The Asia morning begins mixed in stock markets, The PBOC explains itself "this is not a shift in monetary policy," - except it is the first such set of measures since 2008, further deleveraging as China margin debt drops CNY1 Trillion from June peak to lowest since March, Regulators begin probing securities firms (and their malicious short sellers), Index futures trading fees will be raised and trading positions restricted. Stocks are limping only modestly higher (after the rate cuts) as Yuan is fixed at 6.4043 - the lowest since August 2011. Yuan fix weaker for 2nd day to new 4 year lows... *CHINA SETS YUAN REFERENCE RATE AT 6.4043 AGAINST U.S. DOLLAR *CHINA LOWERS YUAN FIXING TO WEAKEST SINCE AUG. 2011 Before China opens, it's worth noting that all the post-China close, pre-China open exuberance from the PBOC multiple rate cut has been eviscerated... So The PBOC explains why it did something it hasn't done since 2008... *PBOC'S MA SAYS RATE CUTS NOT A SHIFT OF MONETARY POLICY: XINHUA *PBOC'S MA SAYS RATE CUTS TO KEEP MODERATE CREDIT GROWTH: XINHUA *PBOC'S MA SAYS CHINA MONETARY POLICY REMAINS PRUDENT: XINHUA The rate cut did have some impact... *CHINA ONE-YEAR IRS FALLS 7 BPS TO 2.47% *CHINA ONE-YEAR IRS HEADS FOR BIGGEST DROP SINCE JUNE *CHINA SEVEN-DAY REPO RATE DROPS 25 BPS TO 2.30% And stocks are only marginally higher.. *CHINA'S CSI 300 STOCK-INDEX FUTURES RISE 0.7% TO 2,852 *CHINA SHANGHAI COMPOSITE SET TO OPEN UP 0.5% TO 2,980.79 And bearin mind that... *ABOUT 17% OF MAINLAND STOCKS STILL HALTED FROM TRADING Some more good news as deleveraging continues... lowest since March 2015 *CHINA MARGIN TRADING DEBT DROPS 1 TRILLION YUAN FROM JUNE PEAK *SHANGHAI MARGIN DEBT BALANCE HALVES FROM JUNE RECORD HIGH - Balance is lowest since Jan. 12 But more restrictions are put in place: CHINA TO RAISE TRANSACTION FEES ON STOCK INDEX FUTURES TRADING - EXCHANGE STATEMENT CHINA TO RESTRICT TRADING POSITIONS IN STOCK INDEX FUTURES - EXCHANGE STATEMENT As things are not going well in the Communist intervention - so the probes begin (as ForexLive reports) The South China Morning Post report that four brokers say the CSRC is probing their business Haitong Securities, GF Securities, Huatai Securities and Founder Securities All made stock exchange statements that they had received notices from the China Securities Regulatory Commission For suspected failure to review and verify clients' identities Along similar lines, Xinhua reported: 8 people from Citic Securities were being investigated for possible involvement in illegal securities trade A staff member from Caijing magazine was also being probed for spreading rumours A current and a former staff member at the CSRC were also being investigated for suspected insider trading * * * This morning, as China wakes up... They. Didn't. Sell pic.twitter.com/LURxnikMyR — zerohedge (@zerohedge) https://twitter.com/zerohedge/status/636307352208187392!function(d,s,id){var js,fjs=d.getElementsByTagName(s)[0],p=/^http:/.test(d.location)?'http':'https';if(!d.getElementById(id)){js=d.createElement(s);js.id=id;js.src=p+"://platform.twitter.com/widgets.js";fjs.parentNode.insertBefore(js,fjs);}}(document,"script","twitter-wjs"); ...And realizes that PBOC policy changes have not been working. As BofAML explained, The combined rate and RRR cuts announced today, clearly targeted to boost A-share market sentiment in our view, may provide some temporary sentiment relief. However, we doubt that this represents the bottom of the market... It appears to us that the government has significantly reduced its direct purchase in the market in recent days and is now trying to replace the direct intervention with the softer, more market oriented, and indirect support. We doubt this will work beyond a few days. As a result, we recommend selling into any rebound. A few things worth highlighting: Psychologically, the cuts may have some impact in the short term because they are the first combined interest rate and universal RRR cuts since Dec 2008, after a sharp market fall. Nevertheless, we doubt the impact will be significant as they are already the eighth cut to either rate or RRR since late 2014. The key overhangs of the A-share market are stretched valuation and high leverage. It’s our view that the only way that the government can hold up the market is by being the buyer of last resort, i.e., the direct support that the government appears to be withdrawing From real economy’s perspective, we doubt monetary loosening is the solution to China main problem – overcapacity/a lack of consumption, and leverage. All it does may be to encourage property speculation, likely using more leverage If the government fails to defend the A-share market ultimately, the key risk we should watch out for is financial system instability. It's not just BofA that is not buying it... As Bloomberg reports, China’s latest cuts in RRR and interest rates will limited boost to stks, according to most analysts and economists. Move is mainly aimed at supporting economy, not starting another mkt rescue. DEUTSCHE BANKMove largely in-line with expectations, reaffirmed leadership’s policy priority is growth support: strategist Yuliang ChangStk mkt appears oversold amid “jittery” sentimentRecommends investors buy H-shrs to position for macro improvement EVERBRIGHT SEC.Cuts should not be interpreted as beginning of fresh round of strong mkt rescue; move may help stabilize capital mkts though boost to stk mkt will be limited: chief economist Xu GaoCuts won’t be able to reverse mkt trend; focus seen returning to macro fundamentals amid valuation bubble burst, deleveraging, pressure from exit of earlier rescue policiesNeed for govt to intervene in stk performance greatly reduced after decline in leveraged positions; stk mkt declines posing less threat to financial stabilityMkt rescue policies exited steadily, though at slower pace GUOTAI JUNAN SEC.Cuts to improve overly pessimistic mkt sentiment, reduce possibility of further accelerated decline in mkt: analysts led by Qiao YongyuanShanghai Composite may trade in range 2,800-3,200 ptsSees relative gains in:Stks with high div.: transport, home appliances, auto, financials, propertyLow valuation with earnings support: food & beverage, powerBeneficiaries of fiscal policies: rail transit JPMORGANCuts to bring temporary support for stk mkt; earlier correction in stks partly due to disappointment over later- than-expected RRR cut: chief China economist Zhu HaibinAbsence of govt support during recent mkt declines indicate changes in intervention strategy, which is focused more on mkt mechanism restoration than maintaining index level MACQUARIECentral bank reacted to shore up confidence in stk mkt to stop panic: analysts led by Larry Hu UBSCuts signal authorities’ determination of arresting passive tightening and safeguarding financial stability, should help boost sentiment in financial mkts: economists led by Wang Tao BNP PARIBASCuts look like response to panic selling in A-shr mkt, main aim is to support economy: analyst Judy ZhangBanks to be key beneficiaries of cuts as earnings more sensitive to asset quality improvement than NIM contractionH-shr-listed China banks present attractive risk/reward for long-term investors CICCMonetary easing good for valuation recovery in property stks: analysts led by Yu ZhangStrong momentum in property sales to continue into Sept., Oct. after reduction in mortgage repaymentBuy CR Land, COLI on dips; sees >30% upside in H-shr property players * * * Putting China's demise into context - off the March 2009 lows... And here's a gentle reminder of who to listen to from now (or not!)... July 7: "Goldman Sachs Says There’s No China Stock Bubble, Sees Rally" http://t.co/LhQFDfWfPB — zerohedge (@zerohedge) https://twitter.com/zerohedge/status/636305406416060417!function(d,s,id){var js,fjs=d.getElementsByTagName(s)[0],p=/^http:/.test(d.location)?'http':'https';if(!d.getElementById(id)){js=d.createElement(s);js.id=id;js.src=p+"://platform.twitter.com/widgets.js";fjs.parentNode.insertBefore(js,fjs);}}(document,"script","twitter-wjs"); Charts: Bloomberg