What’s the consequence of China’s decision over night to raise a key interbank interest rate? Less liquidity worldwide, says Lombard Street Research’s Charles Dumas in a podcast on the company’s Web site.
The “symbolism is what matters” and how it’s taken by the market, as it’s a harbinger of further tightening, says Dumas.
“A four basis points rise in the Treasury bill rate is hardly likely to be a full compensation for the largest stimulus program in history, combined with a 10% devaluation,” says Dumas, and Treasury rates don’t really set the effective loan rate in the market.
The end result is “the main source of liquidity in the world is being taken away, ” concludes Dumas.
Bloomberg reports, meanwhile, that options traders today made bets Chinese stocks will fall as that liquidity drains from the economy. More than 54,000 puts to sell the iShares FTSE/Xinhua China 25 Index fund changed hands, writes Ye Xie and Jeff Kearns. The ETF fell 69 cents, or 1.6%, to $43.87 today and was still falling in after-hours trading.
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