US Equities Tumble As PBOC “Stamps Out” Short Yuan Speculators With “Murderous” Liquidity Squeeze

China/Hong Kong Money Market stress remains extreme – O/N implied rates spike to 82%, 1w to 38%…

A jump in the overnight cost for borrowing yuan in Hong Kong is “reflecting further PBOC efforts to stamp out speculation,” according to Michael Every, head of financial markets research at Rabobank Group. Hong Kong-based Every told Bloomberg in an interview, following a massive spike in overnight borrowing rates for Offshore Yuan that “a 66% rate is murderous for others being swept up in this who are not speculating.”

PBOC advisor Han earlier warned that short selling the yuan “will not succeed,” adding that “it is pure imagination that the Chinese yuan will act like a wild horse without any rein.” But as Every notes, the unintended consequences could be a problem, “imagine you needed access to CNH for other purposes for a few days,” concluding ominously that “in other EM crises we see that central banks usually win a round like this, but lose in the end.”

This move sent CNH ripping higher (as shorts were forced to cover) all the way to parity with CNY…

But once that was complete, Offshore Yuan selling recommenced and that is dragging US equities lower…

As we explained earlier, it is now extremely expensive to short the Offshore Yuan – which is exactly what The PBOC appears to have wanted – “It is pure imagination that the Chinese yuan will act like a wild horse without any rein,” said Han, adding that short selling the yuan “will not succeed.”

As the gap between spot (squeeze) and forwards widens…

• *CNH-CNY SPREAD NARROWS BELOW 100 PIPS FOR 1ST TIME SINCE NOV.

Reuters reports that the offshore yuan (CNH) implied overnight deposit rate has hit a record high at 82%. This is squeezing CNH shorts… big time.

As a result, the CNY-CNH spread has narrowed

• *OFFSHORE YUAN STRENGTHENS 0.6% TO TRADE AT PARITY WITH ONSHORE