July 2. Could China’s banking problems spill over?

–Not much to say about Monday’s session.  However EDM15/EDM16 rose 1.5 bps to a new high at 102.5.  The peak of the one year spreads remains EDU15/U16 which pegged its high at 106.  New high as well in red/gold pack spread at 259.6 up 4.5 on the day.  Continuing adjustments to the idea that actual tightening may occur in a few years, and there’s now a bit more premium demanded for the longer dated carry trade.
–While the Fed has had a hard time wrestling with communication, not so in China, where the state has instructed media to stop hyping news about a credit crunch and instead report that there is plenty of liquidity.  Problem solved.  Except that last Friday (from Forbes) ATM’s of Industrial and Commercial Bank of China wouldn’t dispense cash and several banks had problems with money transfer systems. http://www.forbes.com/sites/gordonchang/2013/06/30/citibank-caught-in-china-cash-crunch-not-making-money-transfers/
Bloomberg also has a couple of China banking stories, noting that the largest banks’ shares fell an average of 12% last month in Hong Kong trade. “Policy makers are concerned that large borrowers who have been living off “cheap credit” in China will begin defaulting as the economy slows down, Eswar Prasad… said in an interview with Bloomberg Television. That in turn could have a “cascading effect” within the financial system.”
http://www.bloomberg.com/news/2013-07-02/golden-era-fades-for-china-s-banks-as-crunch-raises-default-risk.html
But it’s not a default if you aren’t required to pay: (BBG) Chinese Malls Waive Rents as Vacancies Loom: Real Estate…  http://www.bloomberg.com/news/2013-07-01/chinese-malls-waive-rents-as-vacancies-loom-real-estate.html  “Half of the 32 million square meters (344 million square feet) of shopping centers under construction around the world are in China”
–News in the US today includes Factory Orders expected +2.0 and NY Fed’s Dudley speaks at 12:30 NY Time.

Posted on July 2, 2013 at 5:38 am by alexmanzara · Permalink
In: Eurodollar Options

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