tyb
TRUST THE PLAN nigga. Your friend don't know shit.
A Global Rally Killer Has Emerged In China
Back in early October, the market catalyst that killed the US rally and sent stocks tumbling into a brief bear market after Powell warned that the neutral rate was a "long way away", was the sudden spike in yields, which surged above 3.3%, breaking out above long-term resistance, and leading to renewed speculation that the 30 year long bull market in bonds is (again) officially over.
But while US yields have remained stubbornly low, perhaps in anticipation of rate cuts and/or QE4, perhaps due to increased buying from foreigners due to sliding FX hedging costs, there is one place where yields have recently soared much higher: the same place whose massive credit expansion in the past three months has led to renewed hopes for global "green shoots", and speculation that the economic slump is now over - China.
After surging in the the first two weeks of April at the fastest pace in more than 2 years, on Monday Chinese ten-year yields rose to 3.38% Monday, extending their highest levels this year.
And while for much of the recent advance Chinese equities were willing to ignore the spike in interest rates, in the past week Chinese stocks have been ominously toppy, and have continued to slide in Tuesday's session.
(umm they are up 200+points right now)
As a result, and perhaps due to fears that Chinese liquidity is again getting too tight, on Tuesday the PBOC broke its streak of 18 consecutive days without open market interventions, and injected a net of 40 billion yuan via 7 day reverse repos.
What is a Reverse Repurchase Agreement
A reverse repurchase agreement is the purchase of securities with the agreement to sell them at a higher price at a specific future date. For the party selling the security (and agreeing to repurchase it in the future) it is a repurchase agreement (RP) or repo; for the party on the other end of the transaction (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement (RRP) or reverse repo.
Repos are classified as a money-market instrument, and they are usually used to raise short-term capital.
https://www.investopedia.com/terms/r/reverserepurchaseagreement.asp
(continued)
And, all else equal, it does appears that Chinese liquidity will shrink even more in the coming weeks, and local markets will face tighter credit conditions this quarter than in 1Q after the PBOC indicated the current pace had gone beyond its target. That, as Yinan Zhao cautions, is going to add to the pain for slumping sovereign bonds as investors face an uncertain economic outlook and reduced chances for stronger easing.
But wait, there's more: while US traders are casting a fearful eye on just how bad the EPS contraction in Q1 earnings season will be (and whether it will recover in Q2 and onward) in China it will be far worse. Indeed, the sharp Monday slump in Chinese small caps "underscores the dangers for mainland stock markets as what could be an ugly earnings season kicks off and steals the limelight from stimulus hopes", as Bloomberg's Kyoungwha Kim writes today.
Here's the punchline: while US stocks are expected to post a roughly 4% drop Y/Y, China small cap earnings will be a massacre, with Q1 EPS on the ChiNext board forecast to slump 29% y/y, following a 12% drop in the prior quarter. That's in line with China's dour Jan.-Feb. economic data. Paradoxically, as earnings tumbled, the ChiNext index soared by over 35% during the same period, so any disappointment in earnings will lead traders to rush for the exits… especially if rates keep rising as liquidity shrinks. This will keep markets volatile in April, especially as the ChiNext's double top formation sets the gauge up for a correction.
That plus concerns that the Chinese central bank will not cut rates as previously consensus had expected, stocks have topped out, even as 10Y yields have continued marching higher, and hit 3.40% in early Tuesday trading, the highest level since mid-December. In other words as Bloomberg's Wes Goodman writes, while the PBOC says it will keep good control of the money supply, "yields may have more to rise even if the central bank is trying to temper the pace of the advance."
The risk is that if yields rise even higher, the rally in Chinese stocks - which has outperformed all major markets in 2019 - is now officially over.
The silver lining in China, just like in the US, is that any earnings recession is expected to be brief: in Q2 earnings are already predicted to rebound, largely thanks to the recent VAT cut, with overall 2019 EPS growth for the ChiNext seen at 52%.
Whether or not that happens will ultimately depend on whether Chinese interest rates keep rising from here, and will also likely determine the fate of the global rally which, all else equals, is now entering extremely overbought territory.
https://www.zerohedge.com/news/2019-04-15/global-rally-killer-has-emerged-china
Japan and U.S. to focus on cutting tariffs on goods in trade talks, Tokyo says
WASHINGTON - Japan and the United States agreed Monday to focus mainly on tariffs on goods such as agricultural and industrial products as they started negotiations for a bilateral trade agreement, according to economic revitalization minister Toshimitsu Motegi.
Speaking to reporters after the first day of a two-day meeting with U.S. Trade Representative Robert Lighthizer in Washington, Motegi signaled his opposition to the potential inclusion of a currency provision in any trade deal. He said currency matters should be handled by the respective finance ministers.
Motegi said he and Lighthizer affirmed they will conduct negotiations in line with an agreement struck between Prime Minister Shinzo Abe and President Donald Trump last September.
The agreement said the two governments “will enter into negotiations … for a Japan-United States trade agreement on goods, as well as on other key areas including services, that can produce early achievements.”
During three hours of talks Monday, Motegi said he mainly discussed goods trade with Lighthizer, and that he also discussed how negotiations could progress.
“I think we have come to see some priority areas for discussions going forward through our talks today,” Motegi said, without elaborating.
A statement issued by Abe and Trump last Sept. 26 indicated Washington would not demand deeper farm tariff cuts than levels Japan has agreed in other trade pacts such as the Trans-Pacific Partnership — the regional free trade agreement from which Trump withdrew the United States in 2017 — and its FTA with the European Union.
The first round of Japan-U.S. trade negotiations came as American agriculture lobbies have stepped up calls on the Trump administration to take swift measures to increase access to the Japanese market.
A revised TPP — an 11-member FTA including Japan and farming nations such as Australia and Canada — as well as a Japan-EU FTA have put American farmers and ranchers at a disadvantage.
While Japan has said the two governments aim for a trade agreement on goods only, the United States has called for a comprehensive pact that would cover a range of areas such as goods, services, investment and currency.
Motegi and Lighthizer will continue talks Tuesday in an effort to determine the scope of their future negotiations.
U.S. Treasury Secretary Steven Mnuchin said Saturday that any agreement with Japan would include a requirement to refrain from manipulating currencies to gain an advantage in international trade.
In a summary of negotiating objectives for bilateral talks with Japan, the Office of the U.S. Trade Representative said in December that the Trump administration would push for reducing or eliminating tariffs on U.S. agricultural imports, and to address nontariff barriers in the automobile sector.
The U.S. will also seek to include trade in services such as telecommunications and financial services in a trade deal.
Trump regards automobiles as a symbol of the trade imbalance with Tokyo, because automobiles and auto parts accounted for about 75 percent of the U.S. deficit with Japan as of 2017.
https://www.japantimes.co.jp/news/2019/04/16/business/japan-u-s-focus-cutting-tariffs-goods-trade-talks-tokyo-says/