It was an impressive rebound from the doldrums of February 11. Stocks managed to get back nearly even, as the S&P 500 closed above 2,100 on successive days April 19 and 20. Since then it has been more of a struggle; sideways to slightly lower. Gold has remained near and above $1,250 while funding markets and UST’s have been bid once again. The 10-year US treasury had its yield move as high as 1.94% by April 26, now the yield falls as stocks toil having settled again to less than 1.74% today.

There has been unusual upset emanating from Japan, but the systemic turn here seems to indicate something beyond that. It is in many ways more familiar.

We still have no idea what the PBOC has done or might still be doing. Last noted here back in March, the Chinese central bank had begun reporting an IMF call sheet template but with very little in Section 4 where all the pertinent numbers should be found. Instead, they are still blank. As I wrote then:

No swaps, options, swaptions or forwards, just $33.7 billion in almost perfectly balanced repo. It is possible that this is correct as the PBOC will often use its influence to get banks to undertake any direct interventions on its behalf, leaving individual bank balance sheets containing the appropriate balances. However, in this case given these conditions, that was not likely as even if Chinese banks were directed (meaning no alternative but to follow policy intentions even if reluctantly) to wholesale means of enforcing a CNY peg that still would have left a future leg (forward) leading back to the PBOC.

This lack of disclosure, as well as misunderstanding the wholesale nature of the “dollar” problem, led to huge mistakes in interpreting what was to come and then afterward what had just happened. The world on August 10 was shocked to find China had “devalued” its currency when that just wasn’t the case. Some were openly applauding the move as if it were intentional “stimulus” rather than harbinger of great and widespread financial difficulty.