Courtesy of Mish.
In the past few week, China intraday lending rates as measured by SHIBOR got as high as 25% (See China Cash Crunch: 1-Day Interest Rate Spikes to Record High 25%).
With rates spiking, global stock markets plunged.
On Monday China insisted banks had significant liquidity sending a message that banks need to manage their own risks.
A translated message by the People’s Bank of China on liquidity states “Commercial banks should concentrate storage for taxes and statutory reserve deposit and other factors impact on liquidity in advance to arrange sufficient positions to maintain adequate levels of reserve ratio, to ensure the normal settlement” while warning “expansion of credit and other assets too fast may lead to liquidity risk“.
That message sent the Shanghai stock market index down about 6% as shown in the following chart.
Shanghai Composite Intraday Chart
The horizontal line represents a split shift when the stock market is open.
$SSEC Shanghai Daily Chart
Since the beginning of June, the Shanghai stock index is down about 15%. Since the February high of 2443, the market is down nearly 20%. Intraday, the market was down over 25% from the year’s high.
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