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Chinese Stock Short Squeeze Stalls After IMF Delays Decision On Yuan SDR Inclusion

Yesterday afternoon's meltup short-squeeze in China - after regulators announced their latest restrictions on short-selling - has stalled in the early trading tonight following The IMF's decision to delay inclusion of Yuan in the SDR pending a review in September 2016. Though this will be a disappointment to the Chinese, the door is still open though given waringse from BMW and Toyota over "normalizing" auto sales, the market problems may be morphing quickly into economic problems.

Chinese stocks see a modest lift at the open...

 

The IMF has delayed its decision on including The Yuan in The SDR...

  • *IMF ISSUES REPORT ON CRITERIA FOR YUAN RESERVE-CURRENCY STATUS
  • *IMF STAFF PROPOSES DELAYING ANY CHANGE IN SDR TO SEPT. 2016
  • *IMF SAYS `SIGNIFICANT WORK REMAINS' ON REVIEW OF YUAN IN SDR
  • *IMF: OPERATIONAL ISSUES MUST BE RESOLVED IF YUAN PART OF SDR
  • *IMF: YUAN MADE `SUBSTANTIAL PROGRESS' ON INTL USE SINCE 2010

As Bloomberg reports, though there is a delay the endgame remains in sight...

The International Monetary Fund said the yuan trails its global counterparts in major benchmarks and that “significant work” in analyzing data is needed before deciding whether to grant the Chinese currency reserve status.

 

IMF staff members also opened the door to a possible delay in any approval with a proposal to postpone by nine months, until September 2016, the implementation of a change in the basket of currencies that make up the lender’s Special Drawing Rights, according to an update on the five-yearly review released Tuesday. The IMF said postponing the change would make the transition to a new basket smoother.

 

The report suggests that while approval by the IMF board isn’t yet assured, it’s within reach, and the decision will come down to more than just the staff’s assessment. China has been pushing for the yuan to join the dollar, euro, yen and pound in the SDR basket; while countries such as France have welcomed China’s push, the U.S. has urged the nation to keep moving toward a flexible exchange rate and undertaking financial reforms.

 

“The ultimate assessment by the board will involve a significant element of judgment,” the IMF report said.

 

The postponement sets the stage for the IMF to add the SDR to the yuan just before Chinese President Xi Jinping hosts a meeting of Group of 20 leaders next year, said David Loevinger, managing director of emerging-markets sovereign research at asset manager TCW Group Inc. in Los Angeles.

“The end game is obvious,” said Loevinger, former senior coordinator for China affairs at the U.S. Treasury Department. “If the Chinese make this a priority, it’s pretty certain President Xi will have his deliverable at the G-20.”

But problems remain...

  • *CHINA CAR SALES SLOWDOWN 'HEADWIND' FOR GASOLINE DEMAND: BMI

As Bloomberg reports,

China has gone from growth engine to source of concern for carmakers including BMW AG and Toyota Motor Corp., with both warning Tuesday that the sales slowdown in the world’s biggest market will probably last through year-end.

 

BMW said decelerating delivery growth in China may force it to lower this year’s profitability goals, as consumers spooked by a stock-market rout and flagging economy stop spending on cars. Toyota likewise warned that higher costs and lower prices are making competition tougher.

 

“Things may well get worse from here,” Max Warburton, an analyst at Sanford C. Bernstein Ltd., wrote in a note on Tuesday. “The market continues to deteriorate.”

 

Carmakers are struggling to adjust to what BMW has called a “normalization” of a market that has grown eightfold since 2000, pushing it past the U.S. as the world’s biggest car market in 2009.

which is neither unequivocally good for refiners or automakers.