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The People’s Bank of China has cut reserve requirement ratio for banks by 0.5%.
China cuts reserve requirements
Markets have been rallying non stop even with overbought indications. This should provide further incentive on Monday for markets continue. While the country is still trying to choke off a housing bubble, there is obviously enough confidence about inflation being somewhat under check that easing can be undertaken.
China’s consumer price index (CPI) rose to a three-month high of 4.5 percent in January, the National Bureau of Statistics (NBS) released on its website on Thursday. The figure is 0.4 percentage points higher than December’s growth and increased faster than the prediction of a 4.2 percent growth. Food prices jumped 10.5 percent year-on-year, driving the CPI up to 3.29 percentage points, the NBS showed. The surge is mainly boosted by consumption before Chinese Lunar New Year holidays said Peng Wensheng, the chief economist with China International Capital Corporation. “But the inflation pressure is expected to ease this year, with an annual CPI forecast of 3.5 percent.”
The higher inflation also quashes the debate about China hard landing as prices continue to stagnate at higher levels.
In news that adds another nail to liquidity led risk on trade in 2012, China this morning quietly drained of CNY26bn from the money market. Swap rates spun to high of the day but have calmed after that.
So while ECB is pumping in free cash into banking system which has led the global risk trade, China and RBA have decided to drain money out of the banking system.
The People’s Bank of China on Tuesday conducted the first active drain of funds from the market since before the Chinese New Year, removing CNY26 billion via 28-day bond repurchase agreements.
Despite the negligible size of the operation — some CNY351 billion was drained last week owing to the expiry of a 14-day reverse repo — today’s move implies that the bank will again conduct a net drain of
funds from the market this week, with just CNY2 billion in outstanding sterilization paper maturing.
The PBOC was asking about market demand for one-year paper early Monday morning, leading many traders to conclude that it was ready to resume its biweekly sales of sterilization bills.
But it appears to have decided to extend the pre-New Year suspension, with traders attributing the decision to the small amounts of oustanding paper maturing this month (just CNY12 billion over the whole of February).
Money market rates have returned to levels signifying few liquidity problems within the banking system, with the seven-day repo rate — a gauge of short-term liquidity conditions — fixed at just 3.46% on Monday, well off the 8%-plus levels seen in the run-up to the holiday.
Below 4% is where comfort lies.
People’s Bank of China Tuesday/Thursday open market operations:
For Week 3M 3M 1Y 1Y 3Y 3Y Net
Starting: volume yield volume yield volume coupon Position
CNY bln pct CNY bln pct CNY bln pct CNY bln
02/06/2012 – —— — –
01/30/2012 – —— – —— — — -351**
01/16/2012 – —— – —— — — +353**
01/09/2012 – —— – —— — — +73**
01/02/2012 – —— – —— — — +51
12/26/2011 – —— 4 3.4875 — — +9
12/19/2011 1 3.1618 26 3.4875 — — -10
01/16/2012 – —— – —— — — +353**
01/09/2012 – —— – —— — — +73**
01/02/2012 – —— – —— — — +51
12/26/2011 – —— 4 3.4875 — — +9
12/19/2011 1 3.1618 26 3.4875 — — -10
12/12/2011 3 3.1618 38 3.4875 — — -73
12/05/2011 6 3.1618 50 3.4875 — — -101
11/28/2011 1 3.1618 15 3.4875 — — -24
11/21/2011 1 3.1618 15 3.4875 — — +22
11/14/2011 6 3.1618 52 3.4875 — — -2
11/07/2011 2 3.1618 10 3.5733 — — +67
10/31/2011 1 3.1618 10 3.5840 — — +96*
10/24/2011 1 3.1618 19 3.5840 — — -19
10/17/2011 1 3.1618 10 3.5840 20 3.96 -22
10/10/2011 7 3.1618 10 3.5840 20 3.97 +130
09/26/2011 2 3.1618 2 3.5840 — — +55
09/19/2011 1 3.1618 1 3.5840 — — +48
09/12/2011 2 3.1618 10 3.5840 — — +7
09/05/2011 4 3.1618 3 3.5840 — — +100
08/29/2011 1 3.1618 1 3.5840 — — +25
08/22/2011 3 3.1618 3 3.5840 — — +16
08/15/2011 7 3.1618 5 3.5840 1 3.97 +38
08/08/2011 7 3.0801 2 3.4982 — — +70
08/01/2011 1 3.0801 1 3.4982 — — +44
07/25/2011 1 3.0801 1 3.4982 — — +32
07/18/2011 6 3.0801 5 3.4982 — — +19
07/11/2011 46 3.0801 11 3.4982 5 3.89 -86
07/04/2011 30 3.0801 2 3.4982 — — +18
06/27/2011 5 3.0801 2 3.4982 15 3.89 +94
06/20/2011 — —— 1 3.4019 — — +82
06/13/2011 1 2.9985 1 3.3058 — — +118
06/06/2011 27 2.9168 2 3.3058 — — +87
05/30/2011 15 2.9168 3 3.3058 23 3.80 +81
05/23/2011 1 2.9168 3 3.3058 — — +59
05/16/2011 20 2.9168 7 3.3058 — — +67
05/09/2011 50 2.9168 30 3.3058 40 3.80 -12
05/02/2011 6 2.9168 52 3.3058 — — +26
04/25/2011 11 2.9168 3 3.3058 — — +282
04/18/2011 10 2.9168 55 3.3058 — — +94
04/11/2011 60 2.9168 65 3.3058 — — -83
04/04/2011 16 2.9168 60 3.3058 — — +28
03/28/2011 26 2.7944 99 3.1992 — — -153
03/21/2011 47 2.7944 50 3.1992 — — -103
03/14/2011 50 2.7944 10 3.1992 — — -49
03/07/2011 32 2.7944 1 2.9972 — — -10
02/28/2011 1 2.6314 1 2.9972 — — +103
02/21/2011 1 2.6242 1 2.9972 — — +76
02/14/2011 10 2.6242 1 2.9972 — — +55
02/07/2011 1 2.6242 – —– — — +103
01/31/2011 – —— – —– — — +23
01/24/2011 – —— – —– — — +170*
01/17/2011 – —— – —– — — +249*
01/10/2011 3 2.2588 1 2.7221 — — +19
01/03/2011 1 2.1777 1 2.6167 — — +16
12/27/2010 1 2.0156 1 2.5115 — — +35
12/20/2010 1 1.8131 1 2.3437 — — +26
12/13/2010 1 1.8131 1 2.3437 — — +50
12/06/2010 5 1.8131 1 2.3437 — — +64
12/02/2010 1 1.8131 1 2.3437 — — +38
11/22/2010 3 1.8131 2 2.3437 1 3.0 +54
11/15/2010 16 1.8131 10 2.3437 — — +74
11/08/2010 15 1.8131 32 2.3437 10 3.0 -30
11/01/2010 25 1.7726 51 2.2913 — — -0.5
10/25/2010 25 1.7726 40 2.2913 6 2.85 -62
10/18/2010 50 1.7726 43 2.0929 — — -61
10/11/2010 31 1.5704 22 2.0929 16 2.65 +181
10/04/2010 — — — — — — +25
* Excludes reverse bond repurchase agreements
** Only includes publicly-disclosed reverse repo operations
* China Manufacturing PMI for January 50.5 – higher than expected
* India Manufacturing PMI for January 57.5 – higher than expected
* Eurozone PMI Manufacturing for January 48.8 – higher than expected
* Germany PMI Manufacturing for January 51.0 – higher than expected
* UK PMI Manufacturing for January 52.1 – higher than expected
* Hungary PMI Manufacturing for January 49.38. Previous 48.6.
* Poland PMI Manufacturing for January 52.2. Previous 48.8.
* Turkey PMI Manufacturing for January 51.7. Previous 52.0.
* Norway PMI Manufacturing for January 54.9 – higher than expected. Consensus 48.0. Previous 46.6.
* Spain PMI Manufacturing for January 45.1. Previous 43.7.
* Czech PMI Manufacturing for January 48.8. Previous 49.2.
* Switzerland PMI Manufacturing for January 47.3 – lower than expected. Consensus 50.7. Previous 49.1.
* Italy PMI Manufacturing for January 46.8 – higher than expected. Consensus 45.3. Previous 44.3.
* France PMI Manufacturing for January 48.5 – in line with expectations. Consensus 48.5. Previous 48.5.
* Germany PMI Manufacturing for January 51.0 – higher than expected. Consensus 50.9. Previous 50.9.
* Eurozone PMI Manufacturing for January 48.8 – higher than expected. Consensus 48.7. Previous 48.7.
* UK PMI Manufacturing for January 52.1 – higher than expected. Consensus 50.0. Previous 49.7.
Via WSJ
China’s gross domestic product growth slowed in the third quarter, rising 9.1% from a year earlier, compared to 9.5% growth in the second quarter. However other data showed an unexpected rebound in September, with industrial production growth rising 13.8% from a year earlier, compared to 13.5% in August. While generally agreeing that China seems headed for a relatively benign “soft landing,” economists are now divided on the outlook for policy, with some seeing an imminent loosening and others predicting that policy will stay on hold:
Keeping everything else equal, today’s stronger-than-expected September activity data tend to alleviate the concerns policy makers have on the slowing economy and therefore keep the tightening bias for longer. Having said that, everything is not equal and we expect external demand growth to weaken in [the fourth quarter of 2011] which tends to raise downside pressures on growth, inflation to show a meaningful fall in [the fourth quarter] towards below 5% level and policy stance to be relaxed in the coming months as a result. The exact timing and magnitude of the relaxation will be to a very large extent depend on external demand as it has a much higher level of uncertainty compared with CPI, despite the obvious importance of the latter. – Yu Song, Goldman Sachs
Overall, these data paint a soft landing picture… Looking forward, GDP growth could slow to around 9.0% in [the fourth quarter] due mainly to falling export growth. Admittedly, with the 9.1% growth reading in [the third quarter], we see some more downside risk to our 9.0% GDP growth forecast in [the fourth quarter]. Domestic problems such as falling property sales, Wenzhou’s private lending crunch and local government debt will continue to put some constraints on policies and growth, but we believe those issues won’t result in systemic crisis and hard landing in China. – Lu Ting, Bank of America-Merrill Lynch
GDP growth on-year is lower than expected but nonetheless still above 9%, and (on-quarter growth) is still very strong at 2.3%. The pickup in industrial production and retail sales are surprising, and reinforce our view that China’s growth is increasingly driven by domestic demand, which remains strong…These reinforce our view that the PBOC is likely to keep policy on hold for the rest of 2011 and observe closely how the current global economic slowdown and financial market turmoil affects the domestic economy. – Zhiwei Zhang, Nomura
China’s [third quarter] GDP result was slightly below market expectations. In the first three quarters, strong investment and resilient domestic consumption drove growth. The contribution from net exports will have been negative, as suggested by narrowing trade surpluses. Though exports will continue to moderate on weaker demand from the G3 economies, growth will continue to be supported by domestic demand, largely as the fiscal stimulus programs have turned out to be much larger than expected…We therefore expect the slow global economic recovery will have a limited impact on China’s growth momentum over the next two years. We maintain our case for an economic soft-landing with [fourth quarter growth] of at least 9.4%, and full-year growth at 9.4-9.5%, a notch higher than consensus. – Liu Ligang and Zhou Hao, ANZ
While relatively robust headline growth may provide some comfort to Chinese policymakers, some leading indicators show continued downside pressure. PMI data continue to show a manufacturing economy on the verge of contraction. Despite significant resilience, fixed asset investment is gradually calming (contracting in month-on-month annualized terms in September), with the real estate sector facing severe headwinds amid credit restrictions. The outlook for exports is particularly bleak, with both CFLP and Markit PMI export sub-indices implying sharply deteriorating demand for China’s exports. Whilst the export orders sub-indices are still nowhere near the depths reached during the great recession, the 2008-09 crash was extremely sudden. Prior to the crash, export orders indices were only showing mild weakness…Some cracks are also showing on the domestic front, primarily in the plight of SMEs, with Premier Wen recently visiting factories in Zhejiang and following up with targeted measures directed at alleviating some of the pain inflicted through brute credit tightening. Market rates remain high, compounding the problem, and should show no sign of falling until the central government signals a shift in monetary policy stance. We are not at that point yet, although a drop-off in inflation or a rapid downturn in the Eurozone would hasten that moment. A lack of additional [reserve requirement ratio] hikes and interest rate increases since July signals the end to tightening, rather than the start of loosening. Monetary policy stance has shifted to neutral, although certain fiscal expansion is expected in coming months. — Xianfang Ren and Alistair Thornton, IHS Global Insight
China’s Purchasing Managers’ Index (PMI) continued to rise to 51.2 percent in September from 50.9 percent in August, the China Federation of Logistics and Purchasing (CFLP) said Saturday.
The CFLP report said the 0.3 percentage-points rebound marks the PMI rising for two consecutive months, indicating the economic development is continuing to stabilize.
PMI is a gauge of manufacturing expansion. A reading below 50 indicates contraction from the previous month, while a reading above 50 indicates expansion. China’s PMI had declined for four months in a row to a low of 50.7 percent in July before rebounding to 50.9 percent in August.
The manufacturing index from the logistics federation is based on a survey of purchasing managers in more than 820 companies in 20 industries.
Source: XINUA
[Update 1 9:17 AM: New trades posted]
[Update 2 3:52 PM: Targets Updated]
[Update 3 6:29 PM: New Trades issued, AUD/USD and USD/CAD after previous hit targets]
[Update 4 7:25 PM: Trade updates and new AUD/USD trade and Emini Trade]
[Update 5: We close today with a great trading day with over 450 pips in profit. This was the best day trading day after FOMC on Sept 21/22 when we recorded over 500 pips profit purely basis the yield curve which was predicting Bernanke plan.]
Stops and Targets may be moved during the day.
Charts and Analysis to be posted later. Macro commentary at the bottom of the trade sheet.
29 September 2011 New Trades are posted:
Important data released:
Key PMI charts from EURO zone reflect slowdown and then even a contraction.
Key updates from German vote:
EURO looks weak showing signs of rally but simply does not have speed, strength on RSI slope to negotiate break of 1.37 for a few hours. If EUR can sustain a break, then we have a serious upside correction for a few weeks. I suspect this could be after ECB rate decision but have no basis for this speculation. Right now, eur looks weak.
The Aussie is looking ready to begin its descent into the bottomless pit. We expected to reach at least 1.0000 but break below 0.9845 is not a good sign. Given PMI weakness around the world we suspect the Aussie is back into its downward trend and therefore almost surely finishing of S&P dream rally to 1200.
All charts part of our trades
AUD/USD charts added now:
USD/CAD charts added:
EURUSD Charts added
Not a good sign for those who believe China will rally the world economy. The rising CDS was enough to trip S&P yesterday below 1155.
Full BofA report on China fall from grace:
China the Systematic Risks 11090934[1]
Myfbook link
Feb2013 myfbook link
