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Global Markets Turmoil After China Extends Currency War To 2nd Day - Devalues Yuan To 4 Year Lows
Chinese stocks opened lower, extending yesterday's losses, after The PBOC weakened its Yuan FIX dramatically for the 2nd consecutive day (from 6.1162 Monday to 6.2298 last night to 6.3306). Offshore Yuan fell another 9 handles against the USD after China closed but was hovering at 6.40 as the market opens (now at 11 hnadles weaker at 6.51). Bear in mind the utter devastation in Chinese credit markets that data showed occurred in July, it remains ironic that for the 3rd days in a row, Chinese margin debt balances grew. Before the real fun and games started, Chinese officials once again exclaimed that their data is real (denying any mismatches between GDP Deflator and CPI) as China CDS spiked to 2 year highs. US equity futures are tumbling, bonds bid, and gold bouncing off the initial jerk lower.
PBOC makes some comments (like last night's)...
- *PBOC SAYS NO ECONOMIC BASIS FOR YUAN'S CONSTANT DEVALUATION
- *PBOC SAYS YUAN WON'T CONTINUOUSLY DEVALUE
- *PBOC SAYS MOVE OF YUAN REFERENCE PRICE IS NORMAL
- *CHINA YUAN MECHANISM CHANGE MAKES FIXING RATES MORE REASONABLE
And then there is this (from Xinhua):
China's state-owned news 4-year lowsagency Xinhua said: "China is not waging a currency war; merely fixing a discrepancy."
"The central parity rate revision was designed to make the yuan more market-driven and in line with market expectations," it said in a comment piece published on its web site.
"The lower exchange rate was just a byproduct, not the goal."
The "one-off" adjustment has now become two... some context for the size of this move...
- *MNI: CHINA PBOC WED YUAN FIXING LOWEST SINCE OCT 11, 2012
Onshore Yuan breaks above 6.41 - trades to 4 years lows against the USD...
US markets are reacting dramatically...
US Treasury yields are collapsing...
Offshore Yuan is collapsing...
- *CHINA SETS YUAN REFERENCE RATE AT 6.3306 AGAINST U.S. DOLLAR
- *OFFSHORE YUAN TUMBLES 1.6% AFTER PBOC SETS FIXING LOWER
War is begun... (via Ransquawk)
Offshore Yuan has been leaking lower since China closed...
Yesterday was mixed with the broadest indices all ending in the red...
- *CHINA'S CSI 300 STOCK-INDEX FUTURES FALL 0.8% TO 3,982.8
- *CHINA FTSE A50 STOCK-INDEX FUTURES EXTEND LOSSES TO 2.6%
But...
- *SHANGHAI EXCHANGE MARGIN DEBT RISES FOR THIRD DAY (will they never learn?)
- *CHINA STATS OFFICIAL DENIES MISMATCH OF GDP DEFLATOR AND CPI (if you just keep saying evcentually everyone will believe)
GDP deflator index reflects prices of all final goods and services produced in China, much broader than that of CPI which only reflects consumer prices, Xu Xianchun, a deputy head at National Bureau of Statistics, writes in an article in People’s Daily.
We think they do protest too much.
China Credit Risk surged to 2 year highs...
* * *
There’s been plenty of talk about what China’s "unexpected" (to everyone but us, apparently) move to devalue the yuan will mean for the country’s flagging economy and for Beijing’s efforts to promote the internationalization of the renminbi via a bid for SDR inclusion, but as Chinese stocks open for trading on the "day after" (so to speak) we thought it worth previewing what the move might mean for Chinese equities.
We present the following breakdown from Goldman with the obvious caveat that, as Tuesday’s farcical data from the PBoC on loan growth in July made abundantly clear, when it comes to China’s equity markets, one must always factor in the plunge protection "national team."
* * *
From Goldman
Our framework to think about FX depreciation on equities - Three main transmission mechanisms
We try to assess the potential impact of RMB depreciation on the equity markets through various micro and macro channels. In general, we think the macro-to-market transmission mechanisms (especially an unexpected one as in this case) could be summarized as follows:
Translation exposure—Universally, offshore-listed Chinese companies’ book values and earnings (if CNY-denominated) will be deflated when they are being converted into HKD or USD for financial reporting purposes. Lower book values and earnings would increase the P/B and P/E ratios, effectively making Chinese companies less attractively valued to USD-based investors.
Transaction and economic exposure— Assuming other non-USD currencies did not move along with the CNY, export-oriented companies would likely benefit due to a more competitive exchange rate and a mostly RMB cost base.
Impact on equity risk premium (ERP)—Using the exchange rate as a policy tool to manage the cycle should render a higher level of domestic monetary policy independence for policymakers and should partly ease investor concern about further domestic imbalances (e.g. over-investment, overcapacity, debt buildup, etc). Barring an abrupt depreciation case, the higher FX flexibility may shore up investor confidence on China's short-term growth outlook, thereby helping to suppress the currently-high equity risk premium, which seems to have priced in significant macro and micro growth risks, in our view.
That said, the consequential uncertainty regarding capital outflows could offset some of the positives.
Impact on equities: Not all depreciations are created equal
The abovementioned transmission mechanisms do not take into account the magnitude of and the speed at which the depreciation may take place. We aim to better quantify the market ramifications based on the following hypothetical scenario:
- One-off reset for now, and moderate depreciation leading up to and post the SDR decision: Assuming the RMB doesn't significantly further depreciate by the end of this year, we believe the macro growth impact will be modest, and the ramifications will likely manifest primarily in the stock markets through the translation and transaction/ economic channels.
At the stock level, we identify stocks which may be disproportionately impacted from a few different angles and approaches:
1) GS/GH covered stocks for which our analysts see highest positive and negative earnings sensitivity to 1% of RMB depreciation vs. the USD
2) Export-oriented companies (not only GS covered names) which have high US revenue exposure
3) Stocks (not only GS covered names) which have relatively high USD-denominated debt and financial leverage
(ZH: And here's a look at the bigger picture based on historical episodes of depreciation):
* * *
And by the look of it, FX carry traders are expecting more volatility to remain the norm... Last time we saw this - in 2011, it too a year for vol to normalize...
- *VOLATILITY OF YUAN FIXING COULD RISE TEMPORARILY: PBOC
As mentioned earlier 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.
Charts: Bloomberg and Goldman Sachs
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Turmoil? What turmoil?
Read closely, B T F D
now is the time for the real action, high range up swing price driven madness
CANADIANS, RUN FOR YOUR LIVES!
This will turn Vancouver into BIG CHINA TOWN even more than it is!
As Jim Rickards comments, the Smart Money is already out of China. Now you are in for a run of the Chinese Dumb Money to push through the blow-off top...
He gives his non LameScream views in the first segment of this:
(a ZH Must Watch!!):
http://www.cbc.ca/player/News/Business/The+Exchange+with+Amanda+Lang/ID/...
His closing observation : next year the Fed shoots back in the Currency War and devalues the USD. And from a tweet:
"Currency War I lasted 15 yrs, 1921-36. CW2 lasted 20 yrs, 1967-87. CW3 started in 2010, just 5 yrs old. Has far to run."
Do these moves by china count as whammies? It would be a hell of a triple if euro decided to follow suit.
'Flush 'em out' .....wait, I'm comiin too
Ooops there goes another waterbug. Asian markets all down again at this time around 10pm pst
What's all the fuss about...Federal Reserve sets interest rate of US near zero for 5+ years..why? because it is good for our economy (that is the Feds rationale)...China is adjusting their currency exchange rates...why... because it is good for their economy (that is China's rationale)...these actions are just another of many market forces... so what does it all mean? well ask the boys on Wall Street...that's why we pay them the big bucks!
LOL a mere 2% devaluation has caused such a ripple despite all the media aresenals that China is imploding. Amazing too that the mental block in not accepting that this is a necessary fix to reflect its real economy (one of slowdown and high domestic debts). PBOC has in the past months given this guidance in their language and style and as such not all traders in carry trades have been dripped. I surmise that the losses mainly borne by those who have stuck with the snake oils that were peddled by the inferior Money Managers. These wealth managers groaning in pains continue to see China's move through their own deformed lenses and latch out when the markets do not deliver to their visions.
Mabbee the cabalSatanists did not expect this kinda move from China.
Have U.S. P8's been buzzing the sand castles lately...? Just checkin'. Wake me up when a carrier group is headed towards the sand castle region, under the pretense of freedom & democracy being threatened...
incidentally Chinese SOE have turned agressive sellers of commodities
Nice! First say you can't sell your Chinese shares and then devalue the hell out of them. Great strategy!
Fed would have never raise rates anyway. They would like to have something big happen for them not to raise rates and it is happening. So they can always say we would like to raise rates but you see that and this happpened we cant. QE 4 coming however if ? know this evil people a little bit they will cover it in a different name ( I would call IT MT MONETARY TEASING rather than QE ) or no official declaration of it this time around.
Just a word of advice to the FED and the IMF. Don't take a China Girl to a dance and then never offer to have one dance with her. Her scorn will destroy alot of here in the west you arrogant fucks!!
Just a word of advice to the FED and the IMF. Don't take a China Girl to a dance and then never offer to have one dance with her. Her scorn will destroy alot of here in the west you arrogant fucks!!
These 4 year lows are still trivially under the highs. A tempest in a teapot, or a writer in need of atttention.
Surely some of the younger geezers here must remember early in the beginning of the new millennium when George 'whiner' Bush and his crooks of Treasury bitterly complained a few times a day that the Chinese were keeping the value of the yuan too low and that they should allow it to appreciate (to make American exports more competitive with the Chinese).
Then some time around 2011 or 2012, the Chinese actually let the yuan appreciate and both China and the US seemed happy.
Until February 2014 and the Coup de Noodleman. The Chinese started dropping the value of the yuan literally a day or two after Yanukovych fled Kiev.
Now Wall Street is whining again. Don't they know?
You can't have a strong yuan and slurp a cup of noodleman.
Dee va lu
Lots of swans around today. Can't see many white ones though
Wall Street's holiday season comes to an abrupt end.
Margin call, gentlemen.
Why you can't expect us to...
You know the rules of the exchange Mr. Duke. All accounts to be settled at the end of the day's trading, without exception.
You know perfectly well we don't have 394 million dollars in cash.
I'm sorry boyz. Put the Duke brothers' seats on the exchange up for sale at once. Seize all assets of Duke & Duke Commodity Brokers, as well as all personal holdings of Randolph and Mortimer Duke.
My God. We're ruined!
This is an outrage, I demand an investigation...
Europe is getting a nice dry shave today with both the CAX and DAX approaching down almost 3%.
You stupid, stupid fucks.
I mean YOU, you goddamn' Chinese.
You make "the deal of the century" denominated in yuans with the Russians and then you turn around and devalue the yuan.
You want the yuan to be a global reserve currency but you devalue the yuan.
Of course, when you devalue the yuan, you also give away more stuff for free to the Americans and the Europeans who think nothing well of you. They are your ENEMIES for fuck's sake!
Not long ago, they waged war on you in order to force you to buy and consume drugs, you morons (the opium wars).
I mean the Chinese.
Fuck you Chinaman. You were really nothing after all.
You'll probably sell all your gold and silver to JP Morgan for the privilege of a pat on the back and the American banker dick up your collective asses.
Here, take this. (offers MM a Valium)
There are two ways to increase your holdings in a tradable asset:
1) you can put in a market order for it and watch the price of it go ballistic (currency wars) or
2) you can drive the price of those assets down with phony selling along with Wall Streetery rumors and then buy up the same amount for half the price.
If you are the astute investor you seem to be, MM, let me show you a dozen or so telephone poles i'm selling. They carry cable and internet to the richest people in town.
You won't be sorry.
China just wants Boeing to relocate to a western ghost city... any western ghost city... take your pick.
Amazing so much whining abut the RMB.
Just a couple of real facts
Dollar rise against 58 major currencies average
2013 6.51 %
2014 5.50 %
2015 7.73^% So far
Compounded Jan 1at of year to date
2013 7.36 % per annum to right now
2014 8.02 % ""
2015 12.29 % ""
Compounded together Jan 1st 2103 to now 18.28 % rise against those 58 currencies
And if you want to see how the dollar is accelerating since
May 22 15 14.31 % per annum to now
June 25 th 15 17.66 % ""
Aug 1 st 15 22.87 % ""
All against average of 58 currencies.
And the RMB which was .34 % stronger than the dollar on 1st Jan 2013 has been in lockstep with the dollar.
Any fucking monkey apart from that faggot shit for brains monkey in the Whitehouse and every criminally stupid twat like Krugshit and the fucking MSM pom pom boys could see it coming.
The timing is perfect, every fucking moron in the US is fixed on what the silly rancid yellen cunt and her criminal cohort are planning as far as a totally inconsequential rise in their ponzi base rate, and China just proved that the wankers at the fed are clueless.
Now after spending $21 trillion dollars on factory's,, not fucking sweat shops, We are talking state of the art, textile steel, robotics, and robotized factory's, roads, cities, bridges, tens upon tens of thousands of miles of high speed rail, 70 million luxury apartments, airports, the biggest malinvestment in the history of man between 2012 and 2014, did anyone seriously think the Chinese were going to dump it all.
With the RMB even after a 4 % fall and STILL over 14 % above its next 58 currencies, did anyone think this could be a one time adjustment.
Did anyone seriously think that after planning for years and now building these trillions of $ worth of new state of the art factories, that somehow half way through a multi billion development they would just abandon them. Along with all the sales and productivity and jobs.
For fucks sake.
Just to keep parity with the scammed manipulated ponzi fraud dollar run by GS and JPM and the criminal scum at the Fed to thieve from Joe Pub to hand over to the neocon fuck witted warmongers in the state dept.
When china knows the war they are planning is against China itself.
Those thousands of factories all state of the art having 21 trillion lavished on them along with the rest of the new shiny cities etc are going to get used to enable all the sweat shops to get closed down.
And they now want their customers back, And those customers are the ones with the strongest currencies.
Guess who that is, with the strongest currency in the world and every EM market buying it at ever frantic pace to cover their asses with all the fucking debt they have.
Yep good ole US of A.
So the ponzi dollar is doomed to keep rising and the RMB will go back to 2013 parity with the rest of world, and the more they do so the faster the $ rises.
And these shiny new factories costing billions are coming on stream every day and are gonna keep on a coming.
So guess whats coming too as the sweat shops get retired, Yep, cheaper and cheaper China toys, with a cheaper and cheaper RMB.
Are you ready boys and gals for the 63" TV with all bells and whistles coming soon to Walmart for $39.99 and a $1 down and a year to pay balance at just $1 a week so even the fucking trees will be festooned with them so the homeless can watch fucking obummer and his fagot crew explain how well they just did and with every wall in every house covered in them cos they are cheaper than wallpaper
Think I'm joking, 43" connected slim line Chinese TV are already in Manila at under $150, and this has barely started
USA manufacturing, using 70's and 80's factories are going to get crushed.
Fuck all capex spend for years cos it needs to go to fucking Wall St and fucking share buybacks and dividends.
So whats left, China modernized to the fucking gills, and the USA sliding into abject poverty but with a strong ever rising dollar that the fucking sheeple can spend ONLY on Chinese made shit, cos USA made shit apart from being worthless, would cost 50 times as much.
The real question you need to ask yourself is this.
Just what the fuck are the retarded fucks in the Eccles Bldg going to do come September.
You can start by saying fuck off to any idea of a rate rise cos China just got started. At least another 14 % down is coming. And that means more EM buying dollars to buy EM debt off
So the real question is just how the fuck do these dumb fucks plan to devalue the dollar now.
By September, or is that December
Just made me recall that China isn't actually run by the dumbest fucking neocon gangsters so full of shit and think they so clever with their fast buck buyouts and market manipulation.
I know Chinese, they are smart fuckers and they plan long term like 5 years. Fucking fed wankers couldn't plan a fucking good shit on time
I have a very sneaky feeling these fuckers knew all along what they were about. and where they going and they just stuck a fucking bomb in the Eccles Bldg and its exploding right now
yes
Real war -- not currency war -- is a very efficient way of devaluing currency.
The same fuckwads who thought subprime mortgage back securities sold around the world in tranches was a good idea, now believe that, even though the Fed has DOUBLED M3 since 2006, if there are twice as many dollars in circulation, the dollar must be worth twice as much.
Either the government officials of our allies believe the dollar is worth more if more dollars are printed OR the CIA/NSA has juicy blackmail on ALL OF THEM.
LOOK. The currencies are getting the Yellow Flag. Hold your positions, boys.
Thumbs up for the : faggot shit for brains monkey in the Whitehouse
White house or homo-whorehouse?
Btw your words are much more enlightening than the main article , so become a writer for ZH