Qingdao

Back in 2014, a scandal erupted when media reports confirmed what many had previously speculated about China's banking system: namely that much of China's staggering loan issuance had been built (literally) upon air and that billions (or trillions) in loan collateral had been "rehypothecated" between two, three or many more debtors - or never even existed - forcing banks to accept that they would never recover much if any of the pledged collateral - in most cases various commodities - if the economy were to suffer a hard-landing resulting in mass defaults.

Having held on to hope that the reflationary impulse would sustain the adverse series of events and geopolitical shocks over the past two weeks, RBC's head of cross-asset strategy Charlie McElligott is ready to throw in the towel, driven by what we have been pounding the table on for the past three months, namely the fading inflationary impulse out of China, manifesting itself most vividly in the recent crash in various commodities, and iron ore in particular, which has tumbled 30% from recent highs.