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China Tightening Is Another Blow For Carry Trades
The Chinese central bank has tightened policy again with commercial bank reserve requirements increased by a further 50 basis points, although the move does not come into effect until August 15th The move is not of major importance in isolation, but continues the trend of a tighter Chinese monetary policy and will also maintain the threat of tighter global lending standards. The net impact will be to increase pressure for a reduction in carry trades, especially with reports of margin requirements being increased. The next key focus will be Wall Street's performance after a probable opening bounce higher on Monday. A sustained recovery on Wall Street would provide temporary respite for carry trades.
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