2015-03-03

Historic U.S. Dollar Rally Underway

Christine Hughes of OtterWood Capital outlines how the U.S. dollar could experience an epic short squeeze, a bull rally that will be one for the history books. She doesn't talk about the yuan, but it will not be able to ride this squeeze higher amid a domestic slowdown.

The yuan is also the king domino in a dollar squeeze scenario. Once it goes, all the dominoes are going to fall, each one adding more rocket fuel to the rally. In terms of fireworks, however, the yen may be the "winner" among major currencies——assuming the eurozone doesn't break apart.

PBOC Rate Cuts Killing the Yen-Yuan Carry Trade

Traders have been borrowing yen and investing in yuan to earn a 6-7% return, but the combination of rate cuts and weaker yuan has reduced expected profit down to 4% (if not lower). A steady outflow from carry traders will put additional pressure on the yuan going forward.

In his view, the reason why these institutions eager to sell yuan, mainly because they are good yuan - yen carry trade has been unable to achieve their desired income value. Yen in the past - an annual risk-free interest rate of RMB trading close to 6-7% of net income. But China enters rate cut cycle, combined with a sharp slowdown in the yuan against the yen appreciation, the entire yen - the actual income of RMB carry trade may shrink to 4 percent, as investment dollars betting on the dollar to rise.

"Now these organizations are most concerned about is whether the central bank will cut interest rates 50 basis points year over, because it means their renminbi - the yen carry trade deficit may occur," he bluntly.

21st CBH: 套利资金撤离NDF市场 人民币四连跌

More on HK Tourism Debate

Hong Kong should welcome more tourists, but not mainlanders
He has also suggested capping the number of visits by Shenzhen residents - who currently make up the bulk of parallel traders from across the border - to 40 a year.

But in our politically charged city, you are either for Hong Kong or you are a "locust" lover, the derogatory Cantonese name for mainlanders.

However defensible Tien's proposal, it's a tough sell.

He and other mainstream loyalists should continue to voice support for mainland visitors, but not expand the scheme.

Instead, we need to do far more to entice quality tourists from elsewhere in Asia and Europe. It's time to diversify.

2015-03-02

First Week In The Year of the Goat-Sheep-Ram Beijing Homes Sales Up 92%

Beijing new homes sales increased 92% year-on-year versus the first week after Spring Festival in 2014, area sold was up 73%, but the average transaction price per square meter was down 22%.

iFeng: 羊年首周北京楼市迎开门红 新房成交量涨92%

The property registration system is being rolled out and as a result, a lot of existing homes are hitting the market.
With the "Provisional Regulations on real estate registration" of landing the implementation of the real estate market crashed and move. Recently, sources said, in Beijing, Shanghai, Jinan, Zhengzhou, and other cities, the housing market has been a "mysterious owner" sell second-hand housing phenomenon.

Chain of real estate data also show that since last December, the national second-hand houses listed increased significantly in some cities increased by a big margin. Chain of home real estate analyst Zhang Xu believes that this market influenced by the real estate registration, especially the second and third tier cities for real estate registration policy excessively worried, then there has been focus on selling high-end secondary listing.
iFeng: 不动产登记影响显现 部分城市更多房产入市

It is Easter season with Lent underway, so why not an article on the Resurrection of Ghost Cities? Ghost cities are said to fall into three categories. The first are simply too large, excessive building beyond market demands. The second are those with lots of outside investors buying up homes, resulting in many empty apartments. The third type are those where the city center is being shifted (such as Pudong in Shanghai). They initially start out as ghost cities, but as the population moves, they are revived. The National Business Daily is going to publish a white paper detailing how investors can find the cities that will rise from the dead.

iFeng: “鬼城论”已破产 这一类鬼城必然复活

Most Chinese Banks Stay Below Deposit Ceiling

Thus far only one major bank is offering deposit rates at the allowed ceiling across the board: Zheshang Bank. Nanjing Bank and Evergrowing Bank are offering the highest rates except for 5 year deposits. iFeng: 央行降息大行存款定价差异化 上市银行仅一家上浮到顶

Anti-Corruption Drive Enters Final Stage?

The anti-corruption drive started with the Maoist/rightist (far-left to Westerners) elements. Neither the corrupt, the liberals or the wealthy want Maoists back in power, so the takedown of the ambitious Bo Xilai was easily secured. The move against his network was basically complete with the arrest of Zhou Yongkang.

The next big target was a senior aide to former President Hu Jintao, who is still being investigated. China probes former senior aide to Hu Jintao over graft

The real power lurking in the background is not Hu Jintao, but Jiang Zemin.


China atwitter over next ‘tiger’ to fall in corruption purge
As China’s two-year-old anti-corruption campaign rages on, an article attacking a long-dead Manchu prince from the late 19th century has prompted frenzied speculation over the fate of one of the country’s most powerful Communist party elders.

For centuries Chinese politicians have used abstruse historical allegory to attack rivals without confronting them directly.

So when China’s top anti-corruption authority published an article on Wednesday afternoon detailing the evil deeds of “Prince Qing”, the internet went into overdrive with theories over who the real target could be.

By far the most popular guess is Zeng Qinghong, vice-president of China until 2008, right-hand man to former President Jiang Zemin and one of the most powerful politicians of modern China.

...The Chinese character in Prince Qing’s name is the same “Qing” used in Zeng Qinghong’s.

Several of the details highlighted in the article appear to be veiled criticisms of Mr Zeng and that is exactly how many on the internet have interpreted the piece.
If Jiang Zemin's network is hobbled, Xi will have effectively consolidated power. The anti-corruption drive will continue, but it will be a mop up operation from that point on.

Previous coverage:
The Battle For China Continues On All Fronts
More Turf Battles in China As Reformers Expand Reach
Political Battle Behind the Scenes Still Ongoing in China; Economic Reform Isn't Solely Economic Reform
Socionomics Watch—The battle for China
Leadership succession battle in China goes public as Wen slams Bo Xilai on Wednesday; Communist party fires Bo Xilai on Thursday
Wen Jiabao's revenge
Major financial reforms begin in China
China's New Age of Reform
Political reform in China taking place through economic channels

Brent Vs WTI Ratio and S&P 500 Corrections

India Set to Pass China As Fastest Growing Economy

With a positive demographic dividend, low hanging fruit and competent leadership, India is finally ready to fulfill expectations.

A chance to fly
India possesses untold promise. Its people are entrepreneurial and roughly half of the 1.25 billion population is under 25 years old. It is poor, so has lots of scope for catch-up growth: GDP per person (at purchasing-power parity) was $5,500 in 2013, compared with $11,900 in China and $15,000 in Brazil. The economy has been balkanised by local taxes levied at state borders, but cross-party support for a national goods-and-services tax could create a true common market. The potential is there; the question has always been whether it can be unleashed.

PM Narendra Modi passes budget test despite lack of reform dazzle
Jaitley's headline innovation was a roadmap for simpler taxation, with a promise to cut corporate tax to 25 per cent from 30 per cent over four years, and a commitment within a year launching a national service tax union to make business easier.

The budget also shifted more resources to states in a boost for federalism. It promised to clamp down on India's black economy and warned of tough new penalties including overseas asset seizures and jail time for tax evaders.

All of this was praised in India's leading newspapers and analyst notes, with public opinion also broadly positive.

2015-03-01

Yuan Sinks 200 Points In Wake of Rate Cut

The onshore yuan played catch up with the offshore yuan as CNY plunged more than 200 basis points at the open. CNY has topped 6.28 yuan per dollar and CNH briefly touched 6.30 before coming down.

CREIS: Small Home Price Decline in February

Note: Spring Festival was in February. There is at best two weeks of a normal market represented in this data.

The latest CREIS 100 city report is out. It shows prices fell 0.24% mom nationally in February, while yoy prices are down 3.84%. 61 cities down, 39 up, a deterioration from January.

In January, CREIS reported an increase in home prices (0.21% nationally, 0.59% in the top cities), so this number, while a small loss, is worse than the prior month report. The gap with government data was wide in January, with the NBS reporting a 0.43% drop in prices. CREIS reported a 0.74% drop in existing home prices in January and NBS reported a 0.36% drop. For February, CREIS reports new home prices in the top 10 cities fell 0.17%, showing the market is still bifurcating. Existing home prices increased 0.18% in the top 10 cities.

2015-02-28

PBOC Cuts Interest Rates, Rate Cutting Cycle Still in Early Phase

The PBOC cut interest rates by 25 basis points, lowering the one-year loan rate from 5.60% to 5.35%. The deposit rate falls from 2.75% to 2.5%. However, the PBOC increased the deposit band to 130% of the official rate, up from 120%. Banks could pay 3.30% interest on deposits before the cut, today it is 3.25%. This ends up being a rate cut across the board, unlike in November, when deposit rates were allowed to go up.

Liu Shan, deputy editor of the China Business Times, discusses the reasons for rate cut. He notes that deflationary forces in the economy and a monetary phenomena and lists the causes, which include
...the failure of the transmission mechanism of commercial banks. On the one hand is the lack of bank credit, mainly reflected a drop in demand in the real economy of credit, banks are more cautious lending, securities companies and banks to use the "two financial" business to put money into the stock market; the other is debtors are using new credit to repay old credit, not to support new investment. These two reasons lead to central bank liquidity not effectively flowing into the real economy, inflation will not be able to support prices.

Followed by contraction of the money supply base money growth. This is a consequence of the outflow of funds, recently the phenomenon of foreign exchange decreased significantly, while creating the conditions for the normalization of the deposit reserve ratio, but the money supply growth rate declined, no doubt suppressed the general price level rose.

In front of the complex world economic situation, China's macroeconomic authorities presumably deflation problem is getting a headache, because the long-term economic recession would lower prices, thereby affecting employment.

How to deal with deflation footsteps getting closer, is the central problem of the urgent need to face.

In terms of housing, the new rate cuts will save a borrower 144 yuan per month on a ¥1 million, 20-year mortgage. (央行再次重磅降息 百万月供减少144元楼市迎利好) Combined with the November cut, borrowers can save 378 yuan per month. This article is also optimistic about the rate cut boosting the real estate market, even in fourth-tier cities, which seems like a stretch. They are correct in expecting further rate cuts though.

Pressure on the yuan will increase as both devaluation and interest rate cut expectations harden.

ZeroHedge has further coverage of the rate cuts, including Goldman's take: China Cuts Interest Rates, Takes Number Of Central Banks Easing In 2015 To 21. The post has this chart showing the housing decline in China thus far is worse than the initial decline in the U.S.

2015-02-27

Hong Kong and Macau Consider Visitor Limits

Hong Kong and Macau are on the front line of the emerging Chinese middle class. I expect foreign countries in Europe may impose similar restrictions eventually, if the growth of tourism follows a similar pattern. One factor at play is Chinese are highly tolerant of crowds due to their experience in China. Going to the mall on an average day in Beijing is like going to an American mall on Black Friday. "Nobody goes there anymore, it's too crowded" culturally translates into Chinese as "it's too crowded there, so everyone goes there now." From the Western perspective, Chinese do not respect personal space. This pictograph essay doesn't get into that aspect of the cultural differences, but the street on Sunday picture is a good approximation of it: Chinese designer depicts Eastern vs. Western human behaviors in clever pictographs. Chinese culture is not unique in this respect. Westerners don't want to ride on a rush hour train in Japan either, but Japan's population is 1/13th of China's, limiting the impact on tourism.

Tourism Tensions Have HK Mulling Limits on Visitor Numbers
Hong Kong's government is considering curbing the number of tourists from the mainland it allows into the city to address the public's concerns.

Hong Kong's leader, Leung Chun-ying, said on February 24 that he would talk to central government leaders about the possibility of limiting the number of visitors when he attends the annual session of the Chinese People's Political Consultative Conference in Beijing.

..."The SAR government has noticed that people's daily lives have been affected by the increase in mainland tourists coming to Hong Kong," Leung told reporters, referring to the city's status as a special administrative region.

Macau govt wants to cap number of mainland tourists
The Macau government wants to impose a limit to the number of mainland tourists that visit the city, Secretary for Social Affairs and Culture Alexis Tam Chon Weng announced.

Mr Tam said tourists already swamp some areas of the city, which has a negative impact on the population’s daily life.

The announcement came on the heels of the overcrowding faced at Macau’s borders and main tourist spots during the Lunar New Year festive season, which started on February 19.

Mr Tam told reporters that the Macau government plans to soon discuss the issue with mainland’s central government. He said no cap had yet been decided and that limits could vary for different seasons of the year. Mr Tam added he hoped the cap could be introduced still this year.

Market Expects March Rate Cuts

The market expects the PBOC will cut interest rates in March in order to combat deflationary forces tearing through the economy.
市场对通缩局面担忧趋严重 消息称3月份降息临近
Increased risk of deflation in the market place expectations on monetary policy. While several agencies have told the reporter to predict the future monetary policy will be mainly neutral, but the market for a rate cut as soon as the voice more and more. And a source told the newspaper reporter, said March rate cut was imminent.

CRE Securities research director Zhong Zhengsheng macroeconomic forecasting to the reporter, according to the central bank's monetary policy report, monetary policy remains neutral, but that does not mean that will not cut interest rates, in fact, including the new monetary policy tools included, as well as lower interest rates and a series of prospective liquidity management are integrated into the central bank's monetary policy options. With the intensification of market expectations for the Fed to raise interest rates in the second half, then the corresponding, our expectations of a rate cut RRR should be in the first half.
Some analysts think other measures, such as RRR cuts, may have more impact or may be needed in addition to interest rate cuts. Whatever the policy choice, expectations are high for monetary easing next month.

Chinese Wonder If Wall Street Bank Has Suppressed Gold Price By One-Third

Banks Face U.S. Manipulation Probe Over Metals Pricing
The U.S. Justice Department is investigating whether the world’s biggest banks manipulated prices of precious metals such as silver and gold as it pushes to wrap up probes into currency-rate rigging, according to people with knowledge of the matter.
The one-third lower price comes from Nick Barisheff, who uses U.S. federal debt growth to come up with an expected current value of $1,800 per ounce.

21st CBH:华尔街投行涉嫌操纵金价 金价或被压低1/3

2015-02-26

Why Chinese Buy Foreign Real Estate

Here's a contrast in living standards, from low to high. The Chinese peasant lives at a standard of living not far above 1980s standards, while middle income Westerners can live better than China's wealthiest.

First, is the home and neighborhood of a Chinese peasant. The headline roughly translates as: A Real Rural Home in Henan, After Seeing People Shocked (河南真实的农村房曝光 看后令人大吃一惊)

Next is the picture gallery which followed that above story, about a middle class home in Canada. The headline roughly translates as: Canadian Middle Class Home, After Seeing China's Wealthy All Cry 加拿大中产阶级的房子 中国富豪看后都哭了.