With everyone, including Pimco, now acknowledging what we said most recently in February, namely that China's credit impulse is the main, if not only variable, that determines the fate of global reflation ...
... the latest credit numbers released by the PBOC overnight very closely watched by macro traders around the globe in light of the ongoing liquidity discussions surrounding the deleveraging narrative.
While China growth has been slowing, and monetary conditions tightening, few (if any) have predicted any prolonged deflation (let alone a recession), yet overnight - for the first time ever - the $1.7 trillion Chinese bond market inverted, flashing a warning signal to the world that something is wrong.
Early on Thursday, the five-year yield rose to 3.71%, breaking above the 10-year yield for the first time since records began - even though the latter, at 3.68%, was near a 25-month high.
The U.S. has recorded a trade deficit in every year since 1975. This is not surprising — America spends more than it saves. So, it must run a trade deficit, and this deficit is financed by means of a virtually unlimited U.S. line of credit with the rest of the world. Economies that save more than they spend and record corresponding trade surpluses ship funds to the U.S. to finance America’s insatiable spending.
We noted yesterday that the recent trend of increased volumes into Eurodollar future out-months was 'odd'...
But the sudden surge in interest in Eurodollar calls (vs puts) suggests more than just a few prop bets are being placed on the fact that The Fed does not hike rates in June.
After a few short days of respite - suggested by some as indicative that the worst is over - China commodities are crashing again tonight with Dalian Iron ore snapping below 460 to its lowest since before Trump's election...
This has erased the entire post-Trump reflation trade hope...