China: liquidity concerns mount
The People’s Bank of China is under pressure to do something to ease current tight liquidity conditions. The rate that Chinese banks charge each other to borrow money for 7 days has remained near all-time highs this week, after hitting a record of 6.9% on Friday. Chinese banks have been begging central bank to inject more cash into the to bring rates closer to their pre-spike average of about 3.3%, but so far the PBOC hasn’t obliged. Fitch Ratings warns that such a liquidity squeeze may accelerate a banking crisis. The situation is definitely negative for riskier assets.
Shanghai and Hong Kong stock indices lost more than 1% on the worries over the health of the Chinese financial system. According to RBS, China represents “the big risk factor for global markets now”.
Market players are also awaiting tomorrow’s release of HSBC flash manufacturing PMI after a recent spate of slowing prints (forecast: 49.4; prev.: 49.2).