Most of us know it as shadow banking. Others refer to it as non-bank lending. But a whole new nomenclature — “market-based financing” — is growing in popularity, making the whole thing sound a lot less shadowy, rightly or wrongly.
Nathan Sheets, Under Secretary for International Affairs at the Treasury, in any case urged us to call it that when he spoke about the phenomenon in a speech earlier this year, a sentiment that has also been echoed by the Financial Stability Board.
We refer to this because a similar rebranding effort is currently going on in the world of P2P lenders, many of whom now prefer to be described as operating in the sphere of “marketplace lending“. Furthermore, some analysts we’ve spoken to don’t consider P2P lenders to be shadow banking institutions at all. Some simply call this new source of financing “internet funds”. Read more
… By the notorious PBoC?
To be clear, the issue here is falling M0 in China.
SocGen’s China watcher in chief Wei Yao suggests that this is perhaps more important to real growth than the normally fixated-upon M2. Read more
Another BoAML FX observation on Thursday, this by way of Claudio Piron, emerging Asia FI/FX strategist, and his team.
On the analysts’ radar this week, the continuing risk of CNY depreciation, and in particular this chart:
Some cut out and keep from Morgan Stanley:
Clearly there are incentives for China to join the currency wars in earnest.
The RMB is up 6 per cent in Nominal Effective Exchange Rate terms since August 2014 with, say SocGen, the JPY, EUR, KRW and RUB the top contributors, accounting for 1.9pt, 1.3pt, 0.5pt and 0.4pt of the appreciation respectively. Honourable mention to the USD, naturally, against which the RMB is up 0.5 per cent.
Well, kinda. Or that was the assumption ever since the closure of Hainan Development Bank in the 1990s, when household deposits were made whole courtesy of the fiscal chequebook and an implicit guarantee was born, at least.
But as of Sunday night there is the beginning of a delineation as the PBoC published its draft plan for setting up a real deposit insurance scheme in China. The highlights from Bernstein: Read more
The first rule of currency wars is: you always talk about currency wars.
The second rule is: you can always find one to talk about if you look hard enough.
This month’s FX war location of choice is Asia, and here with its proximate cause is BNP Paribas (our emphasis): Read more
More on that Friday PBoC rate cut — and just as China goes ahead and cuts its 14-day repo operation rate by another 20bp to 3.20 per cent too. That move on Tuesday, according to Nomura, suggests that the PBoC will continue to ease monetary policy… which would be true to form.
As Barc note, “the policy rate cut suggests that China is once again following the typical sequence in a monetary easing cycle – the pace of CNY appreciation is often slowed in advanced, followed later by the same directional moves in the policy rate and banks’ required reserve ratio.” Read more
Indeed, nobody expects the PBoC…
But, despite Friday’s surprise announcement, as SocGen’s Wei Yao says: “due to the further rate liberalisation announced at the same time, there is actually no de facto rate cut.”
She continues, (with our emphasis): Read more
The People’s Bank of China likes to act unexpectedly. And Friday’s surprise announcement of a Chinese rate cut only confirms that being unexpected is indeed the PBOC’s preferred communications strategy.
As Reuters noted, this is the first Chinese rate cut in two years and lowers the benchmark lending rate by 40 basis points to 5.6 per cent. One-year benchmark deposit rates were lowered by a smaller 25 basis points.
But, as Marc Ostwald at ADM Investor Services International commented in an email, the timing of this move looks to be as much about the sharp appreciation of the Chinese currency versus the yen as the fact that China’s economy is experiencing difficulties, with both Chinese CPI and PPI remaining very benign. Read more