As the rest of the world celebrates Christmas, blissfully pretending all is good, and the Fed can manipulate markets to infinitywithout at least one of the numerous violated laws of physics beingreasserted in the process, things in China are once again remindingthose who care that just as liquidity giveth, so does liquidity taketh away. We pointed out a week ago that the 7 day Reporate in China recently hit a post-Lehman high, as banks areincreasingly concerned that following 3 RRR hikes, the PBOC has nochoice but to resort to some tightening measure that actually works. As aresult excess liquidity has suddenly become rares than hen's teeth. Today we get a first hand lesson of why this was material: Dow Jones reports that the Chinese MoFhas failed to attract sufficient interest in its 3 Month 20 billion CNYauction. The result: SHCOMP is now down 1.2%. Bottom line: as the worldis sleeping, China just had a failed bond auction. If news mattered,this would be a very disturbing event. Luckily for Ben, it doesn't. Forthe time being. It will soon. Then Montier's mean reversion meme may just strike with great deferred vengeance and furious accrued anger.
From the Dow Jones:
China shares extend their falls following news the Ministry of Financefails to attract enough bids to sell all of its planned CNY20 billion3-month bills in an auction. The Shanghai Composite Index is now down1.2% at 2819.72 and analysts peg support at 2800. The MOF'sunsuccessful bill auction is fresh evidence of tight liquidityconditions in the market, due to China's three RRR hikes since Novemberand rising cash demand near the year-end. "Institutions are inclined toexpedite pocketing in some profit," says China Post Securities, adding"the situation will increase the likelihood of a bearish market in theshort term." Banks continue to fall on various news reports that Chinais likely to use new measures, such as special RRR hikes, to rein incredit expansion next year.
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