Market Intervention From The Fundamentals Will Return To The Devaluation Channel.

Within days, offshore

Liquidity is tight, and Hongkong's offshore RMB Hibor surged to 66.8% overnight, a record high.

In the last paction, the overnight interest rate of Hongkong banks rose by 939 basis points, from 4% on Friday to 13.4%, the highest level since June 2013.

Hongkong's 7 day interbank lending rate rose sharply to 11.23% from 7.05% last Friday.

Some analysts said that the recent spread of offshore and offshore RMB spreads led to arbitrage activities. The central bank pulled offshore renminbi liquidity, intending to squeeze the renminbi short and push the RMB exchange rate.

The US dollar fell from 6.70 to 6.58 against offshore renminbi.

China's stock market fell another 5% yesterday, when the overnight lending rate rose 40% and the yuan rose 1.8% yesterday.

If the short-term appreciation of RMB continues, it will be domestic.

The pressure has led to a sudden drop in the stock market and pushed global financial assets to the brink of danger.

The A50 index and S&P show different relationships after the end of QE3: they show a stronger correlation than previous history.

This positive correlation is contrary to most people's guess about the trend of China and the US stock index.

Financial markets in China and the United States have never had such a strong impact on each other.

That is to say, China's economy will spread infectivity through the financial market to the United States, and vice versa.

Similarly, for Europe, if China's GDP growth fell by 1 percentage points in a single quarter, it would lead to a 0.25 percentage point decline in GDP growth in the euro area within two years, which is equivalent to a 10% decline in oil prices.

Similarly, the depreciation of the renminbi will drag on the rupee, bringing huge trouble to India, which has a large amount of US dollar debt and has fallen below 50 for the first time in two years in PMI.

In the first two trading days of this week, with the rise of market pessimism, crude oil prices also plummeted, ICE Brent fell to 30.95, and ICE WTI dropped to 31.80.

This positive correlation and high mobility are unprecedented in money markets, stock markets and commodity markets.

Central bank is not the first central bank to directly intervene in the exchange rate.

Since 2010, Japan

In order to suppress the strength of the yen, many intervened in the foreign exchange market.

However, several foreign exchange intervention did not effectively reverse the long-term strengthening of the yen.

Take the Bank of Japan's first intervention as an example. Since May 2010, the US dollar against Japanese yen has fallen from 95 to 80.

The Bank of Japan intervened for the first time in order to reverse the strong yen.

After the first intervention, the US dollar rose to 85 from the Japanese yen, and then the yen returned to its appreciation. The US dollar plunged to 80.25 against the Japanese yen. 80.

The intervention from the fundamentals will eventually fail.

By intervening in pushing up the appreciation of the renminbi, blindly pursuing the "strong renminbi" will make the global financial market in an extremely dangerous situation.

On the previous trading day, the central bank deliberately removed the liquidity of the renminbi and prevented the recent spread of arbitrage activities between the offshore and offshore RMB spreads, which was similar to that of the central bank in the end of 9 in 2015.

Since August 2015, the central bank has encouraged Chinese banks to intervene in the offshore CNH market.

At the end of 9 in 2015, offshore renminbi was abnormal. It rose sharply in the Asian session and rose 300 points in a single day.

At that time, it was confirmed that Chinese banks were actively buying offshore renminbi.

It is estimated that the Central Bank of China spent $50 billion in exchange rate intervention in September, of which $25 billion was used to support the CNH exchange rate.

However, with the end of the intervention, the medium-term trend of the renminbi will return to the devaluation channel, and the devaluation momentum will continue unabated.