2019-09-15

Pledge Stock Loan Risk Hasn't Evaporated

Caixin reports pledged stock risk is the same as it was in mid-2018. For background see: Stealth Risk From Hidden Pledged Loans and also The Bubble's Revenge: China's A-Share Market is Littered With Pledged Share Land Mines Buried During 2015 Mania, as well as some damage control covered here Shenzhen Bails Out A-Shares With Pledged Loans.

Of the 3668 companies listed in the A-share market, 3573 of them (or their major shareholders) have some level of pledged stock loans. Pledged loans are estimated at 8.3 percent of the total market valuation, down from a peak of 10 percent during the bear market last year.

财新:股票质押风险未消
Pledged loans are being paid off and the total outstanding is declining, but many companies are rolling over their pledged loans or obtaining new ones:

2019-09-13

Mortgage Rates Rise in August

First number in the chart is first-home mortgage, second chart is second-home rates.

iFeng: 8月全国首套房贷平均利率上涨
According to the latest monitoring data of 360 Data Research Institute, the average interest rate of the first home loan in China was 5.47% in August, up 3 basis points from the previous month; the average interest rate of the second home loan was 5.78%, up 2 basis points from the previous month, equivalent to the current The 5-year LPR level adds 62 basis points and 93 basis points, respectively, which are much higher than the lower interest rate limit specified in the new regulations.

The data shows that in the first suite, the interest rate of the 17-city mortgage loan has increased in August. Compared with June and July, the number of cities covered by the rising interest rate of mortgage loans and the increase rate have shown an upward trend.

In August, the mortgage interest rate of the first suite in Shenyang area rose the most, at 23BP. The Jinan area remained stable after the mortgage interest rate was lowered in June. Recently, banks have carried out a round of concentrated upward adjustment, bringing the increase of 18BP in the Jinan area. In addition, the three cities in Nanchang, Kunming and Nanning increased by more than 10 BP in August.

Many bank mortgage interest rates will face upward adjustment

Among the 533 bank branches and branches in 35 cities monitored by 360 Data Research Institute, except for the bank that suspends loans, there are currently 19 banks with the first suite interest rate level still below 4.85%, and 116 banks' second-home loans. The interest rate level is below 5.45%. According to the regulations of the central bank, the interest rate of the first commercial personal housing loan shall not be lower than the corresponding market loan interest rate (according to the LPR of 4.85% for the 5-year period above August 20); the interest rate of the second set of personal housing loans shall not be lower than the corresponding period LPR plus 60 basis points (according to the LPR of 5 years and above on August 20, 5.45%).

This means that after the implementation of the new mortgage policy, these banks must raise their mortgage interest rate levels, which will lead to further increases in the interest rate of some urban mortgage loans. From the current data, Shanghai, Xiamen and Tianjin's overall mortgage interest rate is also lower than the new regulatory limit, and will also face an upward adjustment.

In addition, Li Wanfu, an analyst at 360 Data Research Institute, believes that the recent reduction in the deposit reserve ratio by the central bank will bring about a decline in bank financing costs. However, whether it is the RRR cut or the introduction of the new LPR quotation mechanism, it is expected that the actual interest rate of the loan can be reduced through bank transfer. At the policy level, it is explicitly mentioned that real estate is not used as a means of short-term economic stimulus, and that the supervision layer has a large degree of capital containment, and the degree of violation inspection is far more stringent than in the past. In the short term, this round of measures is mainly to reduce the financing costs of the entity, and the possibility of a drop in mortgage interest rates is unlikely.

2019-09-11

Maotai Prices Are Tumbling

China is cracking down on Maotai dealers and the price is tumbling, but is that due to the regulations or because deflation is rearing its head?

iFeng: 中秋前夕飞天茅台降温:批价骤降至2400元附近 黄牛慌了
First, the scope of the clue collection includes:

(1) In the sales of Moutai wine market, illegal and illegal behaviors such as hoarding, raising prices, increasing sales, transferring sales, and illegal tying;

(2) The illegal act of producing and selling infringing and counterfeiting Moutai;

(3) maliciously selling the sales units and individuals who speculate on the sale of Moutai to seek improper benefits;

(4) Producing and publishing false advertising advertisements of Moutai, deceiving and misleading consumers and other illegal acts that damage the legitimate rights and interests of consumers;

(5) Other violations of laws and regulations that disrupt the order of the Moutai market.

Second, the report method: 24-hour complaint report phone number: 12365. All sectors of the society and the broad masses of the people are welcome to report.

Some industry observers pointed out that the first and fourth measures in the document were more effective, which greatly promoted the regulation of the Moutai market, and effectively shocked the speculators in the market and successfully curbed the flying Maotai in the Mid-Autumn Festival in line with the interests of consumers.
Did the crackdown lower prices or are larger economic forces in play?
“Affected by major festivals, the prices of pork and other essential products are also falling. The price of the flying Maotai in the Beijing market has indeed been lowered, currently around 2,400 yuan.” In the survey, there were long-term follow-up observations of Guizhou Maotai’s securities to the wine Industry reporter said.

It is understood that regarding the price of a batch of Maotai liquor, there has always been a distinction between “bulk goods” and “piece goods” in the market, and the prices obtained by the above-mentioned liquor companies are all “prices” at the dealer level.

According to industry sources, Feitian Maotai's bulk purchase price in the early stage of the Beijing market was 2350-2400 yuan, and today's purchase price is 2100 yuan, down 250-300 yuan / bottle, there is indeed a large decline.
Some people aren't buying the crackdown explanation:
Another industry analysts believe that the core reason for the large drop in the flight of Maotai is mainly due to the release of various channels before the Mid-Autumn Festival, and the supply has increased. Some people in the market believe that the price of Moutai may fall after the Mid-Autumn Festival. Therefore, the current market demand is affected. The multiple factors such as price cut expectations and weak investment attributes have a large decline.

In this case, there is a group that appears to be panicked. This group is the "yellow cattle" party that has long been speculating on the flying Maotai. "The oxen are really panicked, because a large number of goods are coming to the market, and prices will fluctuate." Someone analyzed.

There are many rumors on the Internet today. Some say that Beijing Huangniu has lowered its price in Maotai. It is also said that Maotai has increased its supply and price control has been well stabilized before the Mid-Autumn Festival. Kaisheng Liquor believes that at present, the entire high-end liquor has indeed risen faster in the early stage, but it does not mean that the demand for high-end liquor will be met. This is only the increase in volatility after the stock price and the terminal price increase too much.

Why is the price of Moutai so important? Moutai is the price indicator for the whole high-end wine. The price of Moutai is falling, which will inevitably affect Wuliangye and Luzhou Laojiao. Because the difference between the ex-factory price and the terminal price of Maotai is the largest, the price reduction does not affect the profitability and short supply of Maotai. Wuliangye and Luzhou Laojiao enjoyed the spillover effect of Maotai's short supply.

Some brokers believe that the main reason for the short-term decline in Moutai prices is: 1. Manufacturers require 18% of the July and August quotas to be shipped in accordance with 1499; 2. The goods began to be delivered to September in the second half of last week, so the short-term approval price fluctuated slightly. However, it remains firm and the callback is limited. In the previous period, the 2600-2700 was shipped at a lower price, and there was no market price. The price of 2400-2580 was relatively more realistic. The overall regional feedback on high-end liquor sales in the Mid-Autumn Festival was good, with steady growth year-on-year, in line with current market expectations.

Will Real Estate Rage Return in 2019? Developers Slashing Home Prices Ahead of Mid-Autumn and National Day

With the credit window closing, developers are under more pressure to move inventory during Mid-Autumn Festival (September 13) promotions this coming weekend and in the upcoming Golden Week holiday. Prices are already falling as much as 10 percent and larger cuts could be coming depending on this coming weekend's holiday traffic.

iFeng: 房企扎堆促销 有楼盘每平方米降价近万元
Recently, Evergrande’s nationwide “Golden September and Silver 10” National Day purchase promotion activities were not a case. From the perspective of the Beijing area, a number of large and medium-sized developers have launched a variety of promotions. In Guangzhou and Wuhan, there are also frequent discounts for developers. Industry insiders pointed out that housing enterprises are pushing the push for traditional sales season, aiming to speed up the withdrawal of funds and ease the pressure on funds.
Wuhan is one of the strongest housing markets in China and Guangzhou is arguably the strongest of the tier-1 cities. Beijing is also seeing price cuts of approximately 10 percent.
Price reduction

A recent survey by China Securities Journal found that many large and medium-sized developers in Beijing have launched promotional activities with varying strengths. Among them, a high-end residential project of a leading house enterprise has a price reduction of nearly 10,000 yuan per square meter, and the total price has dropped by about 1.1 million yuan. The sales manager of the real estate introduced, "The externally quoted 75,000 yuan / square meter of hardcover room can be sold according to the actual situation of the customer's purchase of 68,000 yuan / square meter. The delivery standard is about 10,000 yuan per square meter, after the price reduction has been Close to the cost price." For the reason of the price cut, the manager bluntly said that the downturn was down, and he wanted to speed up the payment by lowering the price.
It's not only the lack of credit driving sales, but also a cooling housing market:
Zhuge Institute of Housing Research analyzed that the recent cold sales in the property market is the direct cause of developers to cut prices. In the context of increasing financing difficulties, the pressure on housing companies' funds has become more prominent. Some housing companies are taking advantage of the traditional "Golden September and Silver 10" sales season, and hope to quickly withdraw funds through the way of price cuts.
Companies are desperate to move fast and offering larger discounts for customers who can pay now:
Judging from the current situation, most of the property promotion activities launched are linked to the down payment account. The faster the payment, the greater the discount, but the discount is basically reduced by 30,000 to 100,000 yuan on the basis of the total house price. The situation of direct drop of one million yuan in Beijing is relatively rare. The above-mentioned cases belong to the promotion activities jointly launched by housing enterprises and intermediaries, and the activity period is short.
Home price declines are occurring in top-tier suburbs and all over the lower-tier cities.
In addition to the Beijing area, recent Guangzhou, Hefei, Zhengzhou, Wuhan and other places have also reduced the price of houses. According to Zhuge's house statistics, the price reduction areas can be roughly divided into two categories, one is the suburbs of large and medium-sized cities, such as Tongzhou, Shunyi, Changping, Daxing in Beijing, and Fengxian in Shanghai. The second is the third- and fourth-tier cities, such as Huai'an, Huanggang, and Zhangjiagang. Due to the limited supply of land in the central city of the big city, the supply of new houses is concentrated in the suburbs, and the price reduction space is relatively large. The third- and fourth-tier cities were affected by the weakening of the shed and the peak of supply. The market was weak, and the volume and price of some areas fell.
Inventory ratios rose in August as sales slowed:
Behind the increase in price cuts is the decline in trading volume. According to a report released by the Yiju Real Estate Research Institute, in August, the transaction area of ​​newly-built commercial housing in 40 typical cities monitored decreased by 9% from the previous month and decreased by 3%. Among them, the transaction area of ​​the four first-tier cities decreased by 19% quarter-on-quarter and 16% year-on-year; the transaction area of ​​18 second-tier cities decreased by 10% quarter-on-quarter and 6% year-on-year; in the third- and fourth-tier cities, the transaction area decreased by 4% year-on-year and 17%.

On the supply side, the data from the Kerry Research Center showed that the supply-demand ratio of commercial housing in more than 70% of cities increased in August, and the inventory of nearly half of the key cities increased slightly, with the increase rate within 7%, and the inventory digest cycle was longer.

Shen Yu, a researcher at the Yiju Real Estate Research Institute, predicts that some housing companies will increase their efforts in the next few months due to financial pressure. It is expected that the price increase of the “Golden September and Silver 10” property market will increase. It is not ruled out that some of the previous home purchases will be released, and the property market may increase in a short period of time. However, the China Index Academy said that due to many factors such as tightening industry policies, rising mortgage interest rates, and overdraft demand, the real estate market has a strong wait-and-see attitude at this stage. The effect of the promotion and collection strategy is still not obvious, and the downward pressure on the market is still large. The possibility of growth is small.

The central bank announced a RRR cut, which is expected to release about 900 billion yuan in long-term funds. The relevant person in charge of the central bank said that the RRR cut was not flooded, and the stable monetary policy orientation has not changed. The Kerry Research Center said that the RRR cut is limited to the property market. Although the overall credit environment tends to be loose, the real estate credit policy will continue to be moderately tightened under the regulatory tone of “staying and not speculating”.

Guoxin Securities Research Report pointed out that the relevant departments have introduced various measures to prevent funds from violating the regulations into the real estate sector in an all-round way. The current round of RRR cuts has limited impact on the real estate market. It is worth noting that before the RRR cut, various policies to tighten real estate financing were introduced, especially during the two-month period of July and August. Therefore, it is difficult for funds to flow to the real estate industry on a large scale, and housing prices and land prices are not likely to rise sharply. Some market participants also believe that there is still a marginal benefit to the impact of the RRR cut on the property market. The willingness of banks to place credit after the available funds have been enriched will increase, and some of the previous bank mortgages will run out and the lending rate may slow down.

2019-09-10

Bombs Away

I had great success with the diamond pattern on Ulta Beatuy (ULTA). This is a far more important stock for the overall market: Berkshire Hathaway (BRK.B). Although the diamond is not complete, I shorted here at the underside of the 2008 trendline, former support now potentially resistance. Diamond patterns can produce explosive moves in either direction, depending on how they complete.

Eastern Banks Have Halted Lending to Developers

China has trouble generating credit growth without sparking a housing rally. Conversely, evidence suggests China cannot generate credit growth without real estate lending or government-directed stimulus (infrastructure).

Additionally, there's not much evidence of real estate restrictions working, rather home prices have typically tracked credit growth. There was some loosening of restrictions as provinces and cities used the excuse of a "talent war," but lately they've been tightening them up as credit conditions ease.

China is facing a critical moment with credit growth in the range of 10 percent and banks already failing. It needs faster credit growth, but officials also do not want get back on the wheel of suffering, since every stimulus fails within 2 years. China wants something new: credit growth that flows to productive uses. Prior efforts failed as SOEs and others took advantage of financial repression. They borrowed cheaply from sate banks and then made loans to real estate developers at higher interest rates.

财新: 银行收紧开发贷 华东个别分行已暂停放贷
How to make funds no longer flock to the real estate market when liquidity is relatively abundant?
Since the end of April, “the housing has not been speculative” has returned to the Central Politburo meeting, the policy signal of real estate financing has gradually become clear: strict control increments and enhanced compliance. At the same time as the channels such as real estate trusts and bond issuance are tightened, the supervision and regulation of the housing loans in the bank tables are simultaneously regulated.

  According to Caixin reporter, since July, many banks have received guidance from the supervision window, which has control over the scale and growth rate of real estate development loans and mortgage loans. Among them, real estate development loans exceed a certain percentage of banks, not add new real estate development loans. In short, the pressure on banks to focus on real estate loans.
ICBC's many branch presidents pointed out to Caixin reporter that the branch-related loans of their branches were zero growth, and even some pressure dropped. “The head office unifiedly allocated loan quotas, and did not add new real estate development loans. A person from the head office of Shanghai Pudong Development Bank pointed out that the regulatory requirements, the proportion of housing loans to total loans can only be limited to a certain amount; if the bank's loans to manufacturing, small and micro loans increase, then The amount of housing loans can also be moderately increased.

  Under the current situation, the approval and tightening of housing-related loans is the norm. A person from the relevant department of the Bank of China told the Caixin reporter that the current housing loan is still being released, but the approval is stricter and must be in full compliance with the “four three two” (ie “four certificates” and 30% self-owned funds. Projects with secondary qualifications can only be invested. A general manager of a certain branch of the Industrial Bank also pointed out that the whole bank implemented “individual declaration and separate approval” for real estate development loans. Even if the reported projects are approved, they will have to wait until the scale is moved out to lend. At that time, you can only suspend lending.

Banks tighten development loans, and the impact on real estate companies is self-evident. At present, real estate companies mainly rely on pre-issuance of bonds and sales repayments. Superimposing the restrictions on sales implemented in certain regions, the real estate enterprises with insufficient initial reserve will have a greater impact on their cash flow.

  According to Caixin’s previous report, the background of this round of real estate financing regulation stems from the fact that in the second half of 2018, the real estate market has partially loosened, the land king has reappeared, and house prices have rebounded almost completely, which has caused the market to worry about the Chinese economy’s old path. At the beginning of 2019, senior decision-makers had requested to strengthen the management of real estate finance and avoid further stimulus to real estate in the context of a significant improvement in the credit environment.
The key short-term takeaway: the Chinese economy's old path was one of recovery. The downturns of 2011, 2014 and 2016 were reversed by a rapid reversal in home prices, land prices and real estate investment. The stimulus worked because the housing market quickly put capital to use.

This time, housing is acting as a limiter. Banks cannot lend unless they expand their loan book, but other borrowers are under pressure from a slowing economy. Banks are not making many loans because they don't see good risk-reward in lending to SMEs. This is not a sustainable path because credit bubbles require rapid credit expansion. China slowed from 13 percent credit growth last year to 10 percent this year. A slowdown to 7 or 8 percent in 2020 won't generate a equivalent slowdown in activity, it would threaten to tip the economy into collapse, as a slowdown in credit growth took down the U.S. economy heading into 2008.

Credit systems require borrowers and they require profitable lending opportunities for banks. It will be very good news for China and the global economy if the country can grow without the housing/real estate development market pulling it. Unfortunately, clear signs of success have yet to appear.

2019-09-08

Bull vs Bear Battleground: A Tour Through SLX

The materials sector is one of the best areas for both bulls and bears right now, and I say both because there will be a spectacular move from here. I think the evidence weights bearish and points to major declines in many steelmarkers and related companies. On the flip side, there are still some bullish formations that if completed, would point to major gains in the sector. Or at least, if these bearish formations fail, it would invalidate the harsher bear forecasts for the global economy.

My base macro case is that the U.S. dollar will rally. Developed market currencies will depreciate. Emerging market currencies could implode. China's economy is slowing and at risk of tipping into a full-on recession with negative GDP growth or at least major sector damage. Some secondary evidence is the housing markets in Canada and Australia being extensions of the China/commodities slowdown. Drilling down to steel itself, China has been boosting production to lift its GDP. Assuming China does slow, a massive wave of steel will eventually pour out of China and hammer the global steel industry. Or if every nation throws up high tariffs, China will choke on its own production and iron ore demand will fall through the floor.

With the VanEck Steel ETF (SLX), the measured move indicated by the chart suggests my macro case is at least correct in size. China will either accelerate or decelerate, the chart says whichever way it moves will be explosive. I view the charts and macro as reflexive, that is to say I'm becoming more confident in a bold bearish call on China as charts of steelmakers (as one example) look increasingly bearish.

The long-term pattern on SLX looks like a monster inverted H&S. If SLX were to rally past the $46 area, it would open up a move to the $75 area and that would open up a move back to the all-time high on this ETF. The macro case for such a move is the central banks succeed in generating an inflationary global growth cycle beyond anything seen over the past decade. Commodities and material prices rally as they did in the early 2000s. China's economy rebounds and there's enough growth to go around, trade wars or not.
This inverted H&S pattern experienced a false breakout from February to May 2018. The timing is important because this overlays with the broader stock market being in a trading range since January 2018 (the widening megaphone). My assumption is both this pattern in SLX and the broader market are related.

Drilling into the shorter-term, the developing H&S pattern since November 2016 also correlates with the broader market. The S&P 500 Index was trading at the same level in December 2014 and in the days before Election Day 2016. For those looking for the hand of the central bankers, October 2014 was the end of quantitative easing by the Federal Reserve. October 2017 was when the Fed began reducing its balance sheet.
This pattern has completed and a retest of former support (now resistance) is underway. If this pattern is not violated with a break of resistance, the expected move is a roughly 50 percent decline from current levels.

With all that said, let's take a tour through the listed steel industry via an ETF, VanEck Steel (SLX). SLX isn't very heavily traded and doesn't have many options traded, but some of the holdings are liquid. Many of these holdings also appear in SPDR S&P Metals & Mining (XME). I will go through the charts in alphabetical order. Full disclosure: I am currently short STLD, ATI and NUE, and was short CMC in the recent past.

First up is AK Steel (AKS). This looks like a triple bottom, but Slopecharts let's me adjust the Y-axis. If this is actually a topping pattern, I'm afraid this company might be going bankrupt.
Allegheny Technology (ATI). I missed the break, but added puts last week. The topping pattern since August 2017 is what I'm focused on here. The target for this pattern is in the $14 area, I slapped on a horizontal around possible support. However, there's a similarity to AKS that suggests larger losses in the context of a 50-percent move in SLX.
Cleveland Cliffs (CLF), an iron ore miner. This chart has some bullish potential. The pattern since 2016 looks similar to precious metals miners. However, the uptrend was violated last week. Would like to see another break there for a clear bear signal.
Commercial Metals (CMC). There's a small inverse H&S pattern potentially forming.
Here's a great bull-bear chart from Carpenter Technology (CRS). There are three topping patterns since 2008, but also a rising trendline of support. Even if this is an ultimately bullish pattern, it could drop about 20 percent to the horizontal first.
Gerdau SA (GGB). Above $3.73 (the horizontal) looks bullish. Break the smaller horizontal at $2.45 and good night Gracie, the 2001 low near $0.25 opens up.
ArcelorMittor (MT). Massive wedge. Long-term support and resistance cross in March 2022. Won't have to wait that long for a resolution.
Nucor (NUE). This stock is relatively strong. Above $60 and it looks bullish. It recently touched the underside of support from the 2003 low. Major support back to the early 1980s is about 20 percent below.
Posco (PKX). See MT above.
Rio Tinto (RTP). Violated, then retook trendline from 2016 low. Very bullish above $70, 40 percent above. Major support around $20, 60 percent below.
Gibraltar Industries (ROCK). Below $31.71 and it's a failed breakout. From the macro perspective, I like the potential. A failed breakout starts with a loss of more than 20 percent. Looking back, there is a failed breakout analog ahead of the 2008 collapse.
Reliance Steel (RS) is above resistance.
Ryerson (RYI)
Schnitzer Steel (SCHN)
Comphania Siderurgica Nacional (SID). A double towards $9 (blue horizonal) or a potential breakdown to sub-$1.
Steel Dynamics (STLD). Similar to Nucor.
SunCoke Energy (SXC).
Timken Steel (TMST)
Tenaris SA (TS)
Ternium SA (TX). I had a bunch of horizontals on here and tried the Fibonacci instead, and they were really close.
Vale (VALE)
Vedanta (VEDL). A fourth topping pattern in a little over a decade is completed.
Worthington Industries (WOR).
US Steel (X). I pulled the Y-axis to show the downside potential if this is topped out.
Olympic Steel (ZEUS)

RRR Cut? Buy A-Shares! But Don't Stay...

The past 6 of 10 times stocks risen following an RRR cut. Traders may not want to stick around though. The only RRR cut of the past 10 that was bullish for an extended period was in February 2016. The other 9 cuts all came during a bear market.

CNstock: 前10次降准后,大盘6次上涨,“牛市旗手”建议优先配置这两个板块!

2019-09-04

China 2020: Leverage Up With More Special Debt and RRR Cuts

Key sentence:
The downward pressure on the economy has increased and it is necessary to respond in advance.
As the prior post showed, local governments and provinces have already finalized 2020 bond issuance plans that are typically finished in October and November. There is a need to pull 2020 GDP in 2019 to hit targets.

Macro takeaway: keep moving those long-term USDCNY targets higher.

Shanghai Securities News: 国常会传出重磅信号:及时运用普遍降准和定向降准等政策工具、提前下达明年专项债部分新增额度
□ Put the work of “six stables” in a more prominent position, focus on doing things well, use counter-cyclical adjustment policy tools, and sort out the key issues in key areas based on the implementation of the policies already in place.

□ Maintain overall price stability and implement measures to stabilize the price of pork.

□ The special government bonds of the local government within this year must be guaranteed to be issued before the end of September. All funds will be allocated to the project before the end of October, and the physical workload will be formed as soon as possible.

□ Adhere to the implementation of a prudent monetary policy and timely pre-adjust and fine-tune, accelerate the implementation of measures to reduce the actual interest rate level, and timely use policy tools such as general RRR cuts and targeted RRR cuts.

□ According to the needs of the construction of major local projects, the new quota for the special debts for next year will be released in advance according to the regulations to ensure that the use will be effective early next year.

□ Expand the scope of use of local special debts, focusing on infrastructure, ecological and environmental protection projects such as transportation, energy, agriculture, forestry and water conservancy, sewage and garbage disposal, cold chain logistics, water and electricity heat, vocational education and child care services such as child care, medical care and old-age care. It should not be used for land reserves, real estate, debt swaps, and industrial projects that can be fully commercialized.
Let credit grow!
The National Standing Committee proposed to implement a prudent monetary policy, timely pre-adjust and fine-tune, implement measures to reduce the actual interest rate level, and timely use tools such as general RRR cuts and targeted RRR cuts to guide financial institutions to use more funds for inclusive finance. Increase support for the real economy.

In an interview with the Shanghai Securities Journal, Zhang Jun said that this was after the National General Meeting on August 16, and once again proposed lowering the actual interest rate level and clearly issuing a RRR signal.
In order to speed up the issuance of local government special bonds, the meeting made it clear that according to the project construction needs, some special debts will be issued in advance according to regulations to ensure that the use will be effective early next year.

Earlier reports said that the regulatory authorities have issued documents requiring local authorities to report the funding needs of major special debt projects in 2020, and this year will release some local government debt limits in 2020.
Look at the shift in timing over the past couple of years:
Before 2018, since the National People's Congress was held in March, after the approval of the local government debt quota, the local government will generally wait until May for the issuance of funds, which will easily lead to a funding gap at the beginning of the year.
They need to issue debt earlier and earlier because credit growth is slowing and its tipping the economy into recession.
In order to solve this problem, the National People's Congress authorized to release some of the next year's quota in advance in the fourth quarter, so as to issue bonds at the beginning of the year to match the project funding needs.

In addition, the National Committee has further determined that it is necessary to expand the scope of use of local special bonds, focusing on infrastructure, ecological and environmental protection projects such as transportation, energy, agriculture, forestry and water conservancy, sewage and garbage disposal, cold chain logistics, water and electricity, vocational education and child care. People's livelihood services such as medical care and old-age care. It should not be used for land reserves, real estate, debt swaps, and industrial projects that can be fully commercialized.

From the perspective of the expansion of special debts mainly for infrastructure and people's livelihood improvement, it further demonstrates the state's supportive attitude towards infrastructure investment as a counter-cyclical adjustment tool. It is expected that the stable infrastructure will become the key to stable investment in the future.

Ahead of Schedule: Chinese Provinces Finalize Bond Issuance Plans for 2020

Chinese governments are pulling 2020 debt issuance plans into 2019 to boost GDP and credit growth.

财新:财政部提前摸底2020年地方债需求情况 明年1月起发行
Some cities and counties in Zhejiang, Jiangxi, Guangdong, Henan and other places have started the demand declaration for new local government bond projects in 2020 at the end of July and August, and are basically completed.

The progress of this work is obviously earlier than in previous years. Conventionally, before the preparation of the budget for the next year, local demand for new local bond projects will usually be required to be declared. In previous years, it is usually reported from the end of October to November. In comparison, this year is two or three months ahead of schedule.

A budget department of the Central Provincial Department of Finance told the Caixin reporter that last year did not ask for an early search. This year's work was much ahead of schedule.

The Standing Committee of the National People's Congress, which was held at the end of 2018, has authorized the State Council to issue some local government debt limits in the next year from 2019 to 2022. This allows local bond issuance to start in January without having to wait until March when the National People's Congress passes the budget report. The main purpose of this move is to speed up the use of local government bonds, and to play the role of government bond funds in stabilizing investment, expanding domestic demand, and supplementing shortcomings.

2019-09-03

Chinese Money Market Funds Shrink Following Reform

财新:货币基金艰难转型
Related

Reuters: China's giant money market fund relaxes investment restrictions
Reuters: China's money market funds shrink at end-March as curbs bite
The combined size of China’s money market funds shrank by 6 percent in March from February, suggesting regulators’ efforts to rein in the sector’s feverish growth has started to show results.

The monthly fall follows a doubling in net assets during the previous year, which prompted regulators to impose curbs amid concerns that rapid growth in some money market funds could lead to systemic risks in case of massive redemptions.

China Hinges on Credit Growth and Housing, Not Trade Deal

The 100-city housing survey from China Index Academy shows home prices rising at the same pace as July last month: 8月百城住宅均价平稳 环比微涨0.37%
According to the latest report released by the China Index Academy, the average price of residential houses in 100 cities (newly built) in August was 1,504 yuan per square meter, up 0.37% from the previous month, and the growth rate was narrowed by 0.01 percentage points from the previous month.

Huang Yu, executive vice president of China Index Research Institute and CEO of China National Index Holdings, told reporters that overall, the average price of residential properties in Baicheng remained at a low level, and the price fluctuations in most cities were in a stable range. She predicts that the real estate market as a whole will continue to be stable in the future, but the differentiation between cities will become more and more apparent, and some weak third- and fourth-tier cities will face adjustment pressure.
Another headline highlights a new record for housing controls.

iFeng: 创记录!前8月楼市调控高达367次 政策持续收紧
Statistics from the Central Plains Real Estate Research Center show that from January to August 2019, the national real estate regulation policy was as high as 367 times! Compared with 315 in January-August 2018, it rose by 17%. The cumulative number of times has refreshed the real estate control record. And in August alone, the real estate control policy was as many as 60 times. The number of adjustments from January to July was 68, 21, 15, 60, 41, 46, and 56, respectively.

...Since the beginning of this year, from the central government to the Banking Regulatory Commission, intensively strengthen the risk control of real estate finance. In particular, in July, for five consecutive real estate trusts and US dollar debts, they were all directed at real estate release policies. At the beginning of August, it was again clearly targeted at the 32-city inspection, which constrained the amount of real estate loans.

Recently, the notice issued by the Banking Regulatory Commission on the on-site inspection of some local small and medium-sized banking institutions shows that some local small and medium-sized banks have illegally provided financing for the “four certificates” of unrealized real estate projects, and some institutions have granted loans to real estate companies that have not obtained real estate development qualifications. It is used to pay compensation for demolition; in addition, illegal loans are issued to real estate projects with insufficient capital. Some real estate development loans issued by institutions have a serious shortage of project capital.

...Zhang Dawei believes that as long as the credit policy does not change significantly, the adjustment of other policies has a very limited impact on the property market. On the whole, the current real estate policy in 2019 is still more and more fine-tuned in addition to credit, but the overall policy fundamentals remain relatively tight.

The property market is strictly regulated, and the patching measures for rising house prices are still appearing. According to the report of Zhongxin Jingwei client, since the second half of 2019, at least 15 cities have introduced property market regulation policies and promoted the real estate market through a series of measures. healthy growth.

Zhang Dawei believes that in the second half of 2019, the national property market will still be two-way regulation, and cities with stable housing prices will not rule out easing policies, but as long as the rise is obvious, real estate regulation will definitely increase. In addition, from the perspective of credit interest rates, it is not excluded that interest rates for real estate will rise again.
To repeat: for the past 10 years, China has been unable to achieve a credit-induced increase in the GDP growth rate without spawning a bull market in housing. In some cases, housing was the cause of the increase in GDP, not a secondary effect. Real estate controls, bullish or bearish, have seldom worked when the credit impulse was contrary to them. If China achieves a burst of growth without spurring a speculative surge in housing, it will be a first. Moreover, speculators are counter-cyclical. They have been trained by repeated government failures to buy when restrictions are ratcheting up because eventual credit growth always breaks the controls.

The most important data point is Chinese credit growth. Until that increases, everything else it mute.

2019-09-02

September Starts with USD and JPY on the Launch Pad

Mortgage Reform is Not Easing, Totalitarian Mortgage Control Coming

As soon as Chinese speculators think there's easing, they will move capital into real estate. Hence articles like this one, that try to jawbone the market away from housing speculation.

Also note the paragraph near the end that hints about central planning to the max with personalized mortgage interest rates.

iFeng: 人民时评:房贷改革有利于精准调控
The mortgage reform is not for "water release", but for the marketization of interest rates. The overall level of interest rates is basically the same as before, and the actual expenditure on interest is basically unaffected. Promote the reform of mortgage loans to the depth of precision, and implement the development thinking of "people-centered"

Not long ago, the central bank issued a notice saying that since October 8, the newly issued commercial personal housing loan interest rate has been formed by adding the point of the loan market quotation rate (LPR) of the corresponding period in the most recent month. This reform, known as the “New Deal for Housing Loans”, has attracted much attention. Most of the interpretation starts from the interest rate formation mechanism and analyzes the different influences of policies on different housing groups. It is generally believed that the interest burden before and after the reform is quite equal, and the short-term effect on the real estate market is not obvious, and it is more suitable for precise regulation and urban policy.

First of all, the new mortgage policy is an organic component of the interest rate marketization reform. It should be noted that the issuance of housing loans by commercial banks should have a decisive role in the market. However, the current loan interest rate fluctuates according to the benchmark interest rate, and the benchmark interest rate is determined by the administrative department, and the long-term relative stability remains unchanged. Resource mismatch and reduce financial efficiency. Therefore, reference to open market operations, especially LPR, is the key to solving the benchmark and market interest rate "two tracks." Therefore, the interest rate of the mortgage will be “relevant” with the LPR on a monthly basis, which will naturally reflect the fluctuation of the market interest rate in a timely manner, which is conducive to risk release and efficiency improvement. It can be seen that the mortgage reform is not for "water release", but for the marketization of interest rates.

Secondly, the interest rate of mortgage loans has not changed much in general, and it is more suitable for precise regulation and control. The main worry in the market lies in the "willfulness" of the new interest rate formation mechanism. However, in the medium and long term, the fluctuation of the LPR level is not a matter of fact, which basically reflects the ability of the financial services entity economy, and will also be guided by the necessary window. In the short term, “adding points” is also an important means of adjustment. For example, the current interest rate for the first and second homes in Beijing is about 10% and 20% higher than the benchmark interest rate. After the reform, the first set of mortgage interest rates should not be lower than LPR, the second set should not be lower than LPR plus 60 basis points, and then consider the discretion of each city and banks, and the “interest rate repricing” factor in the process of repayment, mortgage The overall level of interest rates is basically the same as before, and the actual expenditure on interest is basically unaffected.

Thirdly, from the perspective of macroeconomic regulation and control, the positioning of “staying and not speculating” has not wavered, and real estate will never become a means of stimulating growth in the short term. In order to avoid the ups and downs of house prices, especially in hotspots, mortgage interest rates, as an important part of the cost of home purchases, must be subject to timely and appropriate pre-adjustment and fine-tuning, and will inevitably obey and serve the goals and overall situation of regulation. On the other hand, the recent construction of various types of affordable and policy-oriented housing, such as Shanghai's inclusion of foreign populations in the scope of the declaration of shared property rights, mostly belong to the category of “first set, first loan”. The loan approval enjoys a certain degree of preferential treatment, in fact, it is diverted. A considerable part of the credit demand has supported the overall stability of the mortgage interest rate.

It should also be noted that some local mortgage policies have a tendency to be misplaced and offside. For example, some banks have tightened their demand for improvement and even refused to lend. Some banks have artificially delayed the approval time because of the deviation of their credit line or the pace of delivery. In order to stabilize housing prices, some cities have set unreasonable restrictions on the duration of payment and the amount of payment for the provident fund loan customers. The rigid and improved demand group is mainly for the working class. The big data era can fully evaluate it in detail, and the “one-size-fits-all” policy of “no difference” is transformed into precise policy. In this regard, the comprehensive deepening of housing credit reform in the future must focus on differentiated, personalized and accurate high-quality financial services.

The development of the real estate market, in the final analysis, must implement the "people-centered" development thinking; the regulation of the real estate market will eventually focus on the main line of common prosperity. Since the reform and opening up, the per capita housing area of ​​the city has jumped from 6.7 square meters to 36.6 square meters, which is a remarkable achievement. Looking forward to the real estate market in the second half of urbanization, we have a dynamic micro foundation, a solid and reliable meso-protection, and a multi-dimensional and efficient macro tool. As long as we rely on scientific planning, reasonable guidance, and prudential supervision, we can achieve Live the goal of living.