Getting interesting in China

As suspected in my last post (here) capital outflows are increasing, rather than abating. From Deutsche Bank,

China Dec FX reserves was just released at $3.33trn, a drop of $108bn from prior. This was much worse than market expectation and the lowest level since December 2012. After adjusting for FX valuation ($17.2bn), our model estimate possible intervention to be around $125.5bn. This would be the largest USD selling performed by the authorities on record. Do note in August when China had a one-off devaluation, USD selling was only around -$100bn. Given the sizeable drop in FX reserves, FX outflows could be around $156bn, also the largest on record.

I do not believe for one second that China is not massaging its reserves – that’s what central banks have done historically when it gets tough. You can safely assume that the true picture is likely to be uglier…

This is by no means confined to the Chinese. Before Christmas some eminent German newspapers came out with a story that the ECB has purchased much more government (read:PIIGS) bonds than previously disclosed. See the full story (here, unfortunately only in German). The english-speaking press has curiously remained silent over this issue, at least I could not find anything.

Is this because they are predominantly Keynesian and think it is a good thing anyway, if markets (and Germany) are duped into doing the “right thing”?

Disclosure: short AUD, short CNH


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