China

Rate cuts delivered by the PBoC this week have calmed global equity markets somewhat. In China's rates market a short-end led rally steepened the curve as an initial reaction. Looking forward though, currency market perceptions will be key. Deutsche Bank is amongst those expecting China to take a more sensitive approach with the yuan, writes Maia Ririnui of Total Derivatives.

As the dust settles on a few days of equity insanity, it’s worth recognising that what happens in the Chinese stock market needn't mean much for other emerging markets.

The collapse of Chinese stocks and the continued drop in the price of oil, along with the ripple effects those have had in exchanges worldwide, have shocked market participants and the broader public, but among ECM bankers many think the collapse could not have come at a better time.

CEEMEA is busy digesting a noxious stew of falling oil prices, crashing equity markets and heightened EM bond fund outflows. But the asset class is proving more robust that during previous crises.

It has only been underway for one year, but the Chinese auto ABS market has already raced ahead with volumes surging. A new deal from SAIC-GMAC Automotive Finance has now appeared with the company looking to securitize Rmb3bn ($469m) worth of auto loans next month.

The turbulence in China’s equity and currency markets has led to some doubts about the continuing internationalisation of the renminbi. But China’s regulators are not having second thoughts and have released new guidance supporting the “One Belt One Road” (OBOR) scheme.

Individual initiatives by China in the commodity space, such as the July launches in Shanghai of a Gold Connect scheme and a new oil and natural gas exchange, may be gaining little traction right off the bat, but they are pieces in a broader strategy devised by the world's largest consumer of commodities. An upcoming oil futures contract, in particular, could see that plan make a leap forward.

China's Yingde Gases Group is tapping the offshore syndicated loan market for a $150m deal. The firm, which earns revenues in renminbi and serves customers in the iron and steel industry, is offering lenders generous returns.

Short CNY swaps have been aggressively offered on the back of the PBoC's monetary easing move and the 1s/5s curve has steepened accordingly. Despite this equities have not rebounded and there has been receiving interest in 5-year swaps on the weak longer-term economic outlook, writes Deirdre Yeung of Total Derivatives.

As the dust settles on two days of equity market madness, it’s worth recognising that what happens in the Chinese stock market shouldn’t mean much for other emerging markets.

Whatever the wisdom of tailoring monetary policy to the gyrations of the global equity markets, the Fed’s likely caution could clear the way for a wall of FIG supply once calm returns.

The Chinese equity sell-off is extending despite a massive injection of funds by the PBoC. Short swaps have been well bid on capital outflow concerns while the mid-sector is offered on the weak economic outlook. Looking forward sources expect the very flat curve to limit short-end paying in the near-term, writes Deirdre Yeung of Total Derivatives.