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28 Jan 2014
Flash: EM sell off stabilises for now - Danske Bank
FXstreet.com (Barcelona) - Christin Tuxen, Senior Analyst at Danske Bank notes that the emerging-market sell-off appears to have stabilised somewhat overnight.
Key Quotes
“A key factor behind EM seemingly calming down was the announcement yesterday of an orderly restructuring of the China Credit Trust product that was set to default later in the week, see China: orderly default of trust product kicks the can ahead, 27 January.”
“Still, although the orderly default probably implies that the risk of a major negative credit event later this week has been avoided, it would arguably have been healthy from a longer-term perspective for the Chinese financial sector to face the true underlying risks in such products.”
“In the near term it will be very important for markets what People’s Bank of China does in relation to its ordinary monetary operations today: if it injects liquidity in connection with its ordinary reverse repo- operations, it would be a sign that the central bank is starting to ease after monetary policy has de-facto been tightened since mid 2013.”
Key Quotes
“A key factor behind EM seemingly calming down was the announcement yesterday of an orderly restructuring of the China Credit Trust product that was set to default later in the week, see China: orderly default of trust product kicks the can ahead, 27 January.”
“Still, although the orderly default probably implies that the risk of a major negative credit event later this week has been avoided, it would arguably have been healthy from a longer-term perspective for the Chinese financial sector to face the true underlying risks in such products.”
“In the near term it will be very important for markets what People’s Bank of China does in relation to its ordinary monetary operations today: if it injects liquidity in connection with its ordinary reverse repo- operations, it would be a sign that the central bank is starting to ease after monetary policy has de-facto been tightened since mid 2013.”