If it seemed a bit calmer on Monday in global markets than has become typical, it was likely due to the absence of Chinese influence. China’s markets were closed for the country’s annual Dragon Boat festival, a holiday tradition that supposedly dates back 2,000 years. According to state media, it’s not strictly Chinese any longer.
The celebrations have apparently spread all across the globe, with a reported 85 countries and regions (if you have to include regions, then it’s a stretch) participating. The good tidings infected such unlikely faraway locations as Uganda.
Markets reopened on Tuesday in China spreading something else entirely. Chinese stocks, at least those represented by the Shanghai SSE, were down sharply. The index broke below 3,000 for the first time since September 2016. More importantly, the steady upward trend increasingly appears to have been broken in January. Those spreading global liquidations disturbed what had been consistent advance going all the way back to February 2016.
Chinese officials are trying to get ahead of that public channel monetary deficiency by offsetting it with unlocked private (meaning state-owned) bank reserves. Bank reserve growth will shrink and even contract outright, placing enormous importance on the domestic RMB system’s ability to effective use previously stored reserves in place of what the PBOC won’t be providing.
Because the dollars just aren’t flowing to China. They didn’t last year, either, at least not directly (HK) even though CNY rose as if everything was normalizing to globally synchronized growth. Take away the Hong Kong option, what’s left for the Chinese? Or for globally synchronized growth?
Like 2015, these RRR cuts are showing us the eurodollar condition. China’s money problems aren’t really Chinese. They are money problems.
