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Chinese Interbank Liquidity Freeze Continues For Third Day, Will Persist As Inflation Expected To Rise Over 5.5%

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http://www.zerohedge.com/article/chinese-interbank-liquidity-freeze-continues-third-day-will-persist-inflation-expected-rise-

Three days ago we first reported that not all is well in the Chinese unsecured lending market as indicated by the country's interbank lending (SHIBOR) and repo rates. Subsequent to this, the PBoC attempted to restore some sense of normalcy to the market by conducting an emergency reverse repo for CNY50 billion on Monday night, which however as expected, did nothing at all. Alas, as a quick check of the most recent 1 week SHIBOR confirms, the liquidity lock up continues as the market is scrambling over the implications of what ongoing PBoC tightening implies for the market: 7 Day SHIBOR has once again risen overnight, this time by 51 bps, to a nosebleed inducing 8.83%, doubling from a week ago. This means that it costs banks nearly 10% to borrow one week cash from one another, and confirms there is absolutely no excess liquidity in the market. Looking forward, don't look for this number to go down notably any time soon: as Market News reports: "China's economic planning agency said Wednesday that efforts to control prices are having an impact, and that monetary conditions have improved, but warned that consumer inflation this month will likely exceed May's 5.5% y/y." Which means that the only recourse the PBoC will have after reporting a 5.5% CPI will be more RRR and Interest Rate hikes, which means more liquidity extraction, which means that the 1 week SHIBOR will likely pass 10% in the next few days.

Is this the start of the liquidity crisis?

Meanwhile everyone focus's on Greece.

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http://www.zerohedge.com/article/china-will-suspend-open-market-operations-tomorrow-response-liquidity-freeze

Merely minutes after reporting the third daily surge in the SHIBOR we see a Dow Jones update which confirms that this liquidity escalation is far more serious than a merely transitory jump in short-term lending rates. Per DJ: "China's central bank said Wednesday it will suspend its regular open market operation Thursday, in an apparent response to the tight liquidity conditions in the banking system." As a result of the just reported 7 Day SHIBOR hitting 8.81%, the highest since October 2007, the PBoC will not conduct regularly scheduled open market operations tomorrow when it offers three-month paper, to mop up excess liquidity in the country. "The PBOC sold CNY1 billion ($154.6 million) worth of one-year bills at 3.4019% in its operation Tuesday, after leaving the rate unchanged at 3.3058% for the past 11 weeks. On Thursday last week, the PBOC lifted the rate on its three-month bills by eight basis points to 2.9985%, the first increase on the three-month central bank bill yield since early April. "It is difficult for the central bank to find enough demand for its short-term bill offering amid the severe liquidity squeeze in the money market. If it persisted with the three-month bill offering tomorrow, the yield would jump again, adding pressure to the central bank's operating costs," said a Shanghai-based trader with a local bank."

The followup Zerohedge post.

Looks like the stresses are building in the global recovery. How much longer can they keep kicking the can and getting any sort of distance.

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Zerohedge: The website set up to excite gold bugs with unsubstantiated rumors on an hourly basis.........

Not a credible news source. I will believe it if it hits the MSM.

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Zerohedge: The website set up to excite gold bugs with unsubstantiated rumors on an hourly basis.........

Not a credible news source. I will believe it if it hits the MSM.

Such as the Sun or the Daily Star?

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Zerohedge: The website set up to excite gold bugs with unsubstantiated rumors on an hourly basis.........

Not a credible news source. I will believe it if it hits the MSM.

Yes, go on there, say something bad about gold and silver in a comment, stand back and observe.

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Such as the Sun or the Daily Star?

FT, Bloomberg, Reuters would do it for me.......

Tell me, do you believe the stuff you read on Zerohedge?

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Is it? Who's got the baton now then?

He's forced them to tighten and pushing on the rmb. It looks like they can crash their own economy from here on in without any further pushing. We appear to be without baton for a while now. Guess we'll find out further monetary stimulus is required (on top of the existing FED b/s and neg rates all round!). Lower oil will no doubt give a boost too.

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I realy wouldn't know.

The renmimbi / yuan / whatever is pegged to the dollar. I have no idea what the mechanism is, but I am assuming this results in it's convertibility being constrained along with capital flows.

I have never heard the rmb mentioned in connection with carry trading such as the Japanese yen, so my guess is, the China situation is contained and has little bearing on banking on this side of the globe.

Maybe someone can put me right on this?

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surely they have deliberately increased the reserve ratio precisely to squeeze liquidity and raise the cost of borrowing...

less borrowing, less liquidity, less money flow, lower prices.

if you want to reduce the flow of money you need to raise the cost of borrowing.

they are putting the brakes on money on purpose to tighten credit.

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I realy wouldn't know.

The renmimbi / yuan / whatever is pegged to the dollar. I have no idea what the mechanism is, but I am assuming this results in it's convertibility being constrained along with capital flows.

I have never heard the rmb mentioned in connection with carry trading such as the Japanese yen, so my guess is, the China situation is contained and has little bearing on banking on this side of the globe.

Maybe someone can put me right on this?

Maybe the markets can put you right.

Google "remnimbi" and "carry trade" and you'll find 243,000 results.

Some of them will confirm that the yuan is taking up some of the slack on the yen.

For how long, who knows ...

Edited by johnny5thumbs

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http://imarketnews.com/node/32633

The Chinese central bank will need to raise interest rates in the near future if it is to tackle inflation pressure, despite the potential hit to economic growth, the official China Securities Journal said in an unsigned, front-page editorial Thursday.

The newspaper said the central bank will move in the near future because the monetary conditions that are driving inflation are still in place, while negative rates are driving money out of the banking system, and putting those funds outside of the scope of reserve requirement adjustments.

"The China Securities Journal believes that the current monetary conditions driving inflation haven't been reversed (and) the central bank will raise interest rates to address this," it said.

Consumer inflation in June is very likely to exceed 6% y/y following May's 5.5% rise, the newspaper warned.

Inflation appears to be accelerating in Japan, Ben must be very happy.

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Zerohedge: The website set up to excite gold bugs with unsubstantiated rumors on an hourly basis.........

Not a credible news source. I will believe it if it hits the MSM.

http://www.ft.com/cms/s/0/9c8a4c1e-9cb3-11e0-bf57-00144feabdc0.html#axzz1Q54nN89u

How about the FT is that more credible or is that just a gold ramping paper?

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http://www.moneycontrol.com/news/world-news/chinese-repo-rate-hits-3-year-high_559557.html

The most important gauge of short-term funding costs in China rose to a three-year high on Wednesday, illustrating the severity of the government's monetary tightening and the stress that it is placing on businesses.

China's seven-day government bond repurchase rate is notoriously volatile and is expected to fall after a month-end cash shortage eases. But in jumping to its highest level since late 2007, this barometer of interbank liquidity raised fresh questions about the extent to which China's fight against inflation could undermine economic growth.

Again on yet another gold ramping site.

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Mhttp://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20110622000005&cid=1203&MainCatID=12

As the Chinese authorities are expected to examine the operations of banks after June 20, several banks that haven't yet met the required loan-deposit ratio requirements are rushing to borrow money from the money markets. However, larger banks that have met the new requirements are unwilling to lend.

It was reported that CCB is one of the leading banks experiencing a shortage of funds and that the central bank plans to lend money to improve CCB's loan-deposit ratio.

Reports suggested that the central bank's loans to CCB would be for 14 days and carry a rate of 7.5 percent, which, according to one analyst, indicated that the repurchase rate between banks would stay around that level over the next two weeks.

Christ it appears the whole web is full of gold ramping news sites.

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http://www.cs.com.cn/english/ei/201101/t20110126_2759915.html

CSJ--Wednesday, January 26, 2011

The loan burst at first beginning of this year caused an unprecedented shortage of credit source, some commercial banks began to increase its loan interest currently, a high-ranked banker based in Beijing told China Securities Journal yesterday.

The banker said, most commercial banks increased the loan interest for 10percent to 45 percent

Looks like this could be something which started earlier in the year?

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http://www.zerohedge.com/article/number-european-banks-resorting-1-week-ecb-liquidity-jumps-two-and-half-year-high

It is not only the Chinese interbank market that has found itself in a liquidity vacuum. A quick look at recent moves in European overnight lending rates shows that in the past two weeks the key Eonia overnight rate hit a multiyear high of 1.549%, which was rather disturbing because as Reuters points out "Factors related to the end of the first half of the year, when banks tend to lend less as they square up their books." Of course, concerns about Greece are a far more prevalent factor in the closed loop that is liquidity evaporation. Which is why the Eonia plunge to 1.091% on Wednesday would have been surprising in isolation, but not if one considers that during yesterday's ECB Main Refinancing Operation (MRO), banks borrowed a whopping €186.9 billion in 7 day funding at a fixed rate of 1.25%. This is €50 billion more than what was borrowed in the past week.

Charts at the link.

Still nothing to worry about.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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