As we reported on Wednesday evening, something interesting took place on Thursday morning in Beijing: in a case of eerie coordination, China tightened monetary conditions across many of the PBOC's liquidity-providing conduits just 10 hours after the Fed raised its own interest rate by 0.25% for only the third time in a decade.
Following The Fed's 3rd rate hike in 11 years, the PBOC decided, unexpectedly, to follow in the Fed's footsteps, and tighten conditions by raising the interest rates on its open-market operations, the 7-, 14-, and 28-day reverse-repos, by 10bps each, to 2.45%, 2.6% and 2.75% respectively.
That followed an increase of 10 basis points at the beginning of February, which in turn was the first increase in the 28-day contracts since 2015 and since 2013 for the other two tenors.
With China's "Two Sessions" currently taking place, and Beijing hard-pressed to report positive economic data (including banning the sale of stocks by some mutual funds according to Bloomberg), it was perhaps not surprising that overnight China reported that its foreign-currency reserves "unexpectedly" rose in February for the first time since June 2016, halting a seven-month decline, rebounding over the psychological $3 trillion level controls on capital outflows and a rally in the yuan.
As the dollar drops, and fears over US trade action may exaggerate capital outflows in China, Bitcoin has renewed its rally post-Golden Week to new record highs. The virtual currency is up 10 days in a row as we noted previously that the Chinese have discovered a workaround for the PBOC's crackdown on Bitcoin exchanges.
Record highs in USD terms... (not yet record highs in Yuan terms)
One week ago, Deutsche Bank analysts warned that the global economic boom is about to end for one reason that has nothing to do with Trump, and everything to do with China's relentless debt injections. As DB's Oliver Harvey said, "attention has focused on President Trump, but developments on the other side of the world may prove more important. At the beginning of 2016, China embarked on its latest fiscal stimulus funded from local government land sales and a booming property market. The Chinese business cycle troughed shortly thereafter and has accelerated rapidly since."