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China Market Watch: PBoC Action In Focus. Will Beijing Calm Market Nerves?

China Market Watch: PBoC Action In Focus. Will Beijing Calm Market Nerves?

Justin McQueen, Strategist

China, Evergrande Analysis & News

  • China Returns From Two-Day Market Holiday
  • PboC Open Market Operations to be Closely Watched For Signals on Beijing’s Support

Tonight will see Chinese markets open after a two day closure to observe mid-Autumn festival. Naturally, there will be increased focus and volatility given the current backdrop of Evergrande default concerns. Of note, Evergrande missed payments due on Monday to at least two banks, however, banks were expecting the deadline to be missed after the Housing Ministry told them that the company would be unable to make the payments on time. That being said, the real test will be on Thursday’s where two interest payments valued at $83.5mln and $36mln are due.

Although, prior to that, with Chinese markets opening, it will be important to watch out for the PboC’s open market operations, which could provide a signal regarding Beijing’s intentions and whether they are prepared to calm market nerves or not. Last week, the Global Times, which is essentially China’s mouthpiece, stated that Evergrande is not too big to fail. However, with open market operations showing net injections of CNY 100bln, this may suggest that Chinese authorities are willing to offer a helping hand. Therefore, should we see something to the tune of CNY 150bln, this would likely see a pick up in risk appetite, although, perhaps only temporarily given the Fed decision in the following session. Reminder that the announcement is released around 0215-0220GMT and while I expect greater focus on this tonight, I suspect markets will be somewhat slower to react to the announcement than if it were during the European and US session.

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PboC Open Market Operations in Focus

Source: Bloomberg

AUD/USD Chart: 15 Minute Time Frame

Source: Refinitiv

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