Liquidity is starting to ease and I suspect that PBoC is comfortable with a gradually sliding )not skidding) Yuan. If we are correct this should open door to a stronger domestic market and a final end to asset price deflation
well, what I am seeing in the tape of the market is, that China stocks are exceptionally strong relative to the US for 12 Weeks, I am long PDD since 4/22 and the stock is gaining and holding up great, KWEB is putting in one gap up after another. Not sure what the cause is (China less restrictive on its TECH Companies, Market expecting Liquidity boost?), but I am long until that relative strength fades...
Piece coming next week. Broadly drifting up against other paper units, but we caution that it is matching what it did in mid-1980s so what goes up ultimately comes down
It is kinda funny that PBOC is talking about buying government bonds from secondary market, and all the local finance media and KOL are rushing in to defend this is not a QE gesture. The country is going through deflation, of course PBOC wants to do QE. The lowered liquidity in late last year and this year might be because the government has issued trillion RMB special purpose bonds and another trillion of provincial gov bonds mainly for re-financing. Liquidity has been sucked up from commercial banks to these government bonds which are used mostly for re-financing and slow to reach real economy and asset markets. I think with the other Asian currencies weakening more than Yuan, PBOC might think now is a good moment to ease up liquidity again.
I believe they 'accept' that the Yuan is too high. Policy makers typically care most about rates of change, so a gradual slide against a backdrop of liquidity expansion could be acceptable in coming months.
A further question on-topic - given that China has recently announced incredibly optimistic GDP and market growth plans which can only be achieved with a significant level of stimulus from the PBOC, is there a situation in which their policymakers decide to stimulate despite a relatively weak Yuan?
Naturally, I am not discounting the possibility that this could come as a knock-on effect from US FED stimulus, which is equally questionable in the face of high inflation and a strong economy, but the dovish tone they've had recently may suggest they will go down that path regardless.
Liquidity is starting to ease and I suspect that PBoC is comfortable with a gradually sliding )not skidding) Yuan. If we are correct this should open door to a stronger domestic market and a final end to asset price deflation
well, what I am seeing in the tape of the market is, that China stocks are exceptionally strong relative to the US for 12 Weeks, I am long PDD since 4/22 and the stock is gaining and holding up great, KWEB is putting in one gap up after another. Not sure what the cause is (China less restrictive on its TECH Companies, Market expecting Liquidity boost?), but I am long until that relative strength fades...
Piece coming next week. Broadly drifting up against other paper units, but we caution that it is matching what it did in mid-1980s so what goes up ultimately comes down
It is kinda funny that PBOC is talking about buying government bonds from secondary market, and all the local finance media and KOL are rushing in to defend this is not a QE gesture. The country is going through deflation, of course PBOC wants to do QE. The lowered liquidity in late last year and this year might be because the government has issued trillion RMB special purpose bonds and another trillion of provincial gov bonds mainly for re-financing. Liquidity has been sucked up from commercial banks to these government bonds which are used mostly for re-financing and slow to reach real economy and asset markets. I think with the other Asian currencies weakening more than Yuan, PBOC might think now is a good moment to ease up liquidity again.
Very interesting - thanks Michael. Where is the US dollar headed?
I believe they 'accept' that the Yuan is too high. Policy makers typically care most about rates of change, so a gradual slide against a backdrop of liquidity expansion could be acceptable in coming months.
Interesting read!
A further question on-topic - given that China has recently announced incredibly optimistic GDP and market growth plans which can only be achieved with a significant level of stimulus from the PBOC, is there a situation in which their policymakers decide to stimulate despite a relatively weak Yuan?
Naturally, I am not discounting the possibility that this could come as a knock-on effect from US FED stimulus, which is equally questionable in the face of high inflation and a strong economy, but the dovish tone they've had recently may suggest they will go down that path regardless.
Looking forward to reading part 2!