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.
Scaremongery... or maybe the whole point, as Obama's former chief economist noted, is to lose reserve status. Take That China!!
This devaluation is likely not a one-time event but rather the beginning of an ongoing and persistent depreciation of the CNY versus the USD. The embedded USD short position within the carry trades will begin to result in losses and margin calls as the USD appreciates versus the CNY, thus forcing investors to liquidate some of their positions. These trades, which took years to amass, could unwind abruptly and exert an influence of historic magnitude on markets and economies.
To help remind readers of what happens when the entire world engages in wholesale currency war, here is a complete list of all the recent FX interventions, courtesy of Stone McCarthy.
As we first warned in March, and as became abundantly clear over the weekend Beijing had no choice but to join the global currency wars, as the yuan's dollar peg will ultimately prove to be too painful going forward. And sure enough this evening the PBOC weakens the Yuan fix by the most on record.
There is much stunned confusion among Wall Street's "best and brightest" following China's historic Yuan devaluation overnight which was predicted by exactly zero of said best and brightest, just like nobody expected the SNB to give up its own peg to the EUR in January.
Hedgies are the most short ever... and Commercials are the least hedged in 14 years... and it appears rumors of PBOC buying along with dismal data from around the world has sparked a renewed awareness of another looming QE sending gold well north of $1100 and silver back above $15.
Following last week's bad news for the economy (terrible ADP private payrolls, confirmed by a miss in the NFP) which also resulted in bad news for the market which suffered its worst week in years, many were focused on how the market would react to the latest battery of terrible economic news out of China which as we observed over the weekend reported abysmal trade data, and the worst plunge in Chinese factory prices in 6 years. We now know: the Shanghai Composite soared by 5%, rising to 3,928 and approaching the key 4000 level because the ongoing economic collapse led Pavlov's dog to believe that much more easing is coming from the country which as we showed last night has literally thrown the kitchen sink at stabilizing the plunge in stocks.
"They'll Blame Physical Gold Holders For The Failure Of Monetary Policies" Marc Faber Explains EverythingSubmitted by Tyler Durden on 08/09/2015 19:00 -0400
"The future is unknown and we are not dealing with markets that are free markets anymore...now we have government interventions everywhere. [But] in the last say twelve months, I have observed an increasing number of academics who are questioning monetary policies. That's why I think they will take the gold away and go back to some gold standard by revaluing the gold say from now $1000/oz to say $10,000 dollars. An individual should definitely own some physical gold. The bigger question is where should he store it? because... the failure of monetary policies will not be admitted by the professors that are at central banks, they will then go and blame someone else for it and then an easy target would be to blame it on people that own physical gold because - they can argue - well these are the ones that do take money out of circulation and then the velocity of money goes down - we have to take it away from them... That has happened in 1933 in the US."
Here is an overview of next week's events and data placed in the larger context.
In simple terms, Greece from 2003-2010 was an economic boom driven by incomes, which were in turn driven by cheap debt NOT real organic growth. Thus, the collapse in GDP was yet another case of “price discovery” in which asset prices fall to economic realities…
The demise of the dollar has been greatly exaggerated. Here is how I see the near-term outlook.
Here comes today's main event, the July non-farm payrolls - once again the "most important ever" as the number will cement whether the Fed hikes this year or punts once again to the next year, and which consensus expects to print +225K although the whisper range is very wide: based on this week's ADP report, NFP may easily slide under 200K, while if using the non-mfg PMI as an indicator, a 300K+ print is in the cards. At the end of the day, it will be all in the hands of the BLS' Arima X 12 seasonal adjusters, and whatever goalseeked print the labor department has been strongly urged is the right one.
A sample of charts currently on our radar
Futures Rebound On Ongoing Dollar Strength; Commodities Rise, China Slides, Greek Banks Continue PlungingSubmitted by Tyler Durden on 08/05/2015 06:51 -0400
In many ways the overnight session has been a mirror image of yesterday, with the dollar accelerating its Lockhart-commentary driven rise, which curiously has pushed ES higher perhaps as a result of more USDJPY correlation algos being active and various other FX tracking pairs. Indeed, the weak yen is all that mattered in Japan, where the Nikkei 225 (+0.5%) rose amid JPY weakness, despite opening initially lower as index heavyweight Fast Retailing (-4.5%) reported a 2nd consecutive monthly decline in Uniqlo sales. Elsewhere in mirror images, China slid 1.7%, undoing about half of yesterday's 3.7% jump, and is now down for 4 of the past 5 days.