Gold: The Chinese Have Changed the Way They Look at It

By Kevin Muir

At the risk of alienating all my readers who view gold as a barbarous relic, I am chancing one more post to expand on my ideas regarding the correlation between gold and the Chinese currency.

Although some readers got a chuckle out of my article Gold: Come’on – Admit it – You want to own it, there was also a bunch of pushback on the idea that the Chinese were pegging the price of gold in CNY.

Continue reading Gold: The Chinese Have Changed the Way They Look at It

Chinese Yuan Slump Zeros Out First Two Rounds Of Trump Tariffs: By The Numbers

By Heisenberg Report

So long as there are little signs of stress building into the system, there is little incentive for China to discourage FX weakness. After all, the nearly 10% USD/CNY move since March has almost completely offset the impact of Trump’s potential tariffs before they have even happened. Perhaps this is why the US President’s Twitter feed has turned back to talking down the dollar.

It doesn’t get much simpler than that when it comes to explaining how effective Beijing has been thus far in using the yuan to cushion the blow from the trade frictions.

It’s not entirely clear whether the Trump administration realized just how many policy levers the PBoC has at its disposal when it comes to micromanaging liquidity conditions and otherwise imparting an easing bias in a kind of under-the-radar fashion, the scope of which is only discernible after the fact.

China is countenancing yuan depreciation and while some of the measures taken in the course of that effort are headline worthy (RRR cuts, record MLF, etc.), others aren’t as overt. One way or another, they’re all reflected in the market and the cumulative effect has manifested itself in a rapid weakening of the currency, much to the chagrin of Donald Trump.

Continue reading Chinese Yuan Slump Zeros Out First Two Rounds Of Trump Tariffs: By The Numbers

‘It’s Got A Green Light To Weaken’: Yuan Dive Continues As PBoC Looks On

By Heisenberg Report

The yuan rout is deepening.

On Thursday, the offshore yuan weakened past 6.80 for the first time since July of last year, as the easing bias inherent in recent pronouncements from officials and other reports portends a widening policy divergence with the Fed, further undercutting the bull case and tipping a growing sense of consternation in Beijing about the prospect of trade frictions hitting the domestic economy.

Here’s a chart with notable policy actions/turns annotated for reference:

USDCNH

You’ll note that over there on the right side, 6.85-6.90 is flagged as a possible zone for intervention. That’s around levels where the PBoC adopted the counter-cyclical adjustment factor last summer on the way to engineering a historic rally in the currency against the dollar. It’s possible they could resort to leaning on the CCAF again to stanch the bleeding.

Continue reading ‘It’s Got A Green Light To Weaken’: Yuan Dive Continues As PBoC Looks On

No Currency Manipulation By China’s Government, Yet

By Steve Saville

[This is a brief excerpt from a commentary posted at TSI last week]

In the 2nd July Weekly Update we discussed the risk posed by the recent weakening of China’s currency (the Yuan), and commented: “We won’t know for sure until China’s central bank publishes its international currency reserve figure for June, but the recent weakening of the Yuan does not appear to be the result of a deliberate move by China’s government.” We now know for sure — the Yuan’s pronounced weakness during the month of June was NOT the result of government manipulation. In fact, it can be more aptly described as the result of an absence of manipulation.

We know that this is so because of what happened to China’s currency reserves in June. As indicated by the final column on the following chart, almost nothing happened (there was no significant change). This means that China’s government made no attempt to either strengthen or weaken its currency last month.

Continue reading No Currency Manipulation By China’s Government, Yet

The Dreaded Vote of Confidence

By Jeffrey Snider

Chinese officials are getting nervous. Everyone knows that whenever your favorite sports team struggles and fans are calling for the head coach’s head, any owner or general manager who then issues the dreaded (from the coach’s perspective) vote of confidence is essentially sealing his fate. PBOC Governor Yi Gang issued a similar sort of statement today.

CNY is in freefall, which is dangerous in and of itself but more so given the (mistaken) political ramifications. Not only do the Chinese bear the brunt of “dollar” misfortune, they will also be blamed, just as they have been already, for engineering the stunt in the name of trade “stimulus.”

There was nothing really of note within Yi’s message. The significance is that there was anything provided to the public at all. A vote of confidence rarely works; not in sports and certainly not in central banking. There is as much danger that any central bank putting out a message will only end up confirming the worst fears (if they feel they have to say something, what does that really mean?).

Continue reading The Dreaded Vote of Confidence

The Art Of Currency And Trade War: Inside China’s Thinking On The Yuan

By Heisenberg

… there is no big problem with the yuan depreciation. It could be beneficial as the economy is slowing. We are able to control capital outflows. There is no need for aggressive intervention.

That’s from one of three anonymous sources Reuters spoke to for a story about the PBoC’s thinking when it comes to rapidly weakening Chinese yuan.

On Tuesday, hours after a sharp early decline in the yuan through 6.70, PBoC Governor Yi Gang attempted to calm things down by assuring everyone that he’s “paying close attention to that”. The yuan’s weakness, he said, is “mainly due to factors such as a stronger dollar and external uncertainties.”

Those comments followed remarks from PBoC deputy governor (and SAFE head)  Pan Gongsheng, who told a conference in Hong Kong that China has plenty of FX reserves and other FX “tools” and is “confident” that they can keep the currency stable.

Continue reading The Art Of Currency And Trade War: Inside China’s Thinking On The Yuan

VIDEO: Renminbi Devaluation Risk in Focus

By Callum Thomas

In this video we look at the USDCNY exchange rate and talk through the top-down view on how the Chinese Yuan could still have a lot further to go yet.  This is a particularly important topic for global investors, because as we saw in 2015 sudden and unexpected moves in Chinese financial markets can create ripple effects across global markets.

The key points we discuss in this video are:

1. The trend toward a softening macro outlook (property market topped out, export growth rolling over, and stimulus tailwinds turning to headwinds).

2. The trade-war/political overtones and how the Renminbi fits in with this.

3. Monetary policy divergence and policy differentials.

Given this combination of factors we believe the path of least resistance for the USDCNY is up (i.e. Renmnibi devaluation), and the exchange rate could head towards 7 if not higher.

The charts come from a recent edition of the Weekly Macro Themes report.

Be sure to subscribe to the Topdown Charts YouTube channel:   https://www.youtube.com/channel/UCtZDzcHrtCDpCWeVid1qSRQ

Follow us on:

LinkedIn https://www.linkedin.com/company/topdown-charts

Twitter http://www.twitter.com/topdowncharts

Support 100% ad-free Biiwii.com by making a donation of your choice!

Or better yet, subscribe to NFTRH Premium for an in-depth weekly market report, interim updates and NFTRH+ chart and trade ideas to get even more bang for your buck. You can also keep up to date with plenty of actionable public content at NFTRH.com by using the email form on the right sidebar. Or follow via Twitter @BiiwiiNFTRH, StockTwits or RSS. Also check out the quality market writers at Biiwii.com.

China Property Price Outlook

By Callum Thomas

This chart comes from the latest Monthly Chartpack, which I just sent out to clients.  It shows Chinese property price growth through May against our composite leading indicator.  The composite leading indicator incorporates money supply growth, government bond yields, swap rates, and property stock relative performance.  The key point is despite some stabilization in the May property price date, the leading indicator is still pointing to a further softening in the Chinese property market.  As the property market drives the broader macro/risk outlook for China (and commodities + EM), this is a key chart.  Where it could be wrong would be if the seemingly over-confident consumer drove the market higher, and in Chinese asset markets we have plenty of case studies where “animal spirits” can surprise!  So it’s a complex and evolving outlook, and one that I am spending a lot of time and focus on as a key driver for global markets this year and next.

Follow us on:

LinkedIn https://www.linkedin.com/company/topdown-charts

Twitter http://www.twitter.com/topdowncharts

Support 100% ad-free Biiwii.com by making a donation of your choice!

Or better yet, subscribe to NFTRH Premium for an in-depth weekly market report, interim updates and NFTRH+ chart and trade ideas to get even more bang for your buck. You can also keep up to date with plenty of actionable public content at NFTRH.com by using the email form on the right sidebar. Or follow via Twitter @BiiwiiNFTRH, StockTwits or RSS. Also check out the quality market writers at Biiwii.com.

‘Blow For Blow’: U.S.-China Trade Spat Devolves Into Name-Calling…

By Heisenberg

…As Chocolate Cake Diplomacy Faces Biggest Test Yet

Well, it looks like Donald Trump’s “great friendship” with Xi Jinping (forged as it was, not in fire, but over “the most beautiful piece of chocolate cake you’ve ever seen”), is going to be put to the test over the next couple of weeks.

On Friday, in the official statement that accompanied the announcement of his decision to move ahead with tariffs on Chinese goods despite the trade truce Steve Mnuchin struck with Chinese Vice Premier Liu He last month, Trump said the following:

My great friendship with President Xi of China and our country’s relationship with China are both very important to me.

Kind words for one’s “rapist”:

Xi, according to Bloomberg, is now set to go “blow for blow” with Trump on trade – and hopefully that means something different than it means when Trump goes “blow for blow” with Russian hookers.

Continue reading ‘Blow For Blow’: U.S.-China Trade Spat Devolves Into Name-Calling…

A Bull in a China Shop

By NFTRH

Following is the opening segment of this week’s edition of Notes From the Rabbit Hole, NFTRH 504. For months now we have been tracking a divergence in the key cyclical Semiconductor Equipment segment (I am short AMAT & LRCX) to the broader Semi sector and this week put more context to the divergence.

A Bull in a China Shop

In light of the developing trade war between the US and China, let’s review the all-important Semiconductor sector and in particular, the Semi Equipment segment, which is a key economic early bird (and canary in a coal mine).

Various sectors took hits on Friday as Trump moved forward with Tariffs on China. But most of those sectors and industries are follow-on aspects of the economic cycle, which got its start when the early bird chirped in early 2013.

With China in Trump’s crosshairs and China a very key player in Semi Fab Equipment, there is a fundamental reason that the Equipment companies are faltering. From SEMI by way of a post at nftrh.com in March.

“SEMI predicts Samsung will lead the pack in fab equipment spending in both 2018 and 2019, even though it will invest less each year than in 2017. By contrast, China will dramatically increase its year-over-year (YOY) fab equipment spending for the next two years – by 57 percent in 2018 and 60 percent in 2019 – to support fab projects from both overseas and domestic companies. The China spending surge will thrust it past Korea as the top spending region in 2019.”

The rate of Semi Fab spending growth was easing and a heavy reliance was being put on China to pick up the slack. Here is a screenshot from that post…

Continue reading A Bull in a China Shop

Trump Approves Tariffs On $50 Billion In Chinese Goods, Escalating Trade War

By Heisenberg

Here we go.

On Wednesday afternoon, as the dollar was surging on the back of a hawkish hike from the Fed, WSJ reported that Donald Trump would in all likelihood make good on his threat to go ahead with tariffs on billions in Chinese goods, with an announcement likely coming on Friday.

That decision (were it to pan out) would confirm reports from a couple of weeks ago when Trump, seemingly swayed by the isolationist/protectionist contingent’s rebuke of a trade truce struck by Steve Mnuchin during a meeting with Chinese Vice Premier Liu He, reversed course on an implicit agreement to hold off on further escalations.

WSJ’s post helped catalyze a reversal in the greenback, which renewed its ascent on Thursday following the dovish spin Draghi put on an otherwise hawkish ECB decision.

DXY

Fast forward to Thursday afternoon and these headlines hit:

Continue reading Trump Approves Tariffs On $50 Billion In Chinese Goods, Escalating Trade War

China Credit Flows

By Callum Thomas

The May data for China showed a further slowing in the growth of credit.  To be clear, total credit is still increasing, but the issue is that it is increasing at a slower pace.  Now there are basically 2 reasons people worry about China: 1. because debt levels are “too high”, and 2. because debt growth becomes too slow and therefore activity levels slow down.  Today’s chart will give both of those groups something to worry about!  It shows the monthly growth in “total social finance” (a broad measure of credit growth), standardized against GDP, and the key point is that the pace of TSF growth is slowing down.  I’ve also noticed a broader tightening of financial conditions e.g. slower money supply growth, changes in the currency, real interest rates, property prices, etc.  My base case is that the Chinese economy sees slower growth this year, but aside from the negative impact this will have on commodities/EM at the margin, I’m not particularly concerned about major downside risk in China at this time.

Follow us on:

LinkedIn https://www.linkedin.com/company/topdown-charts

Twitter http://www.twitter.com/topdowncharts

Support 100% ad-free Biiwii.com by making a donation of your choice!

Or better yet, subscribe to NFTRH Premium for an in-depth weekly market report, interim updates and NFTRH+ chart and trade ideas to get even more bang for your buck. You can also keep up to date with plenty of actionable public content at NFTRH.com by using the email form on the right sidebar. Or follow via Twitter @BiiwiiNFTRH, StockTwits or RSS. Also check out the quality market writers at Biiwii.com.