Meanwhile, the stock market powers on, up 16% in a few days as new stock accounts hit another new high:
More sober analysis is beginning to see the shape of a bust. First, bond futures fell on Monday, iFeng: 股票和国债市场严重背离 警惕债市下跌传至股市:
However, I would like to draw attention to the stock and bond market a serious departure from the phenomenon. Recent stock market continuous rise, stock index futures is soaring, but government bond futures was falling and broken bits. For the above phenomenon, I think there are two possibilities: first, it is possible because the stock market is too hot, causing partial participation agency bonds tempted to turn to the stock market, causing bond futures fell; but another possibility is active in bonds agency market expectations of future easing of the funds has changed. If we really thus triggering the bond market fell, the next transfer to the stock market need to arouse attention.
It’s worth noting that on Monday the government announced it may double the local government debt swap program. Minsheng estimated the government may need to issue ￥2.3 trillion in muni bonds this year to keep the economy on track. Many Chinese analysts believe this level of fundraising will crowd out debt and push interest rates on other bond higher, China treasury bond futures close lower Monday:
China’s treasury bond futures closed lower on Monday, with the contract for settlement in June 2015 down 0.19 percent to finish at 95.5 yuan (around 15.60 U.S. dollars).
The contract for settlement in September lost 0.69 percent to end at 95.5 yuan. The December contract lost 0.7 percent to 97.5 yuan.
There’s some evidence for the theory the market is pulling capital out of the bond market too, Dim sum bonds run out of steam:
In the first five months of the year, the total raised through offshore renminbi debt — known as dim sum bonds — has dropped to $7.6bn, according to Dealogic, compared with $15bn during the same period in 2014. Issuance from Chinese companies has fallen to just $1.3bn, the lowest in five years and down from $12.5bn last year.
Demand for renminbi debt has been dented in part by the rally in Chinese shares. Since the launch of the Shanghai-Hong Kong Stock Connect last November, investors in Hong Kong have diverted Rmb148bn ($23.8bn) into mainland-listed equities, leaching cash away from credit markets. Local banks have had to fight for renminbi deposits, causing interest rates to rise.
As for the rumored PSL on Monday, a number has leaked: 1.5 trillion yuan. Equivalent to two RRR cuts, iFeng: 解读股市暴涨真正原因：传央行1.5万亿PSL 相当两次降准:
The industry generally believe that the central bank re-launched PSL, help wide currency conversion to wide credit. Qu Qing, says that compared with the RRR, MLF, standing lending convenient (SLF) and other monetary policy tools, the bank funds obtained through PSL must be used for credit, which for the central bank to loosen monetary policy and the results of the two broad credit Construction of a bridge between. The PSL operation can be seen as a continuation of the PSL policy last year, compared with April RRR directly create a wide monetary environment, PSL operation more credit to help create a broad environment more conducive to the development of the real economy , M2 is expected to bottoming out.
On the one hand the central bank directed repurchase recovery of mobility, on the one hand and the release of liquidity through PSL operation, does this mean that there is a contradiction both monetary operations? The answer is no. Most analysts believe the central bank agreed to trigger causes bank repo application may be the central bank believes the current financial side too loose, the central bank put liquidity credit has exceeded the required liquidity, therefore, need to be fine-tuned wide currency this end; The PSL operating more with lower long-term cost of capital and boost local debt related replacement.
“PSL Open distorted version of the operating overture, the central bank to close the short put long, optimize the structure of bank debt, the stock of debt replacement docking, docking infrastructure steady incremental growth.” Minsheng Securities analyst Li Qilin bonds represented.
…China Merchants BankHead Finance Ministry senior analyst Liu Dongliang on the “Daily News” reporter, said last week the central bank repurchase binding orientation for big firms, we can see that the central bank being “revenue short put long” Operation Twist, through short-term recovery liquidity, in turn providing low interest rates, long-term funding, the long end of the bond market to drive down interest rates, and then transfer to other financing channels, reduce the social cost of financing. At the same time, it should also be replaced with a new round of local government debt considered.
…”Loose liquidity in the economic stabilization process must, but loose liquidity alone will not help the economy turns for the better.” An agency macroeconomic analyst on the “Daily Economic News” reporter said that as of funding and resource allocation twisted structure, making the monetary policy transmission process is not smooth, the contribution of monetary policy to boost the marginal effect of significantly weaker economy, in this case, put PSL is a more reasonable means of regulation, will direct more funds into long-term project, the future central bank may develop more tools to provide long-term funding.
An open question is whether outflows are picking up, in which case PBOC actions may be counteracting outflows, adding much less liquidity than the headline number suggests.
Back to the stock market: analysts are coming around to a consensus that even a subdued 2H recovery will cause the government to ease stimulus and that will pop the equity bubble, iFeng: 机构一致观点：一信号致牛市结束 大盘股泡沫可能先破:
However, the “Daily Economic News” reporter noted yesterday, the Shanghai stock market turnover was only 934.5 billion yuan, turnover chain fell for two consecutive days, the GEM market with turnover shrinking to 200 billion yuan less, only 188.5 billion yuan . Analysts believe that this indicates that the IPO have an impact on the secondary market funds.
…Consensus view is: More people believe the economy will stabilize in the second half to achieve even a weak recovery, and agreed that the economic recovery is near the end of the bull market signal.
A controversial point is: after the economic recovery, in the end is the first large cap or small-cap stocks fell? GF Securities that, since 2014 Main Board and GEM rose, the valuation is significantly greater than the contribution of profit contribution, the board increase in the valuation of the contribution is 85%, the GEM rose 69 percent contribution is valued, so although GEM gains far outweigh the motherboard, the motherboard is actually bigger than the GEM bubble.
GF Securities said in conclusion: the future of the economic recovery once the policy easing is expected to lead to convergence, the market bubble but may be broken.
