As expected, mainland markets in China were inundated with selling pressure on Monday, coming off an extended holiday during which global assets reacted violently to the spread of the coronavirus, which has now killed more than 350 people, and sickened some 14,000.
Crude, copper and iron ore futures all fell by the limit. Rubber and soymeal plunged too.
As for equities, the Shanghai Composite fell an eye-popping 8.7% out of the gate, more than some folks were expecting, in excess of losses seen on other regional gauges, and on par with selling seen during the worst days of the burst-bubble in 2015.
The ChiNext fell more than 7%. On a closing basis (i.e., if the gauge holds these losses), this will be the second-worst day for the gauge since 2016. The first being in early May, another catch-up trade session after Donald Trump re-escalated the trade war.
The CSI 300 gave back all its gains since August.
The onshore yuan dove in the catch-up trade. The PBoC set the fix at 6.9249, stronger than expectations (6.9371) in a bid to shore up confidence and set expectations. The offshore yuan sank through 7 during the holiday, so there was a long way to go for CNY.
The PBoC delivered on its promise to inject what, taken at face value, sounds like a tidal wave of liquidity. The central bank injected 900 billion yuan with 7-day reverse repos and another 300 billion yuan with the 14-day facility.
In a surprise move, OMO rates were cut by 10bps. That has an important signaling effect for markets at a crucial juncture.
More than 1 trillion yuan in funding matured on Monday, so the net injection will be somewhere between 150 and 175 billion yuan.
Jefferies’ Sean Darby summed it up best for A-share investors. “Until the rate of new cases peaks, equities are in limbo — too late to sell, too early to buy”.