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There were four big hints in Asia that Evergrande’s restructuring is a done deal

  
  Analysis
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PBOC is talking with other central banks

RBA Debelle
Phones have undoubtedly been ringing at the PBOC with other global central bankers on the line. They all have contacts at the PBOC and all global central banks coordinate and share information.
In a system like China’s where the PBOC isn’t independent, they would be on top of government plans. In a situation like Evergrande, they would be in every briefing and at the heart of the decision-making.
I strongly suspect that decisions have now been made and the need-to-know parts of those decisions have been communicated to other central bankers. Here’s why:
First of all, we saw that Evergrande today made an announcement about making an interest payment on domestic debt after negotiations with bond holders. The company is obviously done but that’s a sign that some kind of plan has been decided on’ and it’s not a disorderly collapse.
The second clue was a net 110 billion yuan in 7/14-day reverse repos. That’s the biggest injection since January and it’s a sign the PBOC is adding liquidity as a buffer because there will be some pain from the restructuring.
The third clue was in comments from the RBA’s Debelle earlier.
Evergrande

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China June trade data, exports +4.3% y/y, imports +6.2% y/y (yuan terms)

  
Analysis, Economy
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china trade, yuan terms:

trade balance: expected CNY 425bn, prior was CNY 442.75bn

  • Exports +4.3% y/y: expected +3.5%, prior was +1.4%
  • Imports +6.2% y/y: expected -4.7%, prior was -12.7%

Exports have now risen for 3 consecutive months

The data is only dribbling out, do not have the trade balnce announced from China yet, nor the figures in USD terms. Nevertheless, bounce of both imports and exports is encouraging for the Chinese economy.

China has said trade with the US is down 6.6% y/y in H1.

Add this to the data agenda for Tuesday 14 July 2020 – China June trade data

  
  Analysis
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Trade balance, exports and imports data are due from China today for june June 2020

There is no specific time set for the releases, and it has been very unpredictable in past months.

Yuan terms:

trade balance: expected CNY 425bn, prior was CNY 442.75bn

  • Exports y/y: expected +3.5%, prior was +1.4%
  • Imports y/y: expected -4.7%, prior was -12.7%

USD terms:

trade balance: expected $59.6bn, prior was $62.93bn

  • Exports: expected -2.0%, prior -3.3%
  • Imports: expected -9.0%, prior was -16.7%

Ahead of markets in China opening for Wednesday – support measures so far and here is what is still to come

  
  Analysis
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Nomura provide a summary of the market-supporting actions out of China (these have been discussed on ForexLive in prior days this week but this a nice summary)

PBOC:
  • cut the OMO rate by 10bps for both 7 and 14 day RRs
  • Monday PBoC injected CNY 2.1tln of short-term interbank liquidity (maturing loans offset some of this)
  • Tuesday the PBoC injected a further CNY net 00 bn yuan in RRs – largest single-day addition since January 2019
CSRC:
  • suspended securities lending from Monday until further notice
  • some funds were told to avoid actively selling stocks
    prop traders at brokerages told they were not permitted to be net sellers of equities this week
    would halt night sessions for futures trading
  • to allow some share pledge contracts to be extended by as long as six months
MoF:
  • an interest subsidy scheme for new loans ear-marked for medical supply companies fighting coronavirus
  • policies to extend loans to entrepreneurs and SMEs which have been hit by the coronavirus
They go on with what is still expected to come:
PBOC expected to cut RRR by 50 to 100bp
  • more MLF operations and OMOs coming (to inject long & short-term liquidity into the banking system)
  • MLF rate cut (by 10bps) – to be relfected in the February Loan Prime Rate (on the 20th)
Other:
  • tax/fee cuts, waivers
  • boost to u/e and insurance benefits to people who have lost income or been infected with the virus
  • higher fiscal deficits
  • local governments to get more flexibility in easing restrictions on the property sectors

ICYMI – Warnings of turmoil in markets if the US intervenes in the Chinese yuan

  
  Analysis
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The Financial Times ran a piece overnight canvassing potential US intervention to drive the USD down against the Chinese currency.

The background to this is
  • strong, and stronger USD, despite the Fed’s rate cut
  • The US naming China as a currency manipulator
  • USD/CNY and USD/CNH moving above what was though as a bit of a ‘line in the sand’ at 7 (wheter it is is/was or not remains to be seen)
  • Plenty of chatter and speculation that the US admin could intervene to send the dollar lower
Via the FT:
  • One senior staffer at a London-based Chinese bank said the US could conceivably intervene in the offshore renminbi market, where the currency is traded more freely than on the mainland. But the consequences could be serious.
  • “If you take on China on the currency . . . it would be interpreted as a political act and it would throw markets into turmoil,” said the senior staffer, speaking on condition of anonymity. The political fallout would be “unprecedented”, the person added.
He says market turmoil likes that’s a bad thing? 😀
(Off to the naughty corner for those thinking what I’m thinking!)
FT piece is here, may be gated

Beijing pushes envelope with 7-yuan-to-dollar reference rate

  
  Analysis
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 China’s central bank set its daily yuan reference rate at 7.0039 to the dollar Thursday, crossing the 7 line for the first time in roughly 11 years and signaling resolve even as the U.S. cries foul over the weakening currency.

Market participants speculate that Beijing may keep pushing the rate to around 7.2 to 7.3 so as to alleviate the impact of the next round of American tariffs.

But while a weaker yuan will help exporters impacted by the drawn-out trade war, the People’s Bank of China still must carefully balance these gains against the risks of runaway devaluation and capital flight.

The yuan can move only 2% in either direction from the daily reference rate on the mainland. So the rate, announced before trading starts each session, reflects the monetary authorities’ wishes.

The authorities want a gradual weakening of the yuan, said Ken Cheung, senior Asian foreign exchange strategist at Mizuho Bank.

The Trump administration just labeled China a currency manipulator Monday, after the yuan weakened past the psychological threshold of 7 in Shanghai. Setting reference rates past that line could trigger further pushback from the U.S. (more…)

Marc Faber Discusses Chinese Economic Cooling Off, Sees Day Of Reckoning Delayed

  
Economy, Education
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Nothing notably new here from the man who has called for a Chinese crash in as little as 12 months. Now that the Chinese PMI came at the lowest level in 17 months (in line with the drop in the US ISM but completely the opposite of Europe’s PMI as everyone makes up their own data on the fly now with no rhyme or reason), Faber seems to have mellowed out a little on the Chinese end-play. He now sees the China government stepping in and prevent a collapse of the economy when needed, as the economy has dropped from a near 12% GDP growth to a collapse in the PMI in the span of a few months, even as Chinese banks lent another quarter trillion renminbi billion in July, and issued who knows how many hundreds of billions in CDOs to keep the ponzi afloat.

From Bloomberg TV:

On the cooling of China’s economy:

“I mean I’ve been arguing this year that the economy would inevitably slow down, because the impact of the stimulus would diminish. But having said that, the economy hasn’t crashed yet. It could still crash. But on the other hand, if you look at the performance of equities worldwide, it seems that the worse the economic news is, that the more the markets go up, because the market participants expect further easing measures, and maybe further stimulus. So altogether I would say it’s not going to be a disaster for stock investors yet. It’s interesting. The Chinese stock market began to discount the slowdown in economic growth actually precisely a year ago, in August, 2009. The market peaked out. And then drifted lower, but now that the bad news is essentially out, the market has started to rebound.”

On whether the property market is the biggest weakness in China:

“I’d like to make the following observation. We have a global economy, and an economy has different sectors. And you can have recession in some sectors of the economy. You can have a crash, say, in the property market, and you can have other sectors expanding. [Bolton: That’s the biggest weakness, right Marc, as far as you’re concerned, in the Chinese economy right now, it is the overheating in the property market?….] Well, I’m not sure. Because if they ease again, the speculation will go on. But we have credit problems in the property market undoubtedly. We have Ponzi schemes like loan sharking operations all over China. That’s a very dangerous. But what I would like to point out is that the agricultural sector, the rural sector in China and everywhere in the world is doing relatively well, because agricultural prices have started to rebound. And that was also seen in Thailand. In Thailand, new car sales are up very strongly.”

On whether the Chinese government will delay increasing interest rates this year:

“I think even if they increase it marginally it’s meaningless. Because interest rates are far below nominal GDP growth, and in my opinion far below inflation.”

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