China Intervened Today to Shore Up Stocks Ahead of Military Parade

China’s government resumed its intervention in the stock market on Thursday and has been cutting holdings of U.S. Treasuries this month to support the yuan, according to people familiar with the matter.

Authorities want to stabilize equities before a Sept. 3 military parade celebrating the 70th anniversary of the World War II victory over Japan, said two of the people, who asked not to be identified because the move wasn’t publicly announced. Treasury sales allow policy makers to raise dollars needed to bolster the yuan after a shock devaluation two weeks ago, according to different people familiar with the matter.

China revived its equity purchases after the government’s absence from the market earlier this week contributed to the biggest two-day selloff since 1996. Under a new exchange-rate regime announced Aug. 11, the central bank relies on intervention to manage the yuan instead of its daily fixing. China’s surprise policy shifts have jolted markets worldwide as investors struggle to gauge their impact on the world’s second-largest economy.

“The Chinese are not being very consistent in their communication to the markets,” said Andrew Sullivan, head of sales trading at Haitong International Securities Group Ltd. in Hong Kong. Investors are “frustrated by the flip flop.”

[source]