Euforia slowly evaporating - watchout for the hangover

* PBOC has incrementally channeled reporates higher.

At the beginning of last week it started to bite. Although PBOC refrained from pushing rates higher yesterday, causing a small bounce back in the Shanghai equity market in the process, today it was back down with a drop of 4%.

Chinese loan growth is expected to be tapering off in the coming months and hence, the Chinese stimulus may be viewed as neutral and no longer stimulative. Although, with Chinese stateowned corporations being "ordered" to grow, I am wary of a setback which will entail an abrupt end to the stimulus effort. Monetary tightening is definitely within my expectations framework.


Further, the underlying profitability of Chinese corporates is waning as steelproducers are reporting dismal results. The exports part of the economy does not seem to be taking place. The US consumer is holding back and it shows. The domestic Chinese market seems to be too small to make any substantial compensations. In addition, as mentioned in yesterdays blog, the Chinese multiplier effect is absent as stimulus funds are mainly used for speculation on the worlds capital markets.




* Markets
Should there be a more serious downturn, I dont expect it to come all in a straight line and with a one off fall out of bed. Rather I am wary of bullish pullbacks at this stage as technicals are getting stretched. Overall, I will be looking for good entrypoints for bearish positions from here.



*New positions and positionchanges
- Sold 40% of my long Gbp/Usd put
- Sold another 50% of my long Aud/Usd put
- Added to my long Eur/Usd put


As usual, good luck







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