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Japanese MOF sells Y4.0613tn 3-Month Bills:


Stuck Between The Lines In The Sand

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  • Liquidity continues to contract in China after the PBoC reported that the aggregate financing was 1.06tr CNY in July (vs. 1.7tr CY expected), and down from 3.67tr CNY the previous month.
  • Even though 'credit and liquidity' growth is weak in July, it was the slowest pace since February 2020.
  • We previously saw the contraction in Chinese liquidity, which we define as the annual change in the Total Social Financing (TSF) 12M sum, generally tends to weigh on both domestic and international asset prices.
  • This chart shows the strong co-movement between the annual change in TSF 12M sum and the YoY change in Chinese tech stocks (CQQQ).
  • While the annual change in TSF 12M sum decreased from over 10tr CNY in October 2020 to nearly -2tr CNY in July 2021, the YoY change In Chinese tech stocks has decelerated from nearly 100% to 0%.
  • The recent 'buy the dip' development (end of July) was short lived; CQQQ ETF is down 35% since mid-February (when Chinese economic activity peaked according to a range of financial and economic indicators).
  • Key support to watch on the downside stands at 68.15, which corresponds to the 61.8% Fibo retracement of the 43.19 – 108.54 range.

Source: Bloomberg/MNI