Renminbi

US Equities Tumble As PBOC "Stamps Out" Short Yuan Speculators With "Murderous" Liquidity Squeeze

A jump in the overnight cost for borrowing yuan in Hong Kong is "reflecting further PBOC efforts to stamp out speculation," according to Michael Every, head of financial markets research at Rabobank Group. Hong Kong-based Every told Bloomberg in an interview, following a massive spike in overnight borrowing rates for Offshore Yuan that "a 66% rate is murderous for others being swept up in this who are not speculating." PBOC advisor Han earlier warned that short selling the yuan "will not succeed," adding that "it is pure imagination that the Chinese yuan will act like a wild horse without any rein." But as Every notes, the unintended consequences could be a problem, "imagine you needed access to CNH for other purposes for a few days," concluding ominously that "in other EM crises we see that central banks usually win a round like this, but lose in the end."

Frontrunning: January 7

  • China turmoil sends oil, stocks sliding (Reuters)
  • China's Stock Traders Go Home After 29 Minutes (BBG)
  • Yuan hits weakest since Feb 2011 on fresh low midpoint (Reuters)
  • Stocks Extend Rout, Oil Slides on China as Soros Warns of Crisis (BBG)
  • China's 29 Minutes of Chaos: Stunned Brokers and a Race to Sell (BBG)
  • North Korea Uses Bomb Test to Boost Dictatorship (WSJ)

Just Out From Evercore ISI: "Sell All Rallies Down To 1900"

"With the macro backdrop more vulnerable today than at any time since the financial crisis, and the S&P 500 and NASDAQ still near all-time highs, we anticipate a downside move to 1900 on the S&P within the first two months of the year. We reiterate our view that Crude and Energy remain structurally broken and possess significant downside from current levels which will only agitate and exacerbate the ongoing collaps."

Is This How The Dollar Gets Replaced?

A world where money is decentralized means a world where nothing you’ve ever seen before will become the new norm and the new norm is unlikely to include a scrap of paper issued by a bankrupt government.

SocGen Looks At The Devastation Across Markets, Sarcastically Concludes It Is "Time For A US Rate Hike"

"The solution to uncertainty is cheaper valuations. If problems are priced in, investors can afford to look through near terms concerns and focus on the longer term. Worryingly, we have exactly the opposite situation today. Average stock valuations are close to historical highs – so we have lots of risk and little in the way of valuation cushion.... Time for a US rate rise then?"

Bank of America: "Sadly, It Took World War II..."

"A flip to fiscal stimulus is the most likely catalyst for a Great Rotation out of “deflation plays” into “inflation plays”, undoubtedly the biggest investment decision of 2016. Sadly it took the New Deal and WW2 to end the dominance of “growth” over “value” in the 1930s."

China's FX Reserves Fall By Third Most On Record As Outflows Persist

China burned through some $40 billion in FX reserves in November in support of the yuan while the headline drawdown came in at a whopping $87 billion inclusive of valuation effects. It was the third largest decline in history and suggests that despite a misleading $11 billion increase in October, capital flight continues unabated.

Frontrunning: December 1

  • Global Stocks Edge Higher on Expected ECB Stimulus (WSJ)
  • Moment of truth as Puerto Rico faces crucial debt payment (Reuters)
  • Obama urges Turkey to reduce tensions with Russia, stresses support (Reuters)
  • Russian Media Takes Aim at Turkey (WSJ)
  • Support Grows for U.S. Commando Raids to Fight Islamic State (BBG)
  • Yuan Drops as SDR Approval Seen Prompting PBOC to Reduce Support (BBG)

The IMF Confirms Yuan Inclusion In SDR Basket At 10.92% Weight, Above JPY And GBP

The IMF’s Executive Board decision today means that the yuan will be included in the SDR basket from Oct. 1, 2016, effectively anointing the yuan as a major reserve currency and represents recognition that the yuan’s status is rising along with China’s place in global finance. The weight in the basket will be 10.92%, larger than JPY and GBP. However, as politically-motivated as this decision may have been, now comes the hard part for China.

Open Both Eyes

If you close your left eye, the US dollar is strong. The labor market has recovered to its pre-crisis levels. The US is affluent and free. But if you close your right eye, the dollar is astonishingly overvalued based on nearly every objective metric that exists, police forces have turned into federally-funded paramilitary units, and a grand surveillance state now dominates over the citizens, and many of the basic freedoms guaranteed by the Constitution have become watered-down aphorisms rather than inalienable rights. That’s our world. It is simultaneously full of risk AND reward. The important thing is to look with BOTH eyes.

IMF Greenlights Addition Of Chinese Yuan To SDR Basket: Wall Street Responds

While the world was following the tragic events unfolding on Friday night in France where hundreds of innocent civilians were killed or injured, an important economic development took place at the IMF, whose staff and head Christine Lagarde, officially greenlighted the acceptance of China's currency - the Renminbi, or Yuan - into the IMF's foreign exchange basket, also known as the Special Drawing Rights. Here are the initial early responses by various Wall Street analysts.