1. China’s reserves fell by almost $94 bln in August. This was a little more than the Bloomberg consensus but not as large as the $200 bln some had suggested. Valuation considerations, which are often ignored in discussions of Chinese reserves, did not appear to be a key factor in the August decline. The euro and yen rose about 2% against the US dollar in August, which would have flattered reserves which are reported in dollars. This would have been mitigated to some extent by the decline of sterling (-1.8% and the Australian dollar -2.7%).

2. The Shanghai Composite fell 2.5% as China’s market re-opened after last week’s holiday. It was the fourth consecutive losing session. The decline in the large cap stocks fueled speculation that government efforts to support the market has come to an end. Smaller cap shares advanced; encouraged perhaps by the PBOC telling the G20 that the stock market drop was nearly over.  

3. The PBOC set the central reference rate for the dollar at CNY6.3589. It had closed at CNY6.3559 when the Shanghai markets closed on September 2. The dollar firmed in Shanghai and closed at CNY6.3651. The dollar appreciated to CNY6.4734 offshore (CNH), which is the highest since August 27. Many see the gap between onshore (CNY) and offshore (CNH) yuan as an indication of more downside pressure onshore yuan.    

4. Some of the capital leaving China is being repatriated to Hong Kong, and this keeps the Hong Kong dollar pinned at the upper end of its band. The Hong Kong Monetary Authority continues to intervene. On Monday, it injected about HKD3.1 bln in to the banking system and accumulated dollars. The HKMA reported that reserve fell to $334.4 bln in August from $339.9 bln in July. Valuation adjustments likely offset what may have been a small build in reserves via intervention  

5. The Swiss National Bank also reported reserve figures. SNB said its reserves rose to CHF540.4 bln at the end of August from CHF531.2 bln at the end of July. Valuation likely accounts for the lion’s share of the reserve increase as the euro, which as of the end of June accounted for a little more than 40% of the SNB’s reserves, rose 2% against the franc in August. With deflation pressures in Switzerland growing, attention turns to the central bank meeting on September 17.