Welcome To The Currency Wars, China Yuan Devalues Most In 20 Years!
The last 7 days have seen the unstoppable ‘sure-thing’ one-way bet of the decade appreciation trend of the Chinese Yuan reverse. In fact, the 0.95% sell-off is the largest since 1994 (bigger than the post-Lehman move) suggesting there is clear evidence that the PBOC is intervening.
The fact that this is occurring with relatively stable liquidity rates (short-term repo remains low) further strengthens the case that China just entered the currency wars per se as SocGen notes, intending to discourage arbitrage inflows. For the Chinese authorities, who do not care about the level of their stock market (since ownership is so low), and specifically want to tame a real-estate bubble, this intentional weakening is clearly aimed at trade – exports (and maintaining growth) as they transition through their reforms. The question is, what happens when the sure-thing carry-trade goes away?
Jamie McGeever ‏@ReutersJamie · 1 h
Big moves in the renminbi this month. China’s currency on track for its biggest monthly fall in 20 years:
Here are the four biggest debates in the markets right now
In an emailed note, Englander offers some color surrounding each debate:
How much slack in the U.S. economy? — This subject continues to come up in client discussions, with many investors remaining skeptical that the slack that Fed Chair Yellen sees in labor markets exists in reality. The impact of last week’s minutes was so powerful because it was the first indication that Fed officials might be wavering in their commitment. Fed Chair Yellen’s testimony on Thursday will be a focal point. We think early innings will go to the Fed doves, but that the dovish view will be harder to maintain as time goes on.
Weather — Everyone talks about the weather but does nothing about it. In financial markets, investors are staying on the sidelines until the impact is resolved. We think that weather effects are likely above 50% of the perceived slowing. The impact is most visible on housing, but housing data were weak through most of the 2013, so while housing may be most affected by the weather, it may not be indicative of the overall impact on the economy.
China — Davos-like China optimism coming out of G20 and surprisingly good January data are paling against concerns that commodity stockpiles are out of line with production prospects. There is also considerable skepticism that the credit surge will continue. It makes commodity currencies look increasingly vulnerable, with AUD high on this list.
EUR — The mystery wrapped in an enigma. Surprising encounters with non-leveraged clients, who are very EUR positive. The argument is that both sides of the current account identity are now EUR positive. The current account surplus is there, and the EUR-positive camp argues that the relevant asset prices for the financial account are those of euro zone banks — up 22% since end-September, +8% year YTD — and Spanish and Italian yields, which offer the highest yield for the lowest risk (the worm has turned). This is hardly a majority view, but the novelty is that it is well-argued view. The counterargument is that euro zone inflation is far below target in core as well as peripheral countries, so the ECB will act to make euro zone assets less attractive, but the counter-counter argument is that the pros are the bird in the hand and the cons are deeply in the bush.
Russian Market ‏@russian_market · 4 min
Why does everyone ignore another all-time low of Ukrainian Hryvna to US Dollar today?