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IMF chief economist says China has the tools and space to prevent Evergrande from becoming a systemic crisis

IMF Chief Economist Gopinath says following developments regarding Chinese property developer china Evergrande very closely

 

  • downside risks linked to Evergrande could have implications for China’s economic activity and financial stability
  • says China has tools and policy space to prevent the Evergrande situation from turning into a systemic crisis

 

via an interview with Reuters

Reminder – China’s markets reopen &its PBOC rate-setting day. HK is closed.

A summary of who’s in, who’s out and the days ahead.

Mainland China was closed on Monday and Tuesday for a holiday

  • Hong Kong was open while China was closed on Monday and Tuesday.
  • Hong Kong is closed today, Wednesday, for a holiday. 
In China today, at 0130 GMT The People’s Bank of China is setting its one-year and five-year loan prime rates. These have remained unchanged for 16 months. Market expectations are for no change
  • one-year loan prime rate 3.85%
  • five-year rate 4.65%
  • preview here
Japan was closed on Monday

  • Japan is closed on Thursday.
Confused? Hope that clears it all up.
As a bit of fun …
In Australia, Friday is a holiday in Melbourne (Australian markets will remain open).
The holiday is for a football final game. Which is being played the following day, Saturday. And its being played 3000kms away, on the other side of the country.
A summary of who's in, who's out and the days ahead. 

Oil falls through yesterday’s low in quick turn lower as sentiment deteriorates

WTI down 70-cents to $69.58

WTI down 70-cents to $69.58
Chatter about a resuming Iran nuclear talks is combining with negative risk sentiment to weigh on oil.
WTI fell through yesterday’s low down to $69.58 as it eats further into last week’s gains.
The two-hour chart now isn’t looking great with a minor head and dhoulders top in place targeting a fall back to last week’s lows.
Oil — like everything else — is now looking to China for a read through on global GDP. In the shorter term though, it will be down to the Fed and PBOC to signal what’s next for markets.

Biden says will pursue new roles of global trade to level playing field

Comments from the President

Biden
  • Will work with congress to double public international financing to help developing countries deal with climate change
  • US will oppose attempts by stronger countries to dominate weaker ones
  • We are not seeking a new cold war
  • We are committed to preventing Iran from getting a nuclear weapon
There are reports today that Iran nuclear talks will restart and that could be weighing on oil. As for the comments on trade, I think that’s more of a token line than a pledge to take substantial action. Given the covid situation, trade isn’t at the top of the global agenda.

OECD chief economist: We think Chinese fiscal, monetary authorities have capacity to buffer Evergrande shock

OECD chief economist, Laurence Boone, remarks

  • The broader impact from Evergrande should be fairly limited with the exception of some specialist companies
If China really wants to, they could easily turn this situation around but it’s not exactly about that right now. The times are changing and Evergrande is but an example of that.
Chinese authorities could provide some relief to the market as a whole but I don’t expect them to do much to bailout Evergrande at this point. A statement is being made and it’s best the market listens because there’s going to be more testing times to follow.

The flip-flop continues in the bond market

10-year Treasury yields now back up by over 3 bps to 1.34% today

USGG10YR

That pares some of the drop in yields from yesterday but in the grand scheme of things, there just isn’t anything significant in the back and forth motion in Treasuries over the past few weeks – despite more significant moves elsewhere in the market.
10-year yields are back up by a little over 3 bps to 1.34% but it isn’t hinting at much as the range since July and August continues to hold.
Until a technical breakout takes place, there isn’t anything particularly significant or meaningful to extrapolate from the fluctuations in the bond market – for the most part.
For now, it only serves as a general risk sentiment indicator while not providing any major leads as to the general market landscape when digesting the key developments as of late i.e. Fed taper expectations, COVID-19/global growth worries, inflation, and China.
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