The worm turns in China

After a PBOC-engineered squeeze that's lasted all year, the worm may finally have turned in China, as Monday's super-low fix followed through again last night:



That the large downward adjustment came on the same day that PBOC announced targeted cuts in the reserve requirement ratio for smaller banks is almost certainly not a coincidence.   It looks like the policy mix may be shifting away from currency weakness as a stimulant back towards more traditional policy gears.  That CPI looks to have bottomed would be another reason why PBOC has decided that yuan weakness has now run its course.   It's a big call, but from Macro Man's perch it now finally looks like time to get some low delta downside for expiry just after year end.
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amplitudeinthehouse
admin
June 10, 2014 at 2:27 PM ×

When I woke I thought about trading the market as I climb up out of bed..but then I thought otherwise. Why?, who cares , and even if I couldn't get up out of bed the hotel staff would still find me with a cattle prod attached to some part of my body due to my belligerent attitude towards superior bullshit market players expecting me to be obsequious to their status that exposes that credence due to antiquity is not one of my strong points. There you have it, not trading , but not fighting it either. How many babies is that? :)

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Anonymous
admin
June 10, 2014 at 3:30 PM ×

MM, thanks as always - was wondering your take on how the PBOC move possibly relates to yesterday's import disappointment and the commodity warehousing probe.. on one hand i'm inclined to think a stronger CNY and lower RR should help support imports and thus commodity-backed financing.. but on the other the PBOC concern could be a canary in the coal mine that the commodity collateral squeeze could be worse than priced in... iron ore, copper, and AUD seem to have not made a decision either way...

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Leftback
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June 10, 2014 at 5:30 PM ×

PBOC still engineering that "soft landing" in the Chinese economy and apparently having some degree of success. Of course, we never get to see the real numbers and so we have to guess from electricity consumption etc., but at least they are preventing a big property boom/bust. For now.

Yield curve steepening a tad into the long bond auctions as usual. US 10s now have a higher yield than many other countries, some of which are really decidedly dodgy. Bargain basement time in the Treasury market, with the belly looking like the best candidate for a move down when the flattener resumes? #Belly flop.

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Anonymous
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June 10, 2014 at 10:06 PM ×

Before 2000 and 2008, there were periods during which US 10yr yields were higher than some EU countries' 10yr yields, not for one month, but for 10-20 months.

That was what it took to develop bubbles at the time.

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