“This Seems Like Intervention”: Sudden Yuan Surge, Afternoon Stock Rally Show China Hard At Work

Last week, we noted that China is still manipulating their stock market.

Steven Leung, executive director at UOB Kay Hian (Hong Kong) Ltd., had a simple explanation for why the authorities in Beijing insist on pushing stocks into the green in late afternoon trading. To wit:

The authorities don’t want to see a very low close.

See there? Doesn’t get much more straightforward than that.

Of course last week, we saw Beijing step in to ensure a green close on MSCI inclusion day (because it would be embarrassing for stocks to close lower after an MSCI decision that was four years in the making) and the shenanigans continued a couple of days later.

China

Well, fast forward to Tuesday and it kinda looks like they did it again as the SHCOMP and the CSI 300 closed 0.2% higher, reversing declines in the last 40 minutes of trading.

It was the fifth straight gain for the CSI 300 Index which had fallen as much as 0.5%. The SHCOMP was down by as much as 0.4% earlier in the day.

ChinaStocksLOL

And as noted earlier, the PBoC stepped in to boost the yuan on Tuesday as well, apparently fed up after the onshore spot closed at a discount to the fix for the 17th consecutive day.

Yuan

Recall what we said last week about there being some “yuan shenanigans afoot“:

The onshore yuan rallied 0.16% in the 10 minutes before 4:30 p.m., which just happens to be the timestamp the PBoC uses to help determine the next day’s fix. 

That was after the onshore spot traded at a 0.35% discount to the fix, the widest in a month.

Of course depreciation pressure also shows up in the onshore-offshore spread and as Bloomberg notes, “the offshore yuan closed 0.19 percent weaker than the mainland rate Monday, the widest discount since January.”

YuanOnshoreOffshore

What they’re doing is trying to keep a lid on yuan depreciation by i) manipulating the spot, and ii) using the opaque “counter-cyclical adjustment factor” to “fix” the fixes.

The hawkish Fedspeak isn’t helping this effort, but they’ve got to do something because they can’t hike OMO rates for fear of overtightening at a time when bank asset growth just plunged to a 10-year low:

ChinaShrink

Here’s Tuesday’s spot market manipulation:

YUan

“They may be eager to keep the onshore yuan quarter-close to near 6.8 per dollar. The quarter-end rate may be an important indicator for foreign central bank reserve managers to consider adding the yuan as assets. Other reasons could be maintaining a strong yuan outlook before the launch of the Hong Kong bond connect,” Ken Cheung, a currency strategist at Mizuho Bank Ltd. in Hong Kong, said on Tuesday.

Ken’s conclusion: “This seems like intervention.”

There you go.

****

 

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