Daily Kickstart (China Liquidity Edition)

“We again have the condition of low volume plaguing markets,” Jingyi Pan, market strategist at IG Asia Pte told Bloomberg on Wednesday morning, describing the thin tape that once again characterized trading in Asia.

It is indeed quiet out there. So quiet in fact, that there were scarcely any news items worth mentioning among the Bloomberg headlines that hit overnight. Oil markets look to be pricing in full compliance with the OPEC/non-OPEC cuts. “The market is moving higher in the belief that compliance will be seen,” Ole Hansen, head of commodity strategy at Saxo Bank, told Bloomberg by e-mail. Still, “we can read very little into these movements before year-end, as there is an interest from those holding a record long position to drive it as high as possible,” he added. 

Hong Kong shares rose as mainland investors bought the CNY4.5 billion in shares via the southbound Shanghai-H.K. Stock Connect, the most since November 9. In yet another testament to how precarious the liquidity situation is, overnight CNH Hibor jumped 8.6 points to 15.18%. That’s the highest since September. Longer tenors rose as well to near 12-month highs (1-week CNH Hibor +4.5ppts to 13.266%, 3-mo. CNH Hibor +66bps to 8.998%). Here’s Bloomberg with some further color:

The first day of 2017 is when an annual $50,000 quota to convert the yuan into foreign exchange resets, stoking concern there will be a rush to sell the local currency. With tax payments and a regulatory assessment also tightening liquidity in the money market toward year-end, January may bring scant relief as lenders prepare for stronger cash demand before Lunar New Year holidays, which are only a month away.

The three-month interbank rate known as Shibor rose for a 50th day, its longest streak since 2010, to an 18-month high on Wednesday. The overnight repurchase rate on the Shanghai Stock Exchange jumped to as high as 33 percent the day before, the highest since Sept. 29. As banks become more reluctant to offer cash to other types of institutions, the latter have to turn to the exchange for money, said Xu Hanfei, an analyst at Guotai Junan Securities Co. in Shanghai.


Meanwhile, Shanghai and Shenzhen were both lower on the session. The RMB was largely flat (and flat is a good thing when it comes to the yuan these days). “The PBOC is trying to actually stabilize the RMB against the dollar,” UBS’s Wang Tao, said in an interview with Bloomberg TV. “It’s trying to manage expectations among Chinese households and corporates so that you don’t have this very mechanical, one- sided depreciation expectation.” Good luck with that. It looks pretty one-sided to me: 


Asian markets summary:

  • Nikkei little changed at 19,401.72
  • Topix little changed at 1,536.80
  • Hang Seng Index up 0.8% to 21,740.04
  • Shanghai Composite down 0.4% to 3,102.24
  • Sensex up 0.6% to 26,363.76
  • Australia S&P/ASX 200 up 1% to 5,685.02
  • Kospi down 0.9% to 2,024.49

In Europe, “the Stoxx Europe 600 edged up 0.1% midmorning,” WSJ notes, adding that “gains in mining and energy companies helped offset modest declines elsewhere.”

Copper futures were up 0.8% at $5,510 a ton, while gold rose 0.2% to $1,141 an ounce and Brent crude oil added 0.6% to $57.14 a barrel after settling at its highest since July 2015.

News worth noting:

  • BP Buys Woolworths Australian Gas Stations for $1.3 Billion
  • LSE Said to Plan EU510m French Unit Sale to Euronext: FT
  • Bovis Homes Sees 2016 Volume Delivery Lower Than Anticipated
  • Loxam Increases Recommended Offer for Lavendon to 260p/Share
  • Sanofi Sues Novo Nordisk Over Diabetes Drugs in U.S.: Reuters
  • U.K. House Prices May Barely Rise as Brexit Weighs on Economy

US futs are pointing to a modestly higher open on Wall Street.

“I’m pretty amazed to see records every day in the U.S. equity market,” DNCA’s Igor de Maack told WSJ this morning.

Me too, Igor. Me too.

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