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Dollar Surges, Chinese Yuan Plunges In FOMC Aftermath

Tyler Durden's picture




 

In the aftermath of yesterday's key market event, the FOMC's $10 billion tapering and elimination of QE with "QualG", not to mention the "dots" and the "6 month" comment, the USD has been on fire against all key pairs, with the EURUSD sliding below 1.38, a 150 pip move in one day which should at least give Mario Draghi some comfort, but more importantly sending the USDJPY soaring to 102.500 even as US equity futures continue to slide, and not to mention the Nikkei which tumbled -1.7% to just above 14,000 overnight. Perhaps the biggest take home message for traders from yesterday is that the Yen carry trade correlation to the Emini is now dead if only for the time being until DE Shaw and Virtu recalibrate their all-important correlation signal algos.

The other big news overnight was the plunge in the Yuan, tumbling 0.5%, 6.2286, up 343 pips and crushing countless speculators now that the "max vega" point has been passed. Expect under the radar news about insolvent trading desks over the next few days, as numerous mega levered FX traders, who had bet on continued CNY appreciation are quietly carted out the back door. Elsewhere, gold and other commodities continue to be hit on rising fear the plunging CNY will accelerate the unwind of Chinese Commodity Funding Deals.

With all the focus on the FOMC and China, it seems that the developments in Ukraine and Russia have taken a back seat in the last 24 hours. Nonetheless, there are a few interesting developments including a statement from Russia’s deputy prime minister Ryabkov that Russia could alter its position on Iranian nuclear talks in response to pressure from the EU and US over its annexation of Crimea (AFP). The Ukrainian interim PM maintained overnight that Crimea is Ukrainian territory though this comes after Ukraine’s National Security Council said it would withdraw military forces from Crimea in an attempt to deescalate the situation. Meanwhile, the Ukrainian finance ministry said that it would honour payments on a $3bn loan that it received from Russia in December. President Obama mentioned late yesterday that the US won’t take military action in the Ukraine.

Looking at the day ahead, the focus returns to US data including jobless claims, February existing home sales and the Philly Fed survey. The latter is expected to bounce back from -6.3 in February to +3.2 in March.

Bulletin news summary from Bloomberg and RanSquawk

  • Heading into the North American open, and post FOMC, the USD index (+0.33%) trades on session highs, equities and fixed income trade near session lows and US and EU yield curves are near their steepest levels of the session.
  • Later today the Federal Reserve will today release the results of bank stress tests which covers 30 bank holding companies with USD 50bln or more in assets.
  • Treasury benchmark yields holding near yesterday’s highs; yields surged the most this year, led by 2Y-5Y sector, after Yellen said interest rates could rise by the middle of 2015.
  • In her first press conference as Fed chair yesterday, Yellen emphasized that dropping a 6.5% unemployment threshold for considering an interest-rate increase “does not indicate any change in the committee’s policy intentions”
  • U.S. regulators worried that banks and brokerage firms remain too dependent on risky types of short-term funding are weighing new rules designed to reduce reliance on parts of what is often called the shadow banking system
  • China’s yuan slid the most since 2008 in onshore trading after the central bank weakened the currency’s reference rate by 0.18%, matching a March 10 cut that was the biggest since July 2012; Chinese stocks fell, sending the Hang Seng into a bear market
  • Investment banks should have known about forex traders using chat rooms that had the potential to rig currency prices, the head of the U.K.’s financial regulator said
  • Ukraine said it plans to reinforce its eastern border with Russia and withdraw troops from Crimea, ceding control of the Black Sea peninsula as tensions remained high over Russian moves to annex the breakaway region
  • Sovereign yields higher. EU peripheral spreads tighten. Asian equities slide, with Nikkei -1.6%, Shanghai -1.4%. European equity markets, U.S. stock-index futures fall. WTI crude and gold lower, copper falls 1.4%

US Event Calendar

  • 8:30am: Initial Jobless Claims, March 15, est. 322k (prior 315k); Continuing Claims, March 8, est. 2.880m (prior 2.955m)
  • 9:45am: Bloomberg Economic Expectations, March (prior -3); Bloomberg Consumer Comfort, March 16 (prior -27.6)
  • 10:00am: Philadelphia Fed Business Outlook, March., est. 3.2 (prior -6.3)
  • 10:00am: Existing Home Sales, Feb., est. 4.60m (prior 4.62m); Existing Home Sales m/m, Feb., est. -0.4% (prior -5.1%)
  • 10:00am: Leading Index, Feb., est. 0.2% (prior 0.3%) Central Banks
  • 4:00pm: Fed releases Dodd-Frank stress test results
  • 1:00pm: U.S. to sell $13b 10Y TIPS in reopening
  • 11:00am: POMO Fed to purchase $2.25b-$2.75b in 2021-2024 sector

Asian Headlines

China is to release measures to expand domestic demand as soon as possible and will speed up construction projects and other measures to support economic growth after a slowdown in industrial output and investment boosted risks of missing a 7.5% expansion target for the year. (BBG)

Morgan Stanley estimates a minimum loss of USD 4.8bln for carry trades and Chinese over-hedgers for every 100 pip depreciation of CNH. (BBG) This follows the break of 6.20 in USD/CNY yesterday, seen by many analysts as a significant level for hedging products that would require banks to call in collateral. USD/CNY today closed at 6.2286.

EU & UK Headlines

SNB left rates and the EUR/CHF floor unchanged and downgraded 2014 and 2015 inflation.

Absorption of supply from France and Spain failed to lift Bunds, which are lower in tandem with T-notes.

Bunds were also dragged lower by Gilts weighed on by aggressive steepening of the Short-Sterling curve as market participants speculated on the impact yesterday’s overhaul of the pension system will have on in interest rate path expectation. In the Euro-zone Spanish and French Treasuries sold EUR 5bln and EUR 7.96bln worth of bonds this morning which was in line with exp.

Equities

Equities are all in the red following on from the losses seen on Wall Street, with the FTSE-100 underperforming its peers as pension providers remain under pressure following yesterday's move by the UK government to scrap annuity requirement for pension savers.

FX

GBP/USD failed to recover above the 50DMA this morning and edged into negative territory, in tandem with EUR/USD amid a broad based USD strength as market participants in Europe reacted to the FOMC statement. Elsewhere, USD/JPY failed to benefit from favourable interest rate differential flows, with the pair trading in minor positive territory, as EUR weakness stemming from lower EUR/GBP and EUR/USD weighed on EUR/JPY this morning.

Commodities

SocGen has cut its 2014 price forecast for WTI to USD 96 from USD 99, saying prices have under-performed despite strong fundamentals. Sees gold averaging USD 1,180 per ounce in 2014 up from the USD 1,135 previous estimate after the bullish period over the last few months. Despite this the bank remains bearish on gold with 2015 estimates between the range of USD 1,075-1,100. (RTRS)

Russia has threatened that it could alter it's stance on the Iranian nuclear talks in response to pressure from the EU and US over its seizure of the Crimea, according to the Russian deputy foreign minister Ryabkov. (BBG)

BOFA 2014 lowers average 2014 copper price forecast by 2.7% to USD 6,826/T. (RTRS)
- Raises its 2014 average gold price forecast by 13% to USD 1,300/OZ.
- Lowers its 2014 average platinum price forecast by 8.9% to USD 1,554/OZ.
- Raises its 2014 average silver price forecast to USD 20.80/OZ.
- Lowers its 2014 average palladium price forecast by 2.6% to USD 792/OZ.

* * *

The full overnight recap from DB's Jim Reid

You may think the Fed meeting last night was the most important event in the last 24 hours but some might say it was the annual UK budget. In particular there was a 1 penny drop in the price of a pint of beer. So if you're in London then from now on for every 480 pints you drink you get one free. Anyway this means nothing to me today as I'm currently about to board a flight today to Vienna on the first flight out of Heathrow (6am). I was in bed pretty early last night but not before I had a chance to digest the fairly hawkish FOMC meeting even if Yellen did try to sound a bit more dovish in the conference than the results from the committee's collective interest rate guidance. We'll go through the exact details below but it does seem that the Fed are getting more confident in their forecasts and as such are paving the way for earlier interest rates rises. Indeed Yellen did say that the definition of the "considerable time" that may pass between ending QE and the first rate rise could mean “six months or that type of thing”. So the risk is increasing that the Fed may raise rates in little more than 12 months time even if she maybe made that comment off the cuff.

Our positive view on credit in 2014, particularly for H2 has been based on a much slower withdrawal of liquidity than that currently implied by the Fed. As such we have to seriously think about whether to get more defensive on the asset class or whether to agree with the Fed that growth will come back strongly and take the view that this will trump all liquidity concerns. To be fair we did say that H1 would be volatile as expectations about tighter monetary conditions could first intensify. However we felt that by H2, either markets would wobble on this or growth wouldn't come back as strongly as expected and more benign Fed conditions would subsequently return. However it doesn't appear like the Fed will turn as easily as we thought. We'll be publishing an update to our credit view over the next few days so watch this space.

On to the full details of Yellen's first meeting and press conference. As was broadly expected by markets, the Fed continued with its $10bn/month QE taper and shifted away from its quantitative forward guidance. What was less expected however, was the Fed’s hawkish turn in the form of its upward shift in rate expectations and lack of emphasis on qualitative guidance. In terms of rate expectations, 13 of 16 Fed officials said they expected the Fed to raise rates in 2015, up from 12 of 17 officials in December. 2015 median rate expectations were 1.00%, up from 0.75% previously in December. More significantly, the 2016 median expectations jumped to 2.25% from 1.75% in December. In terms of the revamped forward guidance, the Fed did say that its “assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments”. Based on this assessment the Fed think its “appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends” especially if inflation runs below 2%. As we touched on above, in her press conference, Yellen was asked to define what constituted a “considerable time” period to which she replied around six months. Markets took this to suggest that a first rate hike would occur around March 2015, assuming of course that QE ended in the fall this year. Yellen qualified her assessment of what constituted a considerable period by saying that “it depends on what conditions are like”. Despite all this, Yellen maintained her dovishness with respect to several labour market indicators such as the share of long-term unemployed which she thought was still exceptionally high. In terms of wage inflation, Yellen said wage increases are running at very low levels and right now “it’s certainly not flashing”. Only one FOMC member dissented (Kocherlakota) who said that the revised forward guidance weakens the credibility of the FOMC’s commitment to return inflation to the 2% target.

In terms of the market reaction, the Dec16 Fed Funds contract spiked by around 20bp to 1.82% (up a further few bp overnight). With the removal of quantitative guidance, the front end of the UST curve underperformed and curves bear flattened. The 3year UST yield added 13bp though it did rally a bit from the post-FOMC highs and the 10year part of the curve finished Wednesday 10bp higher at 2.773%. In terms of equities, the S&P 500 traded down to a session low of -1.2% but equities found some support towards the end of Yellen’s press conference and the index managed to claw back some losses to close at -0.61%. Unsurprisingly, the yield sensitive sectors such as  utilities (-1.46%) did poorly, as did gold miners (-3.05%) following the 1.9% drop in the precious metal. There was some focus on the EM side of things, given the sector’s jitteriness of late and we saw a number of higher yielding EMFX bellwethers such as BRL (-0.68%) and MXN (-0.96%) reversed earlier gains against the USD. Local LATAM rates markets also came under pressure as investors favoured USD assets (USD index +0.73%).

This morning we are seeing continued weakness in most risk assets but there has been some divergence which we should highlight, as well as a couple of stories from China worth mentioning. The Nikkei opened around half a percent firmer, as a stronger USD spurred gains in the USDJPY cross. But Japanese equities have given up those gains to trade down on the day (Nikkei -1.0% as we type) dragged lower by the yield-sensitive real estate and banking sectors. The more EM focused indices including the KOSPI (-0.9%) and HSCEI (-1.2%) have recorded losses as well. In China, there are three things worthy of noting overnight. Firstly, Chinese equities (+0.2%) are outperforming today underpinned by news that two domestic listed property developers (Tianjin Tianbao and Join.In Holdings) have received approval by the government to issue more shares. These are the first government share-sale approvals to the property development industry in four years which some are seeing as a shift in official policy towards looser controls on the real estate industry. This could also help to alleviate the funding stresses for some smaller property
developers. The State Council also released a statement yesterday saying that it would accelerate the rollout of measures to expand domestic demand.

Secondly, both the CNH and CNY continue to sell off (both are around 0.3% weaker today against the USD) and the PBoC again has set a weaker CNY fix today (6.1460 vs 6.1351 yesterday) with the renminbi now at 12 month lows. Thirdly, in keeping with the continuing flow of corporate default headlines from China, domestic newswires are reporting on the possible bankruptcy of the largest steelmaker in Shanxi, Highsee Group, which failed to repay bank debt of RMB3bn or around US$480m last week (21st Century Biz Herald).

Meanwhile, gold (+0.3%) and 10yr UST yields (-3bp, 2.74%) have unwound some of their losses from yesterday. With all the focus on the FOMC and China, it seems that the developments in Ukraine and Russia have taken a back seat in the last 24 hours. Nonetheless, there are a few interesting developments including a statement from Russia’s deputy prime minister Ryabkov that Russia could alter its position on Iranian nuclear talks in response to pressure from the EU and US over its annexation of Crimea (AFP). The Ukrainian interim PM maintained overnight that Crimea is Ukrainian territory though this comes after Ukraine’s National Security Council said it would withdraw military forces from Crimea in an attempt to deescalate the situation. Meanwhile, the Ukrainian finance ministry said that it would honour payments on a $3bn loan that it received from Russia in December. President Obama mentioned late yesterday that the US won’t take military action in the Ukraine.

Looking at the day ahead, the focus returns to US data including jobless claims, February existing home sales and the Philly Fed survey. The latter is expected to bounce back from -6.3 in February to +3.2 in March.

 

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Thu, 03/20/2014 - 07:24 | 4571602 GetZeeGold
GetZeeGold's picture

 

 

Our fiat is the bestest!

 

Act now and we'll send them to you hot off the printer....signed by Janet herself.

Strict limit of a billion per customer.....unless you say pretty please.

Thu, 03/20/2014 - 07:27 | 4571615 smlbizman
smlbizman's picture

its nice to see everything is back to normal....the pms took their regular early morning shit...

Thu, 03/20/2014 - 07:30 | 4571619 negative rates
negative rates's picture

Da plane boss, da plane.

Thu, 03/20/2014 - 07:44 | 4571635 imaginalis
imaginalis's picture

China is winning the currency war

Thu, 03/20/2014 - 07:48 | 4571640 GetZeeGold
GetZeeGold's picture

 

 

As long as we keep funding their gold habit....I don't think they'll really care one way or another.

Thu, 03/20/2014 - 07:53 | 4571653 eclectic syncretist
eclectic syncretist's picture

The reason no one seems to understand the Fed is because they are still believing the lies that the Fed is interested in helping the economy more than they are interested in helping the banks parasitize everyone else in the world.

My interpretation is that they are going to try to quit QE and make the banks mo money by increasing the spread between what they charge the banks and what the banks charge their debtors.  In other words, they want bonds to sell off.  Additionally, the banks will then be able to take millions of more homes from those who have ARMs.

Thu, 03/20/2014 - 09:02 | 4571824 LawsofPhysics
LawsofPhysics's picture

Yes, my thinking is similar.  Like any private bank, The Fed will do what is best for it's owners and shareholders and it has a lot of paper to sell.

And by God, someone will buy all that paper (even if it means starting WWIII).

same as it ever was...

Thu, 03/20/2014 - 07:48 | 4571642 Ghordius
Ghordius's picture

explain to me how winning a currency war looks like. serious question

Thu, 03/20/2014 - 08:50 | 4571778 LawsofPhysics
LawsofPhysics's picture

Right, I'll answer that "serious" question when you answer this one-->  Name one society/currency that collapsed/died because their purchasing power became too strong.

 

(hint: there is no answer to either question as that which cannot be sustained, won't be)

Thu, 03/20/2014 - 09:01 | 4571811 Ghordius
Ghordius's picture

and all those who claim that the bad, hard, evil EUR is killing, starving, strangulating whole countries like Portugal, Italy, Greece, Ireland etc. etc.?

and Dr. Krugman? he is a nobel laureate that claims that the EUR has way too much purchasing power, and should be broken up

what I know is that Yellen is tapering and Draghi is easing

(which means that the FED is buying bonds in the tune of dozens of billions every month, yet less than before, and the ECB's balance sheet is steadily shrinking, though those are only facts, not market-moving opinions)

Thu, 03/20/2014 - 09:04 | 4571830 LawsofPhysics
LawsofPhysics's picture

It's all about maintinaing power and control over real resources, always has been.  So far, they are doing the best they can.

Life is hard, always has been, get the fuck over it.

Thu, 03/20/2014 - 07:50 | 4571648 Cleetus
Cleetus's picture

Considering their opponent, not surprising

-Cleetus

Thu, 03/20/2014 - 08:31 | 4571720 TideFighter
TideFighter's picture

Anyone with a napkin and a pencil knows damn well Yellen can't raise rates before mid-term elections.

Thu, 03/20/2014 - 07:19 | 4571606 Cognitive Dissonance
Cognitive Dissonance's picture

The USD. The Charmin of fiat toilet paper.

Thu, 03/20/2014 - 08:23 | 4571704 LawsofPhysics
LawsofPhysics's picture

Indeed. What don't people understand about "ALL paper going to ZERO"?

Thu, 03/20/2014 - 07:24 | 4571610 Josephine29
Josephine29's picture

Did Janet Yellen deliberately set out to undermine the Chinese economy or did she do it by mistake?

One impact will be of holdings of US Treasury Bonds by nations such as China as they are usually shorter dated as in the ones which fell the most! Also over the past 2/3 weeks I have been discussing the way that the Yuan -which was supposed to be rising- is now falling and we have seen another new low today at 6.23 versus the US Dollar. So the echoes are reverberating around China and the price of Dr.Copper is reflecting that. After yesterday’s sharp rally which was very reminiscent of the sort of rally you get in a bear market it has fallen back to US $2.93 for the May 2014 futures contract. The Hang Seng China index is now in a bear market as it has fallen 21% and to further add to China’s woes Dominique Strauss-Khan has announced a plan for a hedge fund to invest in it!


http://www.mindfulmoney.co.uk/wp/shaun-richards/the-confusion-over-futur...

I guess we will soon see the Chinese respond in what could become a game of tit for tat.

Thu, 03/20/2014 - 07:34 | 4571621 Headbanger
Headbanger's picture

All the recent political, military and economic tensions we've had with China and Russia are intentional in order to cut off these former enemies from the global economy in order to get good paying jobs back in the Western nations as we now realize the mistake we made in allowing them to flood the global economy with cheap labor and resources.

Perhaps moar important is the Western nations see that we have only aided in funding the military build up of China and Russia by opening trade with them thinking they would become new markets for our goods and services.

Thu, 03/20/2014 - 07:45 | 4571638 Ghordius
Ghordius's picture

someone wants to "bring good paying jobs back"? I see different intentions. historically, this cry came from the left side of the political spectrum, btw

in the US, this would be the Dems, in the UK the Labour party, in the eurozone the various Social Democrats

what I see is a lot of people ready to foam from their mouths against any such suggestions, chanting "free trade" and shouting against "protectionism"

what I also see is two gigantic trade pacts being set up, one of them targeted at the EU with the intention of having us eating unlabeled GMO food from the US

Thu, 03/20/2014 - 08:17 | 4571674 thestarl
thestarl's picture

I think we're beyond all the bullshit here Headbanger time of consequences now.

Thu, 03/20/2014 - 08:28 | 4571711 LawsofPhysics
LawsofPhysics's picture

You are an idiot.  India and China alone have almost half the world's population (and hence the half the world's real economy).  This and has always been about power and control over resources, including the human kind.

Slavery never ended and the idea that the people of the earth working for chinese wages is the corporate owner's dream.  Especially when they can force the same slaves to bailout their failed companies...

Thu, 03/20/2014 - 07:34 | 4571626 Goldenballs
Goldenballs's picture

These people do nothing by mistake.They are the huge mistake and the world is paying more for it everyday.

Thu, 03/20/2014 - 07:25 | 4571612 wmbz
wmbz's picture

It all looks very bull-shit-ish! Rally on!

Thu, 03/20/2014 - 07:27 | 4571616 BandGap
BandGap's picture

OK, going back a few years ago.......the collapse (albeit slowly) of other world currencies and the flight to the US dollar was Act 3 in the four act play, correct? Mind you, we're just into this scene but I do definately remember this. Part of this scene is everyone cranking up their printers, correct?

 

Thu, 03/20/2014 - 07:28 | 4571618 Goldenballs
Goldenballs's picture

The sooner this totally blows up the better,the 95% are bailing out the 5% who should be totally bankrupt since 2008.Paper Gold not worth a toss in the long and short term,shares- what price in a collapsing world economy,fiat - heading back to the recycled paper price and total BS from the media and establishments worldwide.

 

Keep Stackin they are loosing control of everything.

Thu, 03/20/2014 - 07:40 | 4571630 disabledvet
disabledvet's picture

The USA is planning a direct "dash to Moscow" if Putin loses control of the situation or he is overthrown. Everything else is just noise. Move along...

Thu, 03/20/2014 - 07:45 | 4571637 negative rates
negative rates's picture

Well their resetting the clocks in the east, so be an hour early if you want to be there on time.

Thu, 03/20/2014 - 07:53 | 4571652 Global Hunter
Global Hunter's picture

that dash to Moscow may prove difficult for an army that over the last 12 years hasn't been able to defeat goat herders with a few Toyota pickups in Afghanistan.

Thu, 03/20/2014 - 07:56 | 4571655 Ghordius
Ghordius's picture

...with logistic help from... Russia. remember how Pakistan stopped being forthcoming?

everything our troops (yes, plenty of europeans there, too) consume in Afghanistan passes since quite a while through... Russia

Thu, 03/20/2014 - 08:43 | 4571755 Laughing Stock
Laughing Stock's picture

Wurd!

 

USA is a disaster...bunch of incompetent fux.

Thu, 03/20/2014 - 09:05 | 4571834 1stepcloser
1stepcloser's picture

Long as the poppy fields need security, we'll be there... goat herders or not...

Thu, 03/20/2014 - 08:23 | 4571703 thestarl
Thu, 03/20/2014 - 07:41 | 4571631 Big Brother
Big Brother's picture

as numerous mega levered FX traders, who had bet on continued CNY appreciation are quietly carted out the back door.

I would imagine these levered FX traders are in Hong Kong or Singapore; and, more like, "quietly carted off the street".  I cannot find a single brokerage offering the USDCNY pair.  Maybe by proxy, could it be a good time to go long the USDHKD?

Elsewhere, gold and other commodities continue to be hit on rising fear the plunging CNY will accelerate the unwind of Chinese Commodity Funding Deals.

-Damned my last week's purchase of a GDX.

Thu, 03/20/2014 - 07:49 | 4571641 Laughing Stock
Laughing Stock's picture

 

 

"as numerous mega levered FX traders..... are quietly carted out the back door."

...or jump to their well-deserved, and long overdue, deaths

 

Fuck'em All!

Kill'em All!

Thu, 03/20/2014 - 08:44 | 4571759 LawsofPhysics
LawsofPhysics's picture

As it should be. +1000

Thu, 03/20/2014 - 08:22 | 4571697 dcau1
dcau1's picture

Going long USDHKD might not be the best bet considering the HKD is pegged to the US Peso.

Thu, 03/20/2014 - 07:42 | 4571632 RottenAlpha
Thu, 03/20/2014 - 07:50 | 4571645 GetZeeGold
GetZeeGold's picture

 

 

When everything of actual value goes to zero.....you can dump it in my back yard......it's a pretty big yard.

Thu, 03/20/2014 - 07:53 | 4571650 jubber
jubber's picture

The test will be whether the US$ can hold this bounce, things get very interestingif it starts to sell off again, and rates rise at the same time...

Thu, 03/20/2014 - 07:52 | 4571651 fonzannoon
fonzannoon's picture

"Naturally, alarm bells were ringing overnight. ZeroHedge declared a yuan collapse, with a rather scary explanation of how for every 0.1 move in USD/CNH, corporates will lose $200 million a month. ZeroHedge says as chains in the carry trades break, we’ll see copper falling more (it certainly is now), credit tightening, real-estate prices dropping and basic pandemonium. But enter The Fly over at iBankCoin, who says relax already. While it’s true that over a one-to-six-month time frame, the yuan is a lot weaker versus the dollar, over the longer term, it’s mere “child’s play,” says The Fly.

In the end, The Fly says the yuan carry-trade unravel goes nowhere unless there are events beyond China’s control that turn it into a rout. “Pardon my calmness, but this isn’t a collapse. A move from $6.05 to $6.20 doesn’t even warrant a headline.”

Thu, 03/20/2014 - 11:10 | 4572338 Dollarmedes
Dollarmedes's picture

“Pardon my calmness, but this isn’t a collapse. A move from $6.05 to $6.20 doesn’t even warrant a headline.”

The Fly is half-correct. The thing to watch was always what happened after $6.20, which is where we are now.

I was thinking about what would happen...how would an unwind manifest?

1) After years of profiting from the carry, I doubt specs would unwind their positions on a one- or two-day blip in USD/CNY. What if it reversed itself (I mean, not that it's going to, but hope springs eternal)? Either the number would have to stay at, say, $6.25 for a week or the number would have to increase further to $6.30 and beyond to signal selling. The farther we move away from the $6.20 point, the more certain it becomes that this isn't a transient event.

2) Contrary to #1, there will be an incentive to be the first ones out, before the unwind sinks the commodity prices. Some nervous nellies will take that route.

3) Reinforcing #2, some Chinese business owners apparently have a big need for money right now, hence the selloff in property overseas. These people would've sold their commodities just because they need the money

 

So I expect the unwind to come at maybe a geometric or exponential rate as time goes by. There's still a few days left to halt it if *someone* intervenes. But I don't see who that could be.

 

*edit*

4) Investor confidence/psychology: I've had the feeling for a while that we're waiting for the shoe to drop, "2014 will be a bad year...maybe historically bad." If the Chinese investor has the same feeling, this will be another factor in hastening the unwind.

Thu, 03/20/2014 - 07:59 | 4571659 fonzannoon
fonzannoon's picture

Also....anyone else find it amazing that we have gone from ""A global currency that is now backed by the second largest hoard of gold in the world, and targeting to be over 10,000 tons in a few years, and is supported by the fastest growing "developing" economy in the world, $14 trillion in deposits rising at an exponential pace, and well over one billion in population."

to "The Chinese Yuan is collapsing" and  "Gold will most certainly get thrown out with the bathwater."

 

No one else scratching their heads? It's harder to connect these dots than the ones the fed puts out.

Thu, 03/20/2014 - 11:16 | 4572405 Dollarmedes
Dollarmedes's picture

Bubbles keep inflating...right up until they don't. The end usually comes suddenly. That seems to be the way it's always happened in the past.

I can't think of a single bubble that deflated slowly. Can anyone else? Has there been even one?

I guess that would be the "soft landing" everyone keeps talking about.

Thu, 03/20/2014 - 08:32 | 4571722 medium giraffe
medium giraffe's picture

It's hard to see exactly how the RMB is 'collapsing'.  It hit an all time high against the USD at the start of the year, is still higher than it was at any point in 2012, and is going through a cyclical fall into mid-summer. Meh.

 

Thu, 03/20/2014 - 08:47 | 4571771 LawsofPhysics
LawsofPhysics's picture

^^^this.  paper money is credit/debt.  All credit is built on faith and the number of people willing to exchange the fruits of their labor with you for that paper.  How many asians/indians are there in the world again?

NO FAITH=NO CREDIT.

Hedge accordingly.

Thu, 03/20/2014 - 08:48 | 4571773 Freewheelin Franklin
Freewheelin Franklin's picture

Hey Joe! Yuan hand relief? 

Thu, 03/20/2014 - 09:02 | 4571825 orangegeek
orangegeek's picture

Many indications that the USD was near a bottom - from March 10

 

http://bullandbearmash.com/chart/dollar-daily-closes-flat-candlesticks-s...

 

Should see Euro fall and USD climb.  Yuan just converts to USD and is not part of the USD index.

Thu, 03/20/2014 - 09:10 | 4571848 Bastiat
Bastiat's picture

 

 

 

"Elsewhere gold and other commodities continue to be hit"

 

Gold is not a commodity.

 

 

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