China: Data and HIBOR in focus before the holiday - BBH

Research Team at BBH, notes that the Chinese equities finished near one-month lows ahead of a holiday that will shut the local markets until Monday. 

Key Quotes

“There are two talking points today about China.  The first is the continued squeeze in HIBOR, which is seen as induced by the PBOC to ostensibly ward off speculative pressure.  Some link the PBOC action to the inclusion of the yuan into the SDR.  However, since the decision has already been made, it is not clear that the yuan’s level or stability is important.  Instead, an alternative hypothesis links the PBOC action to the backing up of rates and the prospect of the Fed lifting rates, the idea being that officials want to slow the yuan's descent.  The CNY6.7 level has taken on psychological significance. 

The second talking point is the Chinese data.  Aggregate financing jumped by nearly a trillion yuan.  In July it was CNY488 bln and in August it was CNY1.47 trln.  The increase was roughly evenly divided between the banking system (yuan loans) and shadow banking.  Money supply growth (M0 and M2) accelerated.  China appears to be purchasing a semblance of economic stability at the cost of continued debt accumulation.”