The Chinese equity market has declined further overnight as there were no net liquidity injections by the PBoC today. The CNY was fixed weaker even as the USD declined on Friday. Chinese rates stay at high levels, with the front page of China’s Financial news saying that “With monetary policy transitioning to price-dominated management, the central bank’s control of money market rates needs to be further improved,… The PBoC’s monetary instruments have helped optimize the benchmark yield curve and accelerate the transmission of monetary policy.” There hasn’t been a spill-over to global risk appetite as S&P futures are trading at all-time highs, keeping our long EM FX view intact. 1m Hibor rates have, however, risen to a 9-year high, pushing the HKD stronger this morning. There are signs that HKD liquidity is tightening into year-end as local banks are boosting deposits to support their balance sheets. This year there has been a breakdown of the relationship between USDCNH and USDHKD.