“Big Trouble In Little China” As Yields Hit 22-Month High

So, we’ve talked plenty of late about “big trouble in little China.”

(Very) long story, (very) short, you’ve got lackluster PMIs bumping up against i) an effort to rein in speculation via tighter monetary policy (although the PBoC is going the “stealth” route with OMO hikes), and ii) efforts get a handle on the (still) out of control shadow banking complex (think: WMP WMDs). Lately, this has found expression in plunging metals prices.

Indeed, the results are starting to become painfully obvious. Overnight, Chinese bonds dropped as yields hit 22-month highs with the 10-year yield climbing to the highest level since July 2015 amid the clampdown on financial leverage…

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The PBOC skipped OMOs for the second straight day, draining net 10 billion yuan on Monday.

Meanwhile, the econ data missed across the board on Monday. Here’s Goldman:

  • Key numbers: USD denominated: Exports: +8.0% yoy in April (GS: +10%, Bloomberg consensus: +11.3%). March: +16.4% yoy. Sequential export growth (month-over-month, seasonally and Chinese New Year adjusted by GS, non-annualized): -2.9% in April over March, vs. +9.4% mom sa in March over February.
  • Imports: +11.9% yoy in April (GS: +22%, consensus: +18%). March: +20.3% yoy. Sequential import growth (month-over-month, seasonally and Chinese New Year adjusted by GS, non-annualized): -3.8% in April over March, vs. -0.2% in March over February.

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Finally, here’s Bloomberg Intelligence economists Tom Orlik and Fielding Chen summing things up:

The latest numbers are consistent with signs of a slowdown from April business surveys. If the peak for 2017 growth is already in the past, China’s space for progress on a challenging deleveraging agenda will be limited. Diminished scope for higher interest rates will also add pressure for yuan weakness.

Or, visually…

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