Chinese 7 day repo rate rises on liquidity concerns

Monday, December 23, 2013

Chinese liquidity conditions tightened further on Monday with the seven day repo rate rising above 9%, suggesting banks are still holding on to cash as monetary conditions worsen. The central bank has repeatedly tried to inject liquidity into the system to prevent a cash crunch, responding aggressively this time around however, concerns remain that policy implemented is ineffective.

US markets extended gains on Friday, spurred by better than expected Q3 GDP figures with the S&P 500 closing at a new record high at 1818.32 after gaining 0.48% throughout the day as the DJIA added 0.26% to close at 16,221.14. US GDP accelerated at a 4.1% annualised rate in Q3, significantly higher than the previous forecast of 3.6% growth. The better than expected GDP figure helped reinforce the Fed’s stance, with tapering of $10bn in bond purchases set to begin in January. Economists polled by Bloomberg expect the Fed to taper in $10bn increments over the next seven FOMC meetings as the market expectation is for tapering to end in December 2014.

Despite credit crunch fears in China, equity indices have manage to snap a five day losing streak as financials and pharmaceuticals led the rebound on technical support. The Shanghai Composite added 0.24% in overnight trading after losing 5% over the past five sessions while the CSI 300 added 0.28% throughout the session. Markets seem poised for a rebound, however, with the focus on money market rates any rally may be short lived.

The 7 day repo rate in China continues to climb to levels last seen in June

RP07 Index CHINA INTERBANK REPO 2013 12 23 07 54 23

The Shanghai Composite snaps a 5 day losing streak despite liquidity concerns

SHCOMP Index Shanghai Stock Exc 2013 12 23 08 08 47

Events for today: Monday, 23 December 2013

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