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The Number Everyone’s Been Waiting For: Chinese Reserves Plunge By ANOTHER $100 BILLION – What Does It Mean For Markets?

from Zero Hedge:

As it stands now what is really happening with the biggest risk factor to commodity, credit and capital markets, remains a mystery, and instead of getting some much needed clarity from China’s January reserve number, the world’s traders and investors will now have to wait for the February reserve update one month from now to learn if China has managed to slay its capital outflow demons, or if these were just getting started.

As we previewed on Thursday, the biggest event of the week, and perhaps of the month, was not Friday’s nonfarm payroll report, but the January update of China’s FX reserves, which the PBOC released last night. The number came out at $3.2309 trillion, down $99.5 billion from the prior month, and $8 billion less than the December outflow of $107.6 billion.


And even as China added $3.4 billion to its gold reserves, which rose to $63.6 billion or an increase of half a million ounces to 56.66 million, this reduced the total amount of Chinese foreign reserves to the lowest level since May 2012, and down from the $4 trillion peak in the summer of 2014 when the US Dollar started its rapid appreciation on rate hike concerns, and led to nearly a trillion dollars in Chinese capital outflows.


Recently, an important question that has emerged is for how much longer can China sustain its FX intervention before tapping out and letting the hedge funds win with their short Yuan bets once total reserves drop below the critical redline of approximately $2.7 trillion as calculated by the IMF – the answer is between 5 months and 10 months assuming monthly reserve burn rates of $130BN to $60BN.

That, however, is a bridge we will cross some time in the summer of 2016.

For now  the real question is what does the JanuaryChinese FX outflow mean for risk come Monday’s open, and how will it affect markets when they start opening tonight, if not in China which is closed for the week for its new year celebrations.

Recall that in our Thursday preview we warned that according to one of the more prominent bears from BofA, Michael Hartnett, had the reserve outflow come in well below expected, it would unleash a “vicious bear market rally.

This is what we said:

According to consensus estimates, China will report that its total FX reserves declined to $3.2125 trillion from $3.33 trillion: a drop of $118 billion, or modestly higher than the massive December $108 billion outflow.


In other words, a reported number below, and certainly substantially below, $118 billion for the January outflow and it would be off to the races as a massive short squeeze will grip all the commodity and materials-linked sectors.

That said, keep in mind that BofA itself had a far more optimistic forecast than consensus:

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3 comments to The Number Everyone’s Been Waiting For: Chinese Reserves Plunge By ANOTHER $100 BILLION – What Does It Mean For Markets?

  • Craig Escaped Detroit

    The smart people are running fast and far from the US dollar & from all paper investments & from banking parasites.

    Rats are survivors, they know when the ship is going down and they run like hell. Me too.

    When the tax refund gets here, guess where it will go to?


  • Wind Chimes Again

    This coming week the Chinese will be celebrating their New Year, the year of the monkey. Beginning Monday February 8th
    It will be interesting to see how the markets do this coming week as the Chinese will be off celebrating their New Year…

    The Monkey is ninth of the 12 animals in the recurring 12-year Chinese zodiac cycle. Every 12 years there is a Monkey year. (Interestingly, Monkey years are all multiples of 12 from 12 AD, through 1200 AD, to now in 2016.)

    2016 Is a Fire Monkey Year. What ”Fire Monkey” Means…

    In Chinese astrology, each year is associated with a Chinese zodiac animal sign and one the Five Elements: Gold (Metal), Water, Wood, Fire, or Earth. Both the sign and element of your birth year are said to affect your personality and destiny. Element-sign combinations recur every 60 years:

    • Craig Escaped Detroit

      Yes, this is the year of the FIRE MONKEY.

      It means that China will “Monkey Hammer” the USA, Wall street, & the USA Petro Dollar.

      It’s time for China to sell a TRILLION dollars worth of Treasuries and buy that last 100 ounces of Gold in the world, buy up all kinds of sea ports, train systems, factories, mines, and farming operations, all over the world, etc.

      Get ready for a $69 microwave to cost $500. $20 toaster will be $150. T-Shirts will be $50-$85 each.

      Gold will be at or above $20,000-$70,000 per ounce. Silver will climb to over $1,000 per ounce. (and this is BEFORE the Dollar crashes to the bottom.)

      A gallon of gas will be $400. A front brake rotor will be $1,000. One new tire will be over $1,000 (for the CHEAP ones).

      I expect to see these types of prices in 10 years or less from today, or sooner.

      China’s currency will be GOLD-backed, or it will be gold and silver coins. The old “Petro Dollar” will be better known as the Pooped-Out-Dollar.

      Get ready for the USAZ =USA of Zimbabwe.

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