* * *
And this will surely end well.
Friday’s nearly 6% plunge on the SHCOMP left some market participants wondering where the plunge protection team was hiding in the final minutes of trading. As FT reports, Beijing’s so-called “national team” now owns 6% of the entire mainland market and as we saw in September, the paper losses on that kind of portfolio can add up quickly when things go south. The question now is whether the PBoC will step back in if we have a few more days like today.
Today we got yet another confirmation that China’s July announcement on its gold holdings merely broke the seal of accumulation when the PBOC reported that its total gold holdings as of October 31 had risen to a record $63.3 billion, up $2.1 billion from $61.2 billion at the end of September, and an increase of 14 tons based on the month-end LBMA gold fix price. This represents the fifth consecutive month in a row in which China has added to its gold.
AsiaPac stocks are opening mixed after the US session gains. Perhaps the biggest news of the evening is, as China’s bankiong regulator has been meeting with foreign banks to express concerns over lack of risk control around non-performing loans. As CBRC said, rather stunningly honest for a government entity, “the current situation is more severe than the time in 2008 during the financial crisis.” With stocks up while commodities (Zinc) limit-down, PBOC injects another CNY50 bn and devalued the Yuan fix for the 2nd day in a row.…
When it comes to manipulating stock markets, there is the Western way in which central banks either directly, or – like in the US – indirectly, thanks to a very close relationship between the NY Fed and the world’s most levered hedge fund Citadel, documented here since 2010 – in which central bank trading desks end up buying index futures or merely use massively-sized orders to spoof the market higher (and very rarely lower), and then there is the Chinese way in which the local plunge protection team named the “National Team”, which has already spent around $300 billion to (ineffectively) halt the bursting of the Chinese stock bubble – buys individual stocks.
– China Increases Gold Holdings By 57% “In One Month” In First Official Update Since 2009 (ZeroHedge, July 17, 2015):
Back in April we wrote that “The Mystery Of China’s Gold Holdings Is Coming To An End” as a result of China willingness to add the Yuan to the IMF’s SDR currency basket which would require the disclosure of China’s gold holding ahead of an IMF meeting on SDR composition which may be held in October.
By way of background, the reason why everyone has been so focused on Chinese official gold holdings is that there has been no official update to the gold inventory of the world’s biggest nation, which have been fixed at 33.89 million oz since April 2009, a little over 1000 tons. In other words, the PBOC’s gold inventory has been “unchanged” for over 6 years which is in stark contrast to the ravenous buying of physical gold China has been engaging in for the past 5 years.
– China “Crosses Rubicon” With Stock Bailout; BofA Says PBoC Risks “Hurting Its Credibility” (ZeroHedge, July 5, 2015):
Earlier today in “Panic: China Central Bank Steps In To Bailout Stocks As Underwater Traders Pray For A Rebound,” we noted (without much surprise) that the PBoC has officially taken the plunge. Late on Sunday, the China Securities Regulatory Commission announced that China’s central bank is set to inject capital into China Securities Finance Corp which will in turn use the funds to help brokerages expand their businesses and reinvigorate stocks. Translation: China’s central bank is now underwriting brokers’ margin lending businesses.
– Meet The Relentless, Mystery Buyer Of Chinese Stocks Even As China’s Economy Grinds To A Crawl (ZeroHedge, March 16, 2015):
Unlike the late summer and early fall of 2014, when the rise in the Chinese stock market could be attributed to the PBOC’s PSL “QE Lite”, the relentless buying leg that started in mid-November has stunned most people, as nobody has been able to figure out just who is responsible for all this buying. Until now. According to Reuters, it is precisely China’s trust firms, with total assets of $2.2 trillion, and who together with Banker Acceptances comrpise the bulk of China’s shadow banking pipeline, are shifting more cash into frothy capital markets and over-the-counter (OTC) instruments instead of loans. In other words, instead of using their vast cash hoard of over $2 trillion to re-lend and stimulate China’s economy, China’s unregulated, shadow banking conduits are now directly buying stocks!
– The Final Nail In China’s Deflationary Coffin: Wages In The 4 Largest Cities Are Now Dropping (ZeroHedge, March 12, 2015):
Remember when during the inflation panic of 2011 we reportted that “Wage Inflation is Rampant In China As More Provinces Plan Minimum Salary Hikes.” and wrote:
By the end of 2010, 30 provincial-level regions had raised the standard for the minimum wage, with an average increase of 22.8 percent year-on-year., Yin Chengji, spokesman for the Ministry of Human Resources and Social Security (MHRSS), said Tuesday. According to him, 29 provinces have issued the guideline for the minimum wages, and the benchmark line grew about 2 percent. In Shanghai, the local minimum wage was the highest nationwide, totaling 1,120 yuan ($170.2) per month.”
And 2011 will be even worse: “Also, according to a China Business News (CBN) report Tuesday, in 2011, many areas would continue to raise the standard. A Xinhua News Agency report Wednesday revealed that northern Chinese city of Tianjin is considering raising the minimum working wage by 16 percent this year amid rising inflationary pressure and labor shortages.”
Well, kiss all that goodbye. From Shanghai Daily:
– China’s Latest Spinning Plate: 10 Trillion In Local Government Debt (ZeroHedge, March 11, 2015)
China is in the midst of attempting to help local governments refinance a mountain of debt, some of which was accumulated off balance sheet via shadow banking conduits at relatively high rates. According to UBS, “Chinese domestic media are saying that the authorities are considering a Chinese “QE” with the central bank funding the purchase of RMB 10 trillion in local government debt.”
– China Cuts Interest Rates, Takes Number Of Central Banks Easing In 2015 To 21 (ZeroHedge, Feb 28, 2015):
And then there were 21. Hours ago on Saturday, the country whose currency is largely pegged to the dollar which itself is now anticipating a rate hike in the coming months, surprised the world by confirming its economic slowdown yet again following a recent rate cut just this past November when it lowered its benchmark rate by 40 bps, after it again cut benchmark lending and deposit rates by 25 bps starting on March 1. Specifically, the PBOC will lower the one-year lending rate to 5.35% from 5.6% and its one-year deposit rate to 2.5% from 2.75%. It also said it would raise the maximum interest rate on bank deposits to 130% of the benchmark rate from 120%.
“Domestic media (Sina) reported that the PBOC conducted RMB 500bn of Standing Lending Facility operations with the big 5 commercial banks (ICBC, BOC, BoCOM, CCB, ABC). The reports note that the duration is 3 months and the RMB 500 bn is evenly split among the banks. This amount is roughly the same as a 50 bps cut to RRR for the whole banking system on a static basis. There is no official confirmation from the PBOC yet. Still, such an easing would be consistent with our expectation that (1) monetary policy will loosened amid the drastic slowdown in activity growth and falling inflation, and (2) full scale RRR and interest rate cuts are unlikely because they would be viewed as aggressive stimulus.”
In a worrying sense of deja-vu all over again, today’s rip higher reflects perfectly the US equity market’s knee-jerk reaction to the last ‘Stealth QE’ from China on July 28th. That did not end well as hot money flowed out to the instantaneously “easiest” central bank in the world…
From copper to high-yield credit and from stocks to bonds and gold, markets are reacting violently to the headlines from China that they are unleashing another 500bn Yuan “stealth QE”… everything is rallying.. except the USD (biggest drop since May).
– China Launches CNY500 Billion In “Stealth QE” (ZeroHedge, Sep 16, 2014):
It has been a while since the PBOC engaged in some “targeted” QE. So clearly following the biggest drop in the Shanghai Composite in 6 months after some abysmal Chinese economic and flow data in the past several days, it’s time for some more. From Bloomberg:
- CHINA’S PBOC STARTS 500B YUAN SLF TODAY, SINA.COM SAYS
- PBOC PROVIDES 500B YUAN LIQUIDITY TO CHINA’S TOP 5 BANKS: SINA
- PBOC PROVIDES 100B YUAN TO EACH BANK TODAY, TOMORROW WITH DURATION OF 3 MONTHS: SINA
Just as expected, the Chinese “derivative” currency, the AUD, goes vertical on the news, and the S&P 500 goes vertical alongside:
– By “Punishing” France, The US Just Accelerated The Demise Of The Dollar (ZeroHedge, July 4, 2014):
Not even we anticipated this particular “unintended consequence” as a result of the US multi-billion dollar fine on BNP (which France took very much to heart). Moments ago, in a lengthy interview given to French magazine Investir, none other than the governor of the French National Bank Christian Noyer and member of the ECB’s governing board, said this stunner at the very end, via Bloomberg:
- NOYER: BNP CASE WILL ENCOURAGE ‘DIVERSIFICATION’ FROM DOLLAR
Here is the full google translated segment:
Q. Doesn’t the role of the dollar as an international currency create systemic risk?
Noyer: Beyond [the BNP] case, increased legal risks from the application of U.S. rules to all dollar transactions around the world will encourage a diversification from the dollar. BNP Paribas was the occasion for many observers to remember that there has been a number of sanctions and that there would certainly be others in the future. A movement to diversify the currencies used in international trade is inevitable. Trade between Europe and China does not need to use the dollar and may be read and fully paid in euros or renminbi. Walking towards a multipolar world is the natural monetary policy, since there are several major economic and monetary powerful ensembles. China has decided to develop the renminbi as a settlement currency. The Bank of France was behind the popular ECB-PBOC swap and we have just concluded a memorandum on the creation of a system of offshore renminbi clearing in Paris. We have very strong cooperation with the PBOC in this field. But these changes take time. We must not forget that it took decades after the United States became the world’s largest economy for the dollar to replace the British pound as the first international currency. But the phenomenon of U.S. rules expanding to all USD-denominated transactions around the world can have an accelerating effect.
In other words, the head of the French central bank, and ECB member, Christian Noyer, just issued a direct threat to the world’s reserve currency (for now), the US Dollar.
– China Has A Housing Bubble In “Some Cities”, PBOC Admits (ZeroHedge, May 23, 2014):
While US central bankers shudder at the idea of admitting their could be a bubble in real estate or stocks (unless its obvious in hindsight); and England’s Bank of England explains ‘if there is a bubble, it’s not their fault, but there isn’t so there’; it appears the Chinese are more comfortable with the truth. As Bloomberg BusinessWeek reports, China’s central bank Governor Zhou Xiaochuan said, China may have a housing bubble only in “some cities,” – an issue that’s difficult to resolve with a single nationwide policy. As concerns mount of dramatic over-supply on the back of extrapolated urbanization dreams, Zhou notes, “The economy has slowed down a bit, but not very much,” adding that “we should keep vigilance on whether it continues to slow down.” Which is odd because US talking heads have made up their minds that China is fixed…
– Bitcoin Tumbles After BTC China Halts Funding Amid Concerns PBOC About To Get Serious (ZeroHedge, April 27, 2014):
Bitcoin prices tumbled almost 15% as Chinese bitcoin exchange BTC China announced it has stopped accepting RMB deposits to user accounts from a major bank. As Coindesk reports, Management decided to proactively halt deposits from one of the country’s largest banks, China Merchants Bank, after the bank posted on its public website that it would no longer allow its customers to engage in bitcoin-related transactions, and said essentially it would require all such businesses to close their accounts. Withdrawals, of course, are allowed, but as Coindesk goes on to note, that while the PBOC’s ‘official’ policy on Bitcoin has not changed since December, this ‘pre-emptive’ move may suggest he PBOC would soon set stricter rules about how its earlier edicts should be followed.
– China Goes Dark: PBOC To Keep Goldbugs Clueless About Its Gold Buying Spree (ZeroHedge, April 21, 2014):
One of the more perplexing divergences that have plagued precious metal watchers and goldbugs when it comes to the great “black box” that is the world’s biggest buyer of gold in recent years – China (which overtook India after that particular country established unprecedented capital controls to block the import of gold) is that on one hand China has been allowing the outside world to glimpse its ravenous buying of gold through the Hong Kong-Shenzhen corridor (where nearly 70% of the Chinese gold jewellery business is located) since Hong Kong customs provides a full breakdown of how much gold it exports into China, yet on the other the PBOC has refused to update its official gold holdings in exactly five years.
– Welcome To The Currency Wars, China (Yuan Devalues Most In 20 Years) (ZeroHedge, Feb 25, 2014)
– Forbes Pulls Down China Hoax Story; Even As Dennis Gartman Is Completely Fooled (ZeroHedge, Jan 27, 2013):
Earlier, we debunked an alarmist Forbes story about halted cash transfer by PBOC decree, which was erroneous along various lines all explained previously, not in the least that the actual announcement had first appeared some three weeks ago. And despite the kneejerk reaction of some of our more fatalist readers and not to mention the general public, the reality is that China has more than enough real problems (Trust Equals Gold being at the forefront) and certainly does not need to add imaginary, made up ones, conceived only with the intention of generating conflated ad revenues through click-baiting headlines. Which is why we commend Forbes for, better late than never, pulling the story even without providing an explanation of how this story appeared in the first place. Because where the article once was, there is only a 4-0-Forbes now:
Perhaps it is not too late for Forbes to salvage some credibility.
– The $23 Trillion Credit Bubble In China Is Starting To Collapse – Global Financial Crisis Next? (Economic Collapse, Jan 20, 2014):
Did you know that financial institutions all over the world are warning that we could see a “mega default” on a very prominent high-yield investment product in China on January 31st? We are being told that this could lead to a cascading collapse of the shadow banking system in China which could potentially result in “sky-high interest rates” and “a precipitous plunge in credit“. In other words, it could be a “Lehman Brothers moment” for Asia. And since the global financial system is more interconnected today than ever before, that would be very bad news for the United States as well. Since Lehman Brothers collapsed in 2008, the level of private domestic credit in China has risen from $9 trillion to an astounding $23 trillion. That is an increase of $14 trillion in just a little bit more than 5 years. Much of that “hot money” has flowed into stocks, bonds and real estate in the United States. So what do you think is going to happen when that bubble collapses?