ICYMI – China and Canada did a prisoner swap over the weekend. Huawei’s Meng released.

Meng Wanzhou, daughter of Huawei’s founder and the CFO of the company was released from Canada over the weekend, flying back to China.

Had been detained in Canada for almost 3 years.
In a reciprocal move China released two Canadians it had in prison, Michael Kovrig and Michael Spavor.
This was in the news over the weekend that you were unlikely to have missed but just in case.
This indicates a little bit of thawing in  US-China relations.
Meng arrives back in China:
huawei meng china

German election outcome still uncertain – could be weeks of wrangling ahead

Conveying this from a note via ING, bolding is mine for emphasis but read the whole paragraph:
  • The current result also means that there will now be long coalition talks. Germany doesn’t have a prefab mechanism for these coalition talks and the strongest party does not have an automatic right to lead the next government. In fact, all parties can have exploratory talks in whichever combination they want until they have found a constellation which would have a parliamentarian majority. In the past, there were actually two national elections after which the largest party did not lead the government coalition. With the current results, three coalitions would be possible: a SPD, Greens and FDP coalition, a CDU, Greens and FDP coalition, or another revival of the grand coalition but then under the leadership of the SPD. The option of a left wing coalition of SPD, Greens and Left Party is no longer possible.
That last sentence likely means less probability of a much higher taxing government. EUR is little changed so far here in early Asia hours:
Earlier posts are here, its a cliffhanger:

Action packed central bank week as Fed detail taper timetable

Major central bank rundown

It has been a very busy week with the SNB, BoE, BoJ and the Fed all meeting this week. So this weekend is a great time for a catch up on the largest central bank moves. The central banks are listed below with their current state of play. The link for each central bank is included in the title of the bank and the next scheduled meeting is in the title too. The link to the latest statement is at the bottom of each section, so there is no excuse for not being up to date.

Reserve Bank of Australia, Governor Phillip Lowe,0.10%, Meets 05 October

Sticking to the recovery script

Despite the surge in the delta variant Governor Lowe said on September 10 that the economic recovery had been delayed, but not derailed. However, he did add that it was difficult to understand markets pricing in hikes in 2022 and 2023 and said that interest rates were unlikely to rise before 2024.

The delay in the economic recover was reflected in the last meeting

On September 10 the RBA surprisingly kept to their plan to taper (reduce) purchases to $4 billion a week. However, the time that tapering was to continue was extended out to mid-Feb 2022. So, the effect of this is that there will be more tapering for longer. The RBA repeated that their experience is that once the virus is contained the economy bounces back quickly. The question, of course, is whether it back be contained or not as cases are still rising. The RBA conceded that they expect the bounce back to be slower than earlier in the year, so the expectations seem reasonably set from the RBA.

AUD: Watch for mean reversion

The AUD has seen shorts building and they are now looking very stretched. The obvious trade to look for here is some mean reversion. It is very easy to not expect mean reversion when you are trading, especially when there are multiple reasons for AUD weakness, but it happens more often than you may realise. Therefore, in particular look for any bullish signals for the AUD to send it higher quickly. The main trigger would be either a sharp decline in COVID-19 cases and or some recovery from China. The latest slow down from China’s economy and sharp falls in the Iron ore markets have been weighing heavily on the AUD.

The takeaway

Central bank divergence between the RBA and the RBNZ. Although this divergence looks set for some mean reversion now, a deeper pullback should still find sellers as long as the broad outlooks stay unchanged. (more…)

China’s PBOC inject funds on Sunday. Brings the total funds added for the week to the highest since mid-January.

The People’s Bank of China added 320 bn yuan into the banking system this week, the largest weekly cash injection into the banking system since the middle of January this year.

Injected 100bn yuan in open market operations today
  • 14-day reverse repos
  • 50bn reverse repos mature Sunday
  • thus a net 50bn yuan injection
China goes on national holidays beginning Thursday this coming week, October 1, through to October 7. Its not unusual for liquidity to be added ahead of such holidays. The heightened concerns in China re Evergrande have also added impetus to liquidity injections.
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