Yuantervention overnight steadied the Chinese currency and despite a plunge in Asian equities, stabilized US equities thanks to an incvessant bid for USDJPY. However, this morning has seen PBOC's Ma crawl out from under the desk to attempt to calm investor panic with two-faced comments about the nation's new FX regime. Noting that PBOC will focus on stability of Yuan vs their new CFETS basket, Ma then back-handedly said two-way volatility was expected to increase (in a clear nod to stopping carry traders piling on). Of course, the crude oil algos loved it and surged, USDJPY jumped, but for now US equities and bond are unimpressed.
First we got this...
- PBOC MA SAYS YUAN TO FOCUS MORE ON STABILITY VS BASKET: XINHUA
And overnight stability was enforced... (not helped when Overnight HIBOR spiked to 1340bps, forcing some short-covering along with brokers hiking margins)
But it seems Morgan Stanley is not buying what Ma is selling as it revises Yuan forecasts lower on outflow pressures...
Anticipate Chinese policy makers will transition toward targeting a depreciation in NEER from 3Q, about 2 quarters earlier than initially expected, on intensified capital-outflow pressures, Morgan Stanley says.
USD/CNY year-end forecast revised to 6.9800 from 6.8000 and end-2017 projection to 7.3100 from 7.0700
Key risk to view is if Chinese capital-outflow pressures persist and are more intense than expected, which could spur policy makers to transition toward a depreciating NEER before 3Q
Then we got this...
- CHINA PBOC MA: YUAN TWO-WAY VOLATILITY AGAINST USD TO INCREASE
Pegged to a single currency would lead to large volatility of country’s trade competitiveness, increasing imbalance of international payments and causing more arbitrage activities, according to a statement on PBOC website, citing research bureau chief economist Ma Jun
Which led to this...
And Ma kept going:
- CHINA PBOC'S MA: NO TIGHT PEG TO CURRENCY BASKET
- PBOC ECONOMIST MA JUN COMMENTS IN PBOC NEWSPAPER
- PBOC MA: TO APPROPRIATELY LIMIT YUAN DAILY VOLATILITY VS USD
- CHINA PBOC MA: AIM TO MAINTAIN YUAN STABILITY VS BASKET
- PBOC MA:YUAN FIXING NOW TAKING ACCOUNT OF TWI BASKET STABILITY
- PBOC'S MA: CONSENSUS FORMED TO REFER MORE TO CURRENCY BASEKT
Which sent USDJPY higher again...
And as goes USDJPY, so goes US equities...