All eyes were on China overnight, where first the PBOC drained a quite substantial CNY 100 billion in liquidity via 14 day repos in the month following the biggest credit injection on record, pushing those worried about China’s credit schizophrenia to the edge, and then things got even more bizarre when in an act of clear PBOC intervention, the CNY dropped to the lowest since August 2013 as concerns about the global carry trade’s impact on China (as noted here previously) start to reverberate. We will have more to say about China’s Yuan intervention, but what should be noted is that the Shanghai Composite has tumbled nearly 10% in the past week, and was down another 2% overnight and is once again just barely above 2000, a level it can’t seem to get away from for years (which is fine: recall that the real bubble in China is not the stock but the housing market). Chinese property stocks dropped to 8-month lows as concern continues about bank’s withdrawing some liquidity for the asset class.The USDJPY drifted along and after rising to a resistance level of about 102.600 has since slide just shy of its 102.20 support area which means US equity futures are now in the red, and concerns that the S&P 500 may not close at a new record high are start to worry the technicians.
In other news, touted profit taking and carry-over of the cautious sentiment regarding the recent advance by USD/CNY rate (rose to its highest level since August 2013), allied to the PBOC draining of CNY 100bln via 14-day repos resulted in the Shanghai underperforming its peers prompting a lower open in Europe. In turn, in spite of the Nikkei 225 settling higher following the record close on Wall Street (S&P), flight to quality flows buoyed demand for safehave assets and prompted squaring of long USD/JPY positions. Consequent USD weakness supported EUR/USD this morning, with GBP/USD also benefiting from comments by BoE’s McCafferty who said that if GBP rises more BoE would then need to consider it strength when setting further monetary policy and that UK exports were not being affected by the strong GBP. Elsewhere, despite the lacklustre performance by stocks this morning, Bunds also traded lower, weighed on by the looming supply and good demand for the new 7y bond launch by the ESM. Going forward, market participants will get to digest the release of the latest House Price Index, Richmond Fed Manufacturing and Consumer Confidence reports. Also, the US Treasury will auction off USD 32bln in 2y notes.
Bulletin headline summary from BBG and RanSsquawk
- USD/CNY advanced to its highest level since August 2013 overnight, above the 200DMA line, amid speculation that the PBOC is engineering a temporary correction aimed at discouraging investor demand before widening the trading band in Q2 following the National People’s Congress on March 5th.
- Goldman Sachs revises ECB view and expects the central bank to ease in April after previously seeing rates on hold, sees around a 15bps cut to Refi rate and Deposit rate as most likely.
- BoE’s McCafferty says if GBP rises more BoE would then need to consider its strength when setting further monetary policy.
- Treasuries steady as week’s $109b auction cycle begins with $32b 2Y notes; yielding 0.356% in WI trading after drawing 0.36% in January; 2Y FRNs and 5Y notes tomorrow with 7Y notes on Thursday.
- S&P 500 closed at record high yesterday while IG corporate calendar topped $10b, led by $8b in 7 parts from Cisco
- China’s yuan tumbled the most in more than a year and the Shanghai Composite dropped the most in five months on speculation PBOC wants an end to the currency’s steady appreciation
- Chinese property shares fell to an eight-month low as Industrial Bank Co.’s suspension of mezzanine financing for developers fueled speculation lenders may pare real- estate funding
- Ukraine will select a national unity government on Feb. 27, delaying a vote in parliament that had been planned for today, interim leader Oleksandr Turchynov said
- The office of Turkish Prime Minister Erdogan said alleged leaked conversations of him discussing hidden funds are fake — a denial that was ignored by opposition leaders who called for his resignation
- S&P said a meeting between Obama and Geithner in 2011 just before the company was warned to expect a response to its downgrade of U.S. debt justifies its request to see White House communications to defend itself against fraud claims
- Sovereign yields mostly higher. EU peripheral spreads tighter. Nikkei +1.44%; Shanghai Composite falls 2%. European stocks lower, U.S. stock-index futures decline. WTI crude, gold and copper fall
