Archive - Sep 3, 2010

One of the world's bigger financial mysteries: the official breakdown of the Chinese FX reserve balance, received a rare moment of transparency today when the China Securities Journal gave the official tally of the $2.45 trillion stockpile: 65% in dollars, 26% in euros, 5% in pounds and 3% in yen. Which means China holds about $1.6 trillion in dollars, and, courtesy of the (recent record) trade surplus, growing. This distribution is roughly in line with expectations and with the world average FX holdings. Nonetheless, the massive concentration of dollar positions prompted Hu Xiaolian, a vice governor with the
People's Bank of China to warn that depreciation loomed as a risk for
foreign exchange reserves held by developing counties. As Reuters quotes, "Once a reserve currency's value becomes
unstable, there will be quite large depreciation risks for assets," she
wrote in an article that appeared in the latest issue of China Finance, a
Chinese-language magazine published under the central bank. Most certainly this is a tacit warning for US monetary policy, which is, of course a paradox, since ongoing dollar depreciation is CNY-beneficial due to the ongoing (semi) peg. China would love to have its cake, eat it, and to export twice as much of it if possible.

Goldman Sachs recaps expectations for today's key event - payroll day… also the ISM nonmanufacturing index and a couple of Fed speeches.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 03/09/10

There are a lot of indicators that show continuing weakness in the economy which will lead to declines in output. Key indicators to me are the decline in factory orders and the build-up of inventories. I expect this trend to continue.