USD

China showdown in a few months.

is it possible?

i never thought this comes too fast. i thought this will happen after qe2 finish several months, crude in three digits, commodity meet new high.

House arrest
By Lex

Will the latest increase in Chinas reserve requirement ratio put a brake on property prices? Dont count on it. In a perverse way, every increase in the RRR is an incentive to load up on real estate.

To understand why, take a few steps back. In the past, the Peoples Bank soaked up liquidity caused by currency intervention by issuing sterilisation bills. From 2008 onwards, though, as the yield the bank paid on these liabilities started to rise above what it was earning on its assets mostly US Treasuries this became an expensive business. So the PBoC started locking up more bank deposits through the RRR: Fridays increase, to 19 per cent, was the seventh since January last year. On its own terms, this has been a successful strategy. As Commerzbank notes, liquidity created through foreign exchange intervention since 2004 has tracked closely the liquidity absorbed via bill issuance and RRR rises.

But consider the implications for potential homebuyers. If bank credit growth is managed primarily through quotas, rather than the price of money, then every increase in the RRR amounts to an assurance that interest rates will not rise materially. In other words, yes, you can afford that second or third mortgage.

Does this matter? Since August 2005, when the official sale price data series for 70 cities began, the average yearly rise has been 7 per cent, well below the annual increase of about 12 per cent in urban disposable incomes. But the average is misleading. It masks the growing inequalities that show up in the consistent failure to hit targets for public housing development, the rise in tactical divorces to bypass one-home-per-family restrictions, and plummeting government approval ratings.

Premier Wen Jiabao has implied that house prices, up for 19 straight months, are unreasonable. In reality, continued rises are eminently reasonable: abstract notions of tightened liquidity are just not as effective as real hits to personal finances.

More analysis on SHIBOR spike and conclusion for rational traders:

the traditional argument SHIBOR always spikes before Chinese new year must be refuted.
The spike has Lehman magnitude not new year magnitude.
China banks are iiliquid in yuan, there is a fat credit-cash-crunch.
This results from RRR hikes up to now 19.5% reserve.
RRR is a means to sterilize hot money inflow, i.e. the FED's liquidity injections.
This method has failed. It is a plain fact that many chinese subcontractors to US manufacturers did not deliver at all or behind schedule because they couldn't obtain credit
or the SHIBOR determined rate was too high thus they risked bankruptcy. And further as yuan rose vs USD and the contract is US they get less yuan for their contract upon close.

The first round of currency war: the score is at the FED FED is in the driver's seat China pulls the cart.

PBOC will hike again in the next coming days.
The question is how much of China's GDP growth is organic and how much is due to credit bubble? From that
what is the "right" PBOC funds rate and how much can PBOC hike without crumbling the
credit bubble part of the GDP's growth?

Until Feb 2nd USDx will fall further hence EURUSD target 1.38, 1.40 is still pɬ.5
However one should expect day swings of 300 pip.
As long as PBOC is the merely responding defendant stock index will raise further.
Especially Eurozone banks will make gains as the crisis is now in China and Eurozone is out of focus.
China- dependent commodity fx AUD NZD partly CAD are risky.
Should PBOC continue to sterilize liquidity inflow the conditions of a super bubble are in place. They have ever more USD liquidity to import USD priced commodities and ever fewer producers and manufacturers who need and can buy commodities in Yuan. "Unlimited" USD liquidity meets Yuan cash / credit crunch.
As llong as that bubble doesn't pop commodity fx relative strength will go up vs USD.

Rationally operating traders take coal as a longterm leading indicator.
Although the flood in Queensland hampers coal production and or shipping for some more months coal price doesn't raise. New coal contracts don't have higher prices than running contracts.
Thus rationally operating traders see China showdown in a few months.
Oil is mostly speculative, coal is fundamental.
Oil traders are MS GS , industry metals futures traded at LME are dominated by russian Oligarchs.

It is not very likely however one cannot rule out PBOC hikes 1% in one step.
If so all thraders long in oil industry metals EUR will get burned big within a few minutes after the decision is public. But it is unlikely.















l von Morgan Stanley
GS und BP whrend an LME industry metals von russischen
Oligarchen dominiert sind.
Der rational orientierte trader kann demnach caol als
vorlaufenden Indikator nehmen.

Es besteht trotzdem die Mglichkeit dass PBOC einen
Warnschuss gibt und ein rate hike 1% ( ist noch viel zu wenig) beschliesst. Das wrde fr alle commodity, stocks, EUR long orientierten trader tdlich enden.
In Minuten.

usdx 80 doable?