Stock Market Rebounds From 6% Plunge After Central Bank Pledges More Liquidity; Wet Nurse Action

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.

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