Chinese Stocks Open Down Hard As PBOC Strengthens Yuan By Most Since 2010 & Default Risk Hits 2-Year High

From the moment Japan opened, USDJPY buying took off (standard 100 pip rip on absolutely no news whatsoever) as yet another manipulated market breathed new life into equity longs dreams. That ‘help’ combined with the fact that, as SCMP’s George Chen reports, 50 China brokerages will jointly contribute 100 bln RMB capital to the government margin finance agency to start “new round of market rescue” provided some stability after US markets’ collapse. However, tonight’s big news appears to be a major crackdown on leverage as MNI notes regulators ordering brokerage houses to clear all non-official margin trading services – not just halting new clients but also closing existing accounts. Chinese stocks are opening modestly lower as PBOC fixes Yuan stronger for the 4th day in a row. Finally, China credit risk has spiked to 2-year highs as traders increase positions dramatically. The manipulation will continue through tomorrow at least when Parade Week peaks, so buckle up.

Japan “rescued”… “Mysterious”? – Large USD/JPY Buyer Seen Before Nikkei Index Opened: Traders

China “Stability?”

Though some weakness at the Chinese open:

*FTSE CHINA A50 SEPT. FUTURES DROP 0.7% IN SINGAPORE

*CHINA’S CSI 300 STOCK-INDEX FUTURES FALL 2.2% TO 2,939.8

*SHANGHAI COMPOSITE INDEX SET TO OPEN 4.4% LOWER

And then PBOC Strengthens Yuan:

*CHINA SETS YUAN REFERENCE RATE AT 6.3619 AGAINST U.S. DOLLAR

*CHINA RAISES YUAN REFERENCE RATE FOR FOURTH DAY

And loses controil of money markets:

*CHINA OVERNIGHT MONEY-MARKET RATE RISES 18 BPS TO 2%

This is the biggest 4-day strengthening in 5 years

But tonight’s big news appears be a major clampdown on margin trading (as MNI reports),

China’s stock market regulator has issued a circular ordering brokerage houses to clear all non-official margin trading services jointly provided with a third party — not just halting new clients but also closing existing accounts.

Chinese brokerage houses were allowed to offer margin trading services in 2010 but strong stock market performance since last year saw many third parties also providing margin trading services with help from brokerage houses. Beijing realized the potential threat of these fast-growing margin trading services, particularly unofficial ones, and started to push for market deleveraging in late-June this year, contributing to the stock market rout which saw Shanghai Composite Index lose nearly 40% since.