And Nomura‘s Ting Lu has an explanation for why China stimulus i snot working...
Chinese easing- / stimulus- escalation being a likely requirement for any sort of “reflation” theme to work beyond a tactical trade:
yes, more RRR cuts are coming eventually (a better way for Chinese banks to obtain liquidity vs borrowing from MLF or TMLF, bc it’s cheaper and more stable)
......but that the timing of such a cut is primarily dependent on the Chinese stock market,
asthe “re-bubbling” happening real-time in Chinese Equities (CSI 300 +26.8% YTD; SHCOMP +24.4%; SZCOMP +34.0%) likely then constrains the room and pace of Beijing’s policy easing / stimulusThis “Chinese Equities rally effectively holding further RRR cuts hostage” then could become a serious “fly in the ointment” for near-term / tactical “reflation” (or bear-steepening) themes, as Q2 is on-pace to see a significant liquidity shortage.
Ting estimates the liquidity gap could reach ~ RMB 1.7T in Q2 due to the following factors:
The size of the upcoming MLF maturities (est to be ~RMB 1.2T in Q2);The size and pace of (both central and local) government bond issuance (Nomura ests a target of ~ RMB 1T for Q2);Tax season effects; andThe shortage of money supply through the PBoC’s FX purchasesCHINA’S COMING Q2 LIQUIDITY-
OR TAGE: