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China Injects $500 Billion In New Monthly Credit As Surge In US Real Yields Looms

China Injects $500 Billion In New Monthly Credit As Surge In US Real Yields Looms

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China Injects $500 Billion In New Monthly Credit As Surge In US Real Yields Looms Tyler Durden Sun, 09/13/2020 - 20:00

While the financial punditry is preoccupied with the Fed and its $7 trillion balance sheet, whether Powell is purchasing bond ETFs or has enigmatically stopped doing so (as it did in August), and whether the US central bank has any hope of sparking inflation (with or without the help of Congress), what most are forgetting is that when it comes to any global reflationary spark, China - and its $40 trillion financial system which is double that of the US - has been a far more critical driver than the US ever since the financial crisis.

And so, five months after China injected a record 5.2 trillion yuan ($732 billion) in new total social financing - China's broadest credit aggregate - in March to offset the catastrophic hit its economy had suffered from the covid pandemic, Beijing once again surprised to the upside when in August China injected a whopping 3.58 trillion yuan into its economy ($520 billion), above the highest Wall Street estimate (1 trillion yuan above the consensus estimate of 2.585 trillion yuan) and the biggest monthly injection since the March record.

Here is a breakdown of the latest August credit data:

  • New CNY loans: 1280bn yuan, exp. 1250 billion. Outstanding yuan new loan growth: 13.0% yoy in August, in line with the 13% increase in July 13.0%.
  • Total social financing: 3580bn yuan, vs. consensus: RMB 2585bn.
  • TSF stock growth: 13.4% yoy in August, higher than 13.0% in July. The implied month-on-month growth of TSF stock accelerated to 14.8% from 12.6% in July.
  • M2: 10.4% yoy in August, below the consensus of 10.7% yoy. July, and down from 10.7% yoy in July.

Some observations:

  • August credit data surprised the market to the upside, although even though the sequential growth of TSF rose to 14.8% mom annualized from 12.6% in July.
  • Among major TSF components, government bonds net issuance contributed the most to the acceleration in August. Corporate bond issuance increased from last month despite higher interbank interest rates, suggesting further growth recovery.

  • Shadow banking rose after the steep drop in July, as Beijing appears to be easing its crackdown on sources of shadow funding. Banker's acceptance bills increased RMB 144bn in non-seasonally adjusted terms, reversing the contraction in July. The decline in trusted and entrusted loans remained modest in August. In total some 71 billion yuan in shadow debt was created.

  • On loan extension, the increase in mid-to-long term loans to households remained relatively strong, consistent with the strong property sales suggested by high frequency indicators. The increase in mid-to-long term loans to non-financial enterprises picked up in August in seasonally adjusted terms.
  • Finally, in an odd divergence, despite the biggest increase in TSY growth since the start of 2018, M2 growth moderated further to 10.4% yoy in August from 10.7% in July. While it remained well above 2019 levels, it begs the question of just where this newly created credit is ending up if not in the broader monetary aggregate.

Going forward, September TSF is expected to remain "robust" according to Goldman, on continued government bond issuance. Given the recent growth momentum and credit strength, policymakers are likely to stay on hold. That said, a slowdown in credit growth will likely come in Q4 as government bond issuance is likely to slow and monetary authorities are in no rush to loosen.

Why does China's record credit injection in 2020 matter? Because as we showed recently, China's notorious credit impulse (which as UBS admitted several years ago is the only thing that matters for global reflation), and which is a function of how much credit Beijing creates leads real 10Y yields with a 12 month lead time. As shown in the chart below, a simple correlation suggests that real yields are set to soar by 150bps from their current -1% to approximately 50bps, and that's assuming China does nothing to further stimulate its economy over the next 6 months.

In other words, if this relationship holds - and there is no reason to expect why it shouldn't we are not about 6 months away from the next major spike in real yields, which while probably not as violent as Stanley Druckenmiller expects with his forecast of 5-10% inflation, will be sufficient to cause another crash in both risk assets and Treasurys, and spark some real confusion within the Fed which by then will have firmly cemented the perception that no matter what happens to inflation or real rates it will not tighten financial conditions.

Alas, now that China is once again injecting credit in its economy at a furious pace and has even reactivated the shadow banking spigots, it appears that the next spike higher in real rates is scheduled to hit some time in early 2021.

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“The Face Of The Digital Censorship Movement”: Matt Taibbi Calls Out Amy Klobuchar

"The Face Of The Digital Censorship Movement": Matt Taibbi Calls Out Amy Klobuchar

Authored by Matt Taibbi via Racket News,

If you read this…

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11 hours ago

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October 26, 2023

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"The Face Of The Digital Censorship Movement": Matt Taibbi Calls Out Amy Klobuchar

Authored by Matt Taibbi via Racket News,

If you read this morning’s Racket article about Senator Amy Klobuchar’s letter to Jeff Bezos asking for “proactive measures” to suppress sites like Substack or Rumble, you probably gathered I’m in a mood.

I’ve had it.

Whether it’s NewsGuard slapping “anti-US” labels on Joe Lauria and Consortium News, or Drs. Jay Bhattacharya, Aaron Kheriaty, and Martin Kulldorff censored on multiple platforms for being right on Covid, or podcaster Alison Morrow fired from a state job for interviewing Kheriaty, or friend CJ Hopkins in Germany criminally convicted for a book cover, or the FBI asking Twitter to remove Aaron Mate for the Ukrainian Secret Police, or ballooning budget requests of “counter-disinformation” enforcement agencies, or the new jailing even of Owen Shroyer for having “helped create January 6th” with speech, or of course the forever-detention of Julian Assange, and above all the total indifference of legacy media to all of it, it’s over. I’ve lost patience. Time for a more focused approach.

A problem when grappling with the censorship hydra is that it has no public face, no Tipper Gore or Jerry Falwell to personify the topic. Klobuchar, for reasons listed this morning and beyond, is right for this role. She needs to be Red Pencil Amy, Blacklist Amy, Amy “Thought Police” Klobuchar. And longshot or not, removal of her from office in next year’s election or even from Senate leadership positions is a worthwhile goal. The rest of Washington needs to read public sentiment about this issue through a colleague’s public relations dilemma.

I’ve already got a lot on my plate, but I’ll make Klobuchar a personal branding project, even if it takes time. I’ll write up any move she makes in this direction, or not in this direction. Her lesser-known partner in the bid to make Amazon a “verified sources only” zone, congressman Joseph Morelle of the Rochester, New York area, can be thrown in. Think of Morelle as the VP half of the censorship movement’s ticket. It’s nothing personal. At earlier times this person could have been anyone from Rick Stengel to Adam Schiff (especially him) or Mark Warner. Klobuchar and Morelle just picked the wrong time in my personal downward spiral to pull this stunt.

T-shirting, postering, meming ideas very welcome.

Incidentally, I’m still planning town halls on the speech subject, and in fact have one confirmed at my old college in the third week of November. (Details to come). Willing to do more if anyone can help on the venue side. Although perhaps these events would be best held in Minnesota now.

For readers who might be concerned I’m losing my mind, you’re not wrong. What can I say? Even my dog flashes worried looks at me these days. But I was pushed. Pushed I say! And so were many, many others. A la bataille!

Tyler Durden Thu, 10/26/2023 - 19:50

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‘I see no happy ending’ − a former national security leader on the Gaza hostage situation

No government wants to have to deal with a hostage crisis. A former US national security official explains that there is no winning without losing in such…

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16 hours ago

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October 26, 2023

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Israelis whose relatives are being held hostage demonstrate on October 26, 2023 in front of the Defense Ministry building in Tel Aviv, demanding the government to bring back their loved ones. Mostafa Alkharouf/Anadolu via Getty Images

Hamas took more than 200 people hostage during its deadly rampage in Israeli border towns on Oct. 7, 2023. Among the hostages are children and the elderly. While four of them have been released, the fate of the rest is unknown, as Qatar serves as an intermediary in working to free the hostages. In this interview with Naomi Schalit, The Conversation U.S. senior politics and democracy editor, Gregory F. Treverton of USC Dornsife, a former chairman of the National Intelligence Council in the Obama administration, says most hostage-taking has specific goals. This one, says Treverton, “is basically an adjunct of warfare, and that makes it very different” – and very hard to solve.

How do people in your field think about hostage-taking? I would imagine that the feeling is, “Oh, my god, please let nothing like that happen.”

It’s an utter dilemma, because on the one hand you feel for the hostages. And as we’ve seen in the past, the Israelis have been prepared to – and did – release a thousand hostages to get one Israeli back.

On the other hand, when you do a deal to get hostages released, you’re only encouraging more hostage-taking. So you’re damned if you do and damned if you don’t. As a result, every government, including the United States, says, “We never deal with hostage-takers.” But of course, they all do – and they have to.

I think it’s one of the hardest parts of being in the national security business. You want to free the people – but you’re also going to get criticized. Every time President Biden has gotten somebody out of Russia, people have said, “Oh, he’s paid too high a price” or “He’s rewarded hostage-taking,” and to some extent, that’s true. You are basically rewarding the hostage-takers. But we still have to deal with them. We want to get our people out. And at some some point – as the Israelis have shown – they’re prepared to pay almost any price to get them back.

A worried and teary-eyed woman holds a photo of her daughter.
Keren Shem, the mother of hostage Mia Shem, holds a photograph of her daughter as she speaks to the press in Tel Aviv on Oct. 17, 2023. Gil Cohen-MAGEN/AFP via Getty Images

Israel released more than 1,000 prisoners in 2011 in exchange for Israeli soldier Gilad Shalit, whom Hamas captured and held for five years. This is more than 200 times the number of hostages, so how do you even think about that?

At least in my professional experience, this is without precedent. The closest parallel would be the 1976 Entebbe hijacking and hostage-taking by two Germans and two Palestinians on a flight from Tel Aviv to Paris. Hijackers held 103 Israeli hostages, once they released the 148 non-Israeli hostages. Hamas holds twice the number of hostages, and in very, very different circumstances. In Entebbe, the Israeli government knew where they were, they were in a single place – the airplane – which had been forced to land in Entebbe, Uganda, after taking off from Tel Aviv. And that’s where Israeli commandos were able to rescue the hostages.

In Gaza, we don’t know where they are. We know for sure they’re scattered throughout the tunnels, likely in lots of different small groups. Hamas will presumably then use them as shields if fighting begins on the ground. They might think that that would encourage the Israelis not to make a major attack – to keep Hamas from killing all the hostages. We know that Israeli Prime Minister Benjamin Netanyahu isn’t keen on a major ground assault, and this really puts the onus on the Israelis for how the hostage situation ends.

When you think about the history of hostage negotiations, do you see something that has any relevance to what’s going on now?

It seems to me it’s a really different category. Even Entebbe was hostage-taking for some political aim – the hijackers wanted Israel to release a large number of prisoners who were Palestinian. A colleague of mine used to say that the point of terrorism was to do the least amount of violence with the most people watching it. But Entebbe was political theater, basically, and this is not political theater. This is basically an adjunct of warfare, and that makes it very different. It’s not the usual kind of tit for tat, with “How much am I willing to pay?” or “Can I take a hostage to get somebody else out?”

Two buses driving through an arid landscape.
Buses carrying Palestinian prisoners on Oct. 16, 2011, who were being exchanged for Israeli hostage Gilad Shalit, held by Hamas for five years. Jack Guez/AFP via Getty Images

What does Israel’s heavy bombing of Gaza and the beginning of a ground invasion tell you about the government’s approach to the hostage situation?

It suggests either that they have a pretty good fix on where the hostages are located, which seems unlikely given the network of Hamas tunnels, or that they have decided they must proceed in any case and will try their best to safeguard and free hostages as they go. Given the Hamas practice of using civilians as human shields, the outcome is likely to be very ugly.

Where do you see this going?

I see no happy ending. I don’t think there’s a deal that Israel could conceivably make, given its own politics. Or that Hamas would accept. So it does seem to me that at some point there is going to be that ground attack and the hostages are going to be caught in the middle of it. I see almost no alternative, given what Israel has pledged – to destroy Hamas. The Biden administration maintains that Israel doesn’t really have a strategy. They have a desire, which is to destroy Hamas. But that’s not a strategy for dealing with the hostages or for Gaza after the attack.

Gregory F. Treverton does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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Hamas Delegation Arrives In Moscow As Russia Blames US For Escalation

Hamas Delegation Arrives In Moscow As Russia Blames US For Escalation

In a somewhat unexpected development, a delegation of Hamas leaders…

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19 hours ago

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October 26, 2023

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Hamas Delegation Arrives In Moscow As Russia Blames US For Escalation

In a somewhat unexpected development, a delegation of Hamas leaders have arrived in Moscow for talks, the Russian Foreign Ministry has confirmed Thursday evening (local time). "I can confirm that representatives of the [Hamas] Palestinian movement are visiting Moscow,” Foreign Ministry spokeswoman Maria Zakharova said in a press briefing, vowing to provide relevant details as the talks unfold.

The visit had not been previously announced by either side, and the Hamas delegation is being led by a senior member of the group, Moussa Abu Marzouk. Hamas is a designated terror organization in the US, European Union, and some other countries; but it has official relations with countries like Iran, Turkey, Syria, and now apparently Russia.

A 2019 meeting involving Hamas, Fatah, and Russian representatives, via Reuters

Russia, however, has said it remains willing to talk to all sides of the conflict in hopes of achieving ceasefire and peace. After the US exit from Afghanistan, Moscow had similarly hosted a Taliban delegation. 

It's as yet unclear whether Russia's top diplomat, Sergei Lavrov, will meet with the Hamas representatives, given he's said to currently be in Minsk. 

RIA Novosti has reported that Hamas has during opening meetings with Russian officials "commended Putin’s position and the efforts of Russia’s diplomacy."

The Kremlin has said it is engaged in crisis diplomacy talks with both the Hamas and Israeli sides, at a moment that over 220 hostages are still being held in Gaza. Four have been released thus far, including two Americans, due in large part to the mediation of Qatar. Will Russia press the delegation to release more captives? Likely this is high on the agenda for Moscow. 

Just days ago Russia blamed the United States for stoking escalation by positioning Navy warships in the Mediterranean near Israel. FM Lavrov said Monday during a meeting in Tehran that "the more a state takes this kind of proactive measures, the greater the risk and the danger of an escalation of the conflict".

He called out Washington as "already among the countries intervening the most" since the October 7 Hamas terror attack. The Biden administration as of course rejected the charge, and blamed Iran for ultimately being behind Hamas and regional terror.

At the UN in New York, Russia and China have also just vetoed US drafted UN Security Council resolution on Gaza. The dueling sides have rejected the proposals of the other given Washington's pro-Israel stance, and the willingness of Moscow and Beijing to heap criticism on Tel Aviv for the humanitarian crisis and soaring death toll among Palestinians.

Turkey has also been a foremost critic of Israel's assault on Gaza, as the death toll surpasses 7,000 - with President Erdogan blasting the West's double standard on the crisis. 

He said in his most recent speech at a Thursday conference, "Is it possible not to react while seeing what happens in Gaza? Nothing justifies such savagery. Unfortunately, so-called 'civilized' countries watch it. We heard that the EU is still hesitating to call for a cease-fire. How many children should die before you decide on a call? Let us know when the cease-fire should be declared. I have been in politics for 40 years, but I never sat idly in the face of such savagery,” Erdoğan said.

Tyler Durden Thu, 10/26/2023 - 12:05

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