Tag Archives: china

On China’s Devaluation

By Steve Saville

Wrongheaded Thinking About China’s Devaluation

After China’s government announced a small reduction in the Yuan’s foreign exchange (FX) value early last month, US Presidential aspirant Donald Trump immediately leapt onto the nearest available podium and exclaimed:

They [the Chinese] continuously cut their currency. They devalue their currency. And I have been saying this for years. They have been doing this for years. This isn’t just starting. This was the largest devaluation they have had in two decades. They make it impossible for our businesses, our companies to compete. They think we’re run by a bunch of idiots. And what’s going on with China is unbelievable, the largest devaluation in two decades. It’s honestly…a disgrace.

Continue reading On China’s Devaluation

China’s Yuan Devaluation…

By Elliott Wave International

Why the yuan devaluation was not a “surprise” — and what Elliott waves suggest for China’s currency next

China’s economy is slowing. Its stock market began to crash back in July. And, the volatility rocking financial markets has been widely linked to the recent yuan devaluations by China’s central bank.

Speaking of that: “Surprise” is usually the word you see describing the devaluation. As in, “China’s central bank surprise devaluation of yuan.” But what if someone told you that it wasn’t a surprise — and, in fact, an expected event?

Below are three excerpts from analysis that our own Chris Carolan published in his Sunday-Tuesday-Thursday Asian-Pacific Short Term Update on July 30 (several days before China’s central bank first move to devalue the yuan against the U.S. dollar), then on August 9 and August 11 (bold added).

The Asian-Pacific Short Term Update July 30:

Continue reading China’s Yuan Devaluation…

Around the Web

By Biiwii

Market Analysis & News From Around the Interconnected Global Buzz Factory

 

Wholesaling Out of China

By Alhambra Investment Partners

While everyone remains sure that the PBOC is actively trying to “allow” the yuan to depreciate as some kind of export catalyst, the “dollar” continues to show (not suggest) otherwise. Liquidity and “dollar” markets are still roiled rather than soothed, especially the US treasury market where the bid right at the open (what look very much like continued collateral calls) pushes more like a combination of October 15 and January 15.

ABOOK Aug 2015 Yuan USt

As if to underscore the runaway nature, the PBOC apparently intervened against this “devaluation” just last night. From the Wall Street Journal:

Continue reading Wholesaling Out of China

Little Trouble in Big China

By Michael Ashton

It is obviously time for another update. I haven’t been an active poster recently, because as many of you know I am busy working on a book for the Wiley label. I am about 80% done; however, it is very time-consuming! The title of the book is (tentatively) What’s Wrong with Money?: The Biggest Bubble of All – and How to Invest with it in Mind, and if you would like to be on the notification list to receive an email when the book is published, simply send an email to [email protected]. Even better, you can pre-order it already apparently, even though it’s not due out until later this year or early next year. (No pressure, huh?)

So, I have been embroiled in the writing and editing process, and not posting much. This will change soon, but China’s overnight move to (slightly) devalue the yuan is significant enough to warrant a post. There are also some other topics that need a quick mark-to-market, but I will save those for another day.

China’s move is possibly qualitatively significant, but I don’t believe it is yet quantitatively significant. A two-percent move in a currency is barely worth recording – it is almost within the daily standard deviation band of some currencies! So, when you have read about how this dramatically changes the inflationary concern of the Fed to a deflationary concern…that’s nonsense. The Swiss Franc strengthened by 20% against all currencies, in a single day, back in January. Since then, the core Swiss inflation rate has moved from +0.4% y/y to -0.6% y/y. Also note that Switzerland’s imports amount to about 50% of its GDP.

Let’s take that as a back-of-the-envelope scalar just to do a rationality check. A 20% change in exchange rate affecting about 50% of goods and services caused a 1% move in core CPI.

The U.S. imports about $40bln in goods from China per month, out of an annual GDP of $16.3 trillion. So in this case, we have a 2% move in exchange rate affecting about 2.9% of domestic goods and services. So if the effect was linear, we would expect about 1/10th * 1/17th * 1% of a move in core CPI as a result of the Chinese action. Check my math, but that would seem to be about 0.006% movement in expected core inflation as a result of China’s revaluation. Negligible, in other words.

Now, qualitatively the effect might be higher if, for example, this presages a more-significant move by China. But even assuming that the exchange rate moved ten times as much, you are still talking about rounding error on inflation. Sure, the effect might not be linear but the essential guess is that from a price perspective we don’t care.

Certain companies and industries and goods, of course, will see a much bigger effect (it would be hard to have a much smaller effect), but it shouldn’t be a big deal – even if it is part of a larger move. From the standpoint of economic growth, it may matter more…but even so, a 2% change is unlikely to matter as much as a 10% change in shipping costs, and moves like that happen all the time.

China is a big economy, and a big trading counterparty of ours. But the U.S. is still a significantly-closed economy. While China represents about 20% of all of our imports, imports as a whole only amount to 14% of US GDP. So, in summary: this is an interesting moment politically, if China is signaling a willingness to float her currency. It is not a particularly interesting day macro-economically, at least from the standpoint of the effect on prices of this move.

China 50 vs. SPX

By Biiwii

I had imagined a situation in the China 25 (now 50) vs. the S&P 500 that called for China to either rise more than the US or decline less.  It was based on this weekly chart and its moving average ‘up’ signal which, while still in effect has turned out to be a load of crap.  You know, fair disclosure and all… got to put the bad calls up along with the good ones.  So there’s a bad one for you.

fxt.spx

Around the Web

By Biiwii

Market Analysis, News & Opinion From Around the Web…

 

China’s ‘TIC’ for May…

By Alhambra Investment Partners

TIC For May Is Really What Is Missing About China

The latest update for TIC “flow”, for the month of May, was mostly what was expected given the “dollar pause” at that time. Central banks were still active but not nearly as engaged as they had been through the worst parts of the “dollar” crisis in late 2014 and early 2015. Official accounts (central banks and foreign governments) had turned positive in May for the first time since November, and even treasury mobilizations had dropped considerably.

This is not to say that all was decent and good about the “dollar” in May, only that it wasn’t nearly so vibrantly depressing. Given the activities in July, we may find out through TIC a few months down the road that this was the proverbial eye of the hurricane.

ABOOK July 2015 TIC Official UST Continue reading China’s ‘TIC’ for May…

Dollar’s Grand Masterpiece…

By Alhambra Investment Partners

The ‘Dollar’s’ Grand Masterpiece Almost In Full View

When US retail sales jumped in May on seasonal adjustments alone, economists and mainstream commentary lost all composure as they were certain that meant the “slump” was over and the dominant narrative would continue. The same occurred in Europe over a slight pickup in overall lending, not even in the household or business sectors, which was proclaimed as nothing but the beneficence of QE already working. Neither of those “certainties” lasted more than a month, as US retail sales in June were “shocking” and lending in Europe quickly fell back to its normal flatline (which the ECB has really not been able to affect through its entire five years of deep experimentation).

This is nothing new, of course, as every uptrend is extrapolated into the recovery while at the same time every bit of weakness is qualified “temporary” or “anomalous.” The result over time is the regular saw-toothed monthly variation steadily sinking on that “unexpected” but somehow persisting downtrend. If you don’t observe the overall context beyond those shortest variations you might actually expect a domestic or global recovery intact.

Continue reading Dollar’s Grand Masterpiece…

Broken

By Doug Noland

Credit Bubble Bulletin: Broken

The Shanghai Composite rallied 10% this week, enjoying the “biggest two-day rebound since 2008.” Friday saw Germany’s DAX surge 2.9%. French, Spanish and Italian equities rallied about 3%. European periphery bond yields dropped (some). The S&P500 advanced 1.2%. It was, however, another rocky week for commodities.

Global markets this week approached the edge – then recoiled, as they tend to do. Over recent years it’s become the typical pattern. Wait long enough and market stress is met with whatever desperate policy response it takes at that moment. Officials in China moved aggressively to adopt their belligerent brand of “whatever it makes” central market control. Crazy stuff. And as market participants expected, the Game of Chicken saw the Greeks and Europeans eventually cave to market pressure. Markets win again. Long live the king.

Continue reading Broken

China: What Deflation Looks Like

By Elliott Wave International

Why the 32% slide in the Shanghai Composite is more than just a “hiccup”

The Shanghai Composite fell another 8% at the open on Wednesday (July 8). Trading was soon halted by the authorities. (But for a different reason that the trading halt on the NYSE the same day.)

From its all-time high on June 12, China’s main stock index is down 32%. Using the word “crash” is becoming appropriate.

“At the moment there is a mood of panic in the market and a large increase in irrational dumping of shares, causing a strain of liquidity in the stock market,” said China’s Securities Regulatory Commission on Wednesday (bold added).

But the “dumping of shares” is not the only type of selling that’s going on in China right now. Bloomberg reports that (bold added),

Continue reading China: What Deflation Looks Like