Everything is fine and dandy in Chinese financial markets

Feng Li/Getty ImagesChinese President Xi Jinping.

  • Chinese stocks and yuan were getting smoked earlier in Friday’s session.
  • However, that all turned around midway through the session with both suddenly reversing to sit higher for the session.
  • Chinese state-owned banks were reportedly selling US dollars to support the yuan.

Everything is fine and dandy in China’s economy.

Stocks are soaring and the Chinese yuan is stronger. All is good.

That’s what the closing levels would suggest on Friday.

However, it didn’t look that way earlier in the session as stocks fell into the red as the Chinese yuan unraveled. Then suddenly the moves reversed, raising speculation that Chinese policymakers finally decided to step in to stop the market rot.

What the markets call the “plunge protection team”, or PPT, was mobilised.

The USD/CNY and USD/CNH both surged to fresh year-to-date highs, topping out at 6.8106 and 6.8365 respectively, before cascading lower on reports that major Chinese state-owned banks were intervening in the market, selling US dollars in order to support the yuan.

As seen in the USD/CNH 1-minute chart below, the intervention had the desired effect, unwinding all of the move seen in early trade.

Thomson ReutersUSD/CNH 1-Minute Chart

The People’s Bank of China (PBoC) sparked the initial selloff, setting the midpoint of the USD/CNY’s daily trading range at 6.7671, the weakest level since July 14 last year.

Like the yuan, Chinese stocks also staged a sudden and suspicious bounce, turning early losses in the first half of the session into mammoth gains into the close, something that has become a feature of Friday afternoons in each of the past three weeks.

Here’s the final scoreboard.

Shanghai Composite 2,829.15 , 2.04%
SSE50 2,493.90 , 2.79%
Shenzhen Composite 1,592.03 , 1.04%
CSI300 3,493.01 , 1.89%
CSI500 5,175.17 , 1.25%
Hang Seng 28,252.75 , 0.61%
USD/CNY 6.5973 , 0.08%
USD/CNH 6.7915 , 0.03%

And here’s the 1-minute chart of the benchmark Shanghai Composite.

Thomson ReutersSSEC 1-Minute Chart

Nothing suss, right?

The turnaround in the yuan was likely a factor.

However, given the reasons for the turnaround, and despite the massive gains, it’s unlikely the price action will fill many with confidence that all is well in the Chinese economy at present.

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