USA & China Macroeconomic Trends

By Callum Thomas

Here’s some of the standout economic and markets charts on my radar (originally posted on LinkedIn). I aim to pick a good mix of charts covering key global macro trends, and ones which highlight risks and opportunities across asset classes.

Hope you enjoy!

1. US Economic Optimism: Here’s an interesting chart – it shows the overall trend in economic confidence in America based off more than half a dozen surveys.

The key point is there has been quite the slump in the last couple of months. I labeled the title “recession or reset?” as a nod to the fact that there seems to be a lot of pundits rushing to call a recession. I think this is premature.

The last couple of months have brought a heavy flow of negative headlines (e.g. the shutdown, tradewar, potential actual wars) and there has been heightened market volatility.

I think this is a reset…


  Continue reading USA & China Macroeconomic Trends

China A-Shares: Cheap China

By Callum Thomas

This is the final in a 10-part blog series where I went through each of the charts from the 10 Charts to Watch in 2019.  The purpose is to add some extra comments and context around the charts, as well as to explain some of the finer details of the indicators.

The final chart is on China – as I noted in the article, China took the number 10 spot last year too, and in many ways is again one of the most important charts.  The chart shows PE valuations for China A-shares over the last couple of decades.

Main point: Chinese stocks are cheap.

Best Way to Short China?

By Kevin Muir

Global risk markets have recently taken comfort in the Fed’s change of rhetoric along with Mario Draghi’s talk of pulling out the “monetary toolbox”. When combined with the Chinese government’s cutting of the reserve requirement ratio and other stimulative measures, it’s easy to see why sentiment shifted this month.

Yet the headlines out of China are getting scary. This morning Bloomberg is reporting on a special message from the Chinese leader.

Continue reading Best Way to Short China?

China’s Central Bank Now Has World’s Largest Balance Sheet…

By Anthony B. Sanders

…As $1.1 TRILLION Is Injected Into Markets Via Repos (Curves Kinked)

China’s central bank, the People’s Bank Of China, now has the world’s largest balance sheet topping even the European Central Bank (ECB). Only The Federal Reserve is shrinking its balance sheet … for now.


The PBOC has injected almost $1.1 trillion in the market over the past two days.

Continue reading China’s Central Bank Now Has World’s Largest Balance Sheet…

China’s Escher Economy: China’s GDP Growth in 2017 Was 3X USA Growth

By Anthony B. Sanders

But Shanghai Composite Index Is Only At 2006 Levels

China is seemingly a series of paradoxes. Like Escher’s Relativity drawing.

Wall St. Journal – BEIJING—China’s economic expansion slowed to its weakest pace since the financial crisis, as top financial regulators launched an extraordinary coordinated effort to calm jittery investors.

The rate of growth in the third quarter dropped to 6.5%, falling short of market expectations, official statistics released Friday showed. Growth in industrial output and consumption weakened in the quarter, while exports held up despite the country’s bruising trade fight with the U.S.

Yes, in 2017, China had 3 times the GDP growth of the USA (if you believe China’s accounting!). And China has been growing at over 6.9% since 1990 EVERY YEAR.


Yet the Shanghai composite index remains at late 2006 levels.

Continue reading China’s Escher Economy: China’s GDP Growth in 2017 Was 3X USA Growth

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:


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.

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