China remains at the center of the global market volatility. It’s amazing that just a couple of years ago the yuan exchange rate or the Shanghai Composite were just an afterthought for most market participants. These days traders in the US take shifts watching China’s markets overnight.
It’s a bit like late 2011 when US trading started as Europe opened, with investors fixated on SocGen shares and Italian CDS spreads. Remember the Eurozone crisis?
Things are a bit calmer this morning in China. Here is the latest:
1. China’s exports beat consensus. While the chart below shows a decline, this is actually a 2.3% YoY increase in yuan terms. Asian equity markets jumped from multi-year lows in response.
Source: Investing.com
2. The offshore yuan deposit rate (CNH-HIBOR) returned to a more sustainable level – although still a bit elevated. Yesterday the PBoC had limited how much RMB domestic banks can lend to foreign ones and conducted other operations in Hong King in order to sap liquidity out of the market to punish yuan short-sellers..
Source: @fastFT
3. Beijing got what it wanted as the onshore-offshore exchange rates are now on top of one another. The problem of course is that these types of violent interventions will push market participants out of the offshore RMB market. Imagine if you need to hedge your yuan exposure and the PBoC suddenly makes your hedge untenable. Instead of working toward the free-float of the yuan, China is in fact moving further away from that goal.
Turning to the energy markets, the other global hot spot, we have the following developments:
1. Crude oil futures continued to fall, approaching the dreaded $30/bbl. Over the past few months oil traded in a pattern of short-lived rallies followed by ever-deeper declines. Are we due for another bounce?
2. The American Petroleum Institute announced another larger than expected draw on US crude oil inventories. However the gasoline supplies jumped sharply again. While increases in gasoline supplies are normal for this time of the year, this jump was higher than expected.
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