After a week of relentless FX volatility, spilling over out of China and into all other countries, and asset products, it was as if the market decided to take a time-out overnight, assisted by the PBOC which after three days of record devaluations finally revalued the Yuan stronger fractionally by 0.05% to 6.3975. And then, as a parting gift perhaps, just as the market was about to close again, the Chinese central bank intervened sending the Onshore Yuan, spiking to a level of 6.3912 as of this writing, notably stronger than the official fixing for the second day in a row. In fact the biggest news out of China overnight is that contrary to expectations, the PBOC once again "added" to its gold holdings, boosting its official gold by 610,000 ounces, or 19 tons, to 1,677 tones.
Define irony: in a quarter in which Greece was supposed to have been near death (at least according to the worst PMI print in history and of course, judging by the bank lines in front of the capital controlled institutions), yesterday we learned that Greek GDP surged relative to expectations rising by 0.8%, which was what analysts had expected but with a minus sign in front of it. Then overnight, we got the rest of European GDP, including the big three: Germany, France and Italy. The results were nothing short of a big disappointment. At the Euroarea level, the result was also a big negative surprise with Q3 GDP rising 0.3%, down from 0.4%, and below expectations. This was the worst GDP print since Q3 2014.
"It’s not how I want my epitaph to read, but it’s not a shameful thing helping people finance themselves. It’s not a bad thing."
"John and Volcker discussed all the pitfalls of Keynesian and monetarism and Volcker didn’t rule out an eventual collapse of the dollar and second deflationary depression. I remember Volcker asking John when he would begin dropping short term rates and John commented that rates would have to drop soon or else the economy would fall off a cliff. It’s interesting that it wasn’t long after our session that rates started to come down. John Exter spelled out his scenario for Volcker and warned him of how badly the Keynesian experiment would end if it went on for an extended period of time. Volcker just sat there and listened and showed his concern."
The Fed is rapidly coming to realize they are caught in a "liquidity trap." The problem is they have been betting on a "one trick pony" that by increasing the "wealth effect" it will ultimately lead to a return of consumer confidence and a fostering of economic growth? Currently, there is little real evidence of success.
Between a rather alarming three-day plunge and rampant accusations that Beijing entered the global currency wars solely to export China’s deflation and prop up its flagging economy, the PBoC had apparently seen enough. Cue an ad hoc, "forceful" press conference. Here is the full breakdown.
“Maybe this isn’t a great indication of the state of the economy.”
Minutes from the ECB's July meeting underscore the central bank's misgivings about the pace of growth and inflation but more importantly, the governing council hinted that it would be ready to move if "financial developments in China" should conspire to further derail progress.
With everyone now focused on what China's daily Yuan fixing will be ever night, there was some confusion why last night the PBOC decided to devalue the CNY by another 1.1% to 6.4010, despite its promise that the devaluation would be a "one-off" event, taking the 3 day devaluation to just about 4.5%. However, subsequently in a press conference, central bank vice-governor Yi Gang said that the PBoC will continue to step in when the market is ‘distorted’, that there is no economic basis for the Yuan to fall continuously and that it will look to keep the exchange rate ‘basically stable’. The Vice-Governor also said that the PBoC will closely monitor cross-border capital flows and that reports suggesting the Central Banks wants to see the currency depreciate 10% are ‘groundless’. Which is ironic considering after just 3 days, the PBOC is already half the way there!
Chinese Devaluation Extends To 3rd Day - Yuan Hits 4 Year Low, Japan Escalates Currency Race-To-The-Bottom RhetoricSubmitted by Tyler Durden on 08/12/2015 23:23 -0400
The "one-off" adjustment has now reached its 3rd day as The PBOC has now devalued the Yuan fix by 4.65% back to July 2011 lows.
PBOC tries to reassure: *CHINA PBOC SAYS YUAN REMAINS STRONG CURRENCY IN LONG-TERM
In some ways the question is not whether the renminbi is competitive or uncompetitive. The problem is that the renminbi is unambiguously less competitive than it was. This comes at a time when the Chinese economy is struggling and the stock market bubble is bursting. To all but the most PollyAnna’ish of observers that means this is the start of a major renminbi devaluation forcing the US to import even more of the world’s unwanted deflation.... Prepare for sub-1% 10y Treasury yields and another financial crisis as policy impotence is soon revealed to all.
During six months of protracted and terribly fraught negotiations between Athens, Berlin, Brussels, and the IMF, the idea that Spain, Italy, and Ireland somehow represented austerity "success stories" was frequently trotted out as the rationale behind demanding that Greece embark on a deeper fiscal retrenchment despite the fact that the country is mired in recession. For many in the periphery, the notion of an economic recovery is fiction, plain and simple.
If our government can't destroy all the private-sector jobs directly, it will do so indirectly by borrowing so much money the system collapses.
- China central bank under pressure to weaken yuan further (Reuters)
- Currency Rout Goes Global as Jen Sees Risk of 50% Loss on China (BBG)
- Europe Stocks Fall Most in Two Weeks as China Sparks Growth Fear (BBG)
- German Yields Drop to Record as China Boosts Bonds Around World (BBG)
- FT to Japan, Economist to Italy: Agnelli Family Raises Stake in Economist as Pearson Exits (BBG)
- Goldman Sachs to Give Out ‘Secret Sauce’ on Trading (WSJ)
- Greece's Preliminary Bailout Deal Faces German Turbulence (BBG)
For 6 ½ long years, we have been bombarded with the mythology known as “the U.S. economic recovery” by the mainstream media.