inject  160bn yuan via 7-day reverse repos
  • PBOC to inject  60bn yuan via 14-day reverse repos
  • PBOC to inject  25bn yuan via 28-day reverse repo

A lower USD against the majors since yesterday and hence a lower USD/CNY setting from the People’s Bank of China today

China Warns It Is Ready To Slow Yuan Plunge On Capital Outflow Fears

It was just one year ago when the biggest worry for the market – which culminated with a near 10% S&P correction in in early 2016 – was the daily plunge in the Yuan driven by the surging dollar, which in turn prompted China to engage in an unprecedented reserve liquidation (in which it sold both government bonds and equities), leading to a daily selloff in risky assets on days when the Yuan was fixed lower.

Fast forward a year later, when the US Dollar has blown through last year’s highs and is now at levels not seen since 2003, the Yuan is trading at record lows, just shy of 7.00, and yet stocks stubbornly ignore the one catalyst that led to so much headache for the bulls one year ago.

 In his daily note, RBC’s cross-asset strategist Charlie McElligott points out that while the market may be oblivious, what is taking place in China is something to be concerned about:
 ONE IMPORTANT TACTICAL MACRO POINT WITH REGARDS TO THE NEAR-TERM DIRECTION OF USTs / GLOBAL LONG-END: The yuan ‘slow bleed’ devaluation by the PBoC versus the USD seen since the start of October has without question been tied to at least some of the weakness in the US long-end, as the central bank sells USTs to try and mitigate the depreciation of the yuan against the SDR basket—see here:

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:

PBOC sets USD/CNY mid-point today at 6.7641 (vs. Friday at 6.7858)

People’s Bank of China strengthening the yuan just a little today (and in fact the biggest strong yuan move in a month or so), the USD has lost some ground since Friday so not a huge surprise.

In Open market operations (OMOs)
  • PBOC Inject 100bn yuan through 7-day reverse repos
  • PBOC Inject 70bn yuan through 14-day reverse repos
  • PBOC Inject 20bn yuan through 28-day reverse repos
On Friday the yuan was set at 94.15 against its basket, down 0.15 on the week.