What to expect next week.
The Fed's QE policies of recent years have, for all intents and purposes told the world that “the dollar is our currency and your problem.” And, in recent years, the dollar has been a genuine problem for a number of emerging countries. Following this traumatic event, and the change in the perception of US stability, China went around the world and invited the likes of Brazil, Indonesia, South Africa, Turkey and Korea to shift some of their China trade away from the dollar and into renminbi. China started doing this in 2011 and, as we see it, the renminbi’s attempt to become a trading currency is potentially one of the most important financial developments. Yet no-one seems to care.
"Both the US and China have a vital interest in reaching an understanding because the alternative is so unpalatable," Soros wrote in an article for the New York Review of Books, with the danger imminent if Chinese economic reforms fail forcing President Xi Jinping to "foster some external conflicts to keep the country united and maintain himself in power." These "conflicts" would present themselves in the form of a Sino-Russo alliance which could draw the entire world into war.
Two critically important themes which have far-reaching geopolitical and economic consequences came together recently when it became apparent that Gazprom had begun settling all crude sales to China in yuan. This marked the intersection of yuan hegemony and the death of petrodollar mercantilism. Now, the trend continues as Russia and China will de-dollarize hundreds of millions in natural gas settlements.
As Russia adjusts to Western sanctions stemming from the conflict in Ukraine, Gazprom is now settling all crude sales to China in renminbi. At the intersection of the petrodollar's death and yuan hegemony is: the PetroYuan...
Hungary becomes the first European country to sign on for China's ambitious Silk Road initiative. Beijing hopes the program will serve to relieve the country's industrial overcapacity problem while facilitating a tough transition to a consumer-led economic model. Given the growing number of headwinds China faces, "One Belt, One Road" may represent the counrty's 'one chance' to rescue the flagging economy.
"A surprise move by Vanguard to include onshore Chinese A-shares in its flagship emerging market fund will “put pressure” on other asset managers to follow suit," FT reports.
“The US Congress is largely at fault for all that’s happening,” the former chairman of the Federal Reserve said in Hong Kong on Tuesday. What’s interesting here is the tendency for Americans to view the AIIB as something that was ultimately created by the US — even if only inadvertently.
Albert Edwards: Yen Collapse Will Lead To "New Round Of Currency Turmoil", Deflation In US And EurozoneSubmitted by Tyler Durden on 06/02/2015 10:55 -0400
One look at FX trading this morning and all one can see is surging volatility and, for lack of a better word, turmoil. Which is precisely what Albert Edwards said would happen in his latest note overnight (released just as the USDJPY briefly breached 125) in which he observes that the Yen has now fully broken its 30-year support and predicts that "a new round of currency turmoil" is beginning.
History has not been kind to major trade blunders. Just as the Smoot-Hawley Tariff Act of 1930 sparked a global trade war that may well have put the “great” in the Great Depression, Congressional enactment of enforceable currency rules today could spark retaliatory actions that might devastate the free flow of trade that a sluggish global economy desperately needs.
Crude oil prices are tumbling as the USDollar pushes on to new highs driven by the continued stretch of renewed weakness in the Euro. As Bloomberg's Richard Breslow notes, however, "it’s not all about Greece. Not even close."
The Shanghai Composite is on the verge of 5,000 and has more than doubled in the past year but this may just be the beginning. The reason: if the Chinese stock bubble bursts, that will be the beginning of the end of the greatest con game in history.
We have all read the latest crop of media articles challenging gold’s investment relevance. The typical approach to bearish gold analysis is to attribute hypothetical fears to gold investors, and then point out these concerns have failed to materialize. Sprott believes the investment thesis for gold is a bit more complex than simplistic motivations commonly cited in financial press. We would suggest gold’s relatively methodical advance since the turn of the millennium has had less to do with investor fears of hyperinflation or U.S. dollar collapse than it has with persistent desire to allocate a small portion of global wealth away from traditional financial assets and the fiat currencies in which they are priced.
As tipped over a month ago, China witnessed a fourth straight quarter of capital outflows in Q1, exacerbating Beijing's currency conundrum and making it more likely that, should policy rate cuts continue to prove ineffective, Chinese QE is inevitable.
After months of speculation and confusion, on Friday we finally got if not direct, then certainly indirect, evidence from this month's TIC data that "Belgium" was merely a front for China.