Pandas to the Slaughter

China is buzzing as money floods into the red-hot stock markets in Shanghai and Hong Kong. With Chinese trade balance due in the hours ahead and GDP later this week, we look at the potential consequences. We also look at the latest CFTC positioning data as EUR shorts came off the boil.  

Chinese leaders have fought for the last 4 years to cool the property market without crashing it. Instead, Chinese investors may simply be moving onto the next thing.

China is moving away from large infrastructure and construction projects to consumer driven growth and that has boosted Chinese stocks 68% since late last year. The numbers of account openings at brokerages are mind-boggling and on the weekend, the FT detailed the mania.

"I never played the market before, but since March it seems like my friends and co-workers are all getting rich, so I got excited," said a woman who was planning to out a mortgage on her apartment to invest in Chinese stocks.

Chinese trade balance numbers are due in the hours ahead (no set time) and analysts expect imports down 10% and exports up 9% y/y. The disparity is largely due to price changes in commodities but one of the reasons prices have fallen so swiftly is because of less demand in China for things like iron ore.

The PBOC now has the task of managing a red-hot stock market and there is talk of a rate cut after GDP numbers on Wednesday.

The even larger challenge may be Hong Kong where the Hang Sang broke out in a major way last week. The 7.9% weekly rise came after rules restricting Chinese mutual funds from investing in Hong Kong were eased. The inflows may be putting a severe strain on the HKD peg to the US dollar. On Friday the HKMA sold $3.3B to defend the peg after intervening on Thursday for the first time since August.

We all know how these things can end.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR -215K vs -227K prior 

JPY -24K vs -24K prior

GBP -34K vs -37K prior

AUD -40K vs -24K prior 

CAD -30K vs -30K prior

CHF 0K vs -1K prior

Euro shorts pared back from a record but the weak hands may be regretting it with the euro falling below 1.06. Still, it's as popular trade as there has been even in the rebound over the past few weeks, the shorts were unwavering. 

AUD positioning showed a surge of sellers before the RBA but it may have unwound in the day afterward.