A Shocked Wall Street Reacts To China's "Surprising" Devaluation
Less than a month ago, and just days after the Yuan was finally inducted into the IMF's hall of reserve currency fame, the Chinese Foreign Exchange Trade System, a part of the PBOC, made it very clear that what was about to happen would not be pretty, when it announced - in a statement which clearly everyone ignored - that going forward it would index the relative strength of the CNY not to the USD but the a basket of currencies (against which the USD to which it is pegged has been soaring).
At the time we explained that "what this means is that for anyone who thought the Yuan devaluation is over, now that the currency is at the lowest level relative to the dollar since 2011, the reality is that the devaluation relative to everyone else is only just starting.
And, with the PBOC's warning that the "RMB is relatively a strong currency among the major international currencies" the real devaluation is, just as we warned four months ago, about to be unleashed. Expect at least a 15% reduction in Trade-Weighted terms in the coming weeks and months, especially if the Fed hikes.
One month later, it appears that not a single person heeded this warning, and now that the PBOC has unleashed a whopper of a devaluation round...
... precisely as we warned a month ago, everyone is panicking. So, more for comic relief than anything, here are Wall Street's reactions to last night's latest "shocking" PBOC devaluation, which nobody could have possibly seen coming.
Sean Callow, Sydney-based FX strategist at Westpac:
- Today’s fixing was a big surprise, and impression is that upside risks to USD/CNY have grown
- Allowing the yuan to trend lower against the dollar this year is consistent with the need to loosen domestic financial conditions to support growth
- PBOC may not tolerate widening CNY-CNH spread for long since it will encourage capital outflows
Tommy Xie, Singapore-based economist at OCBC:
- PBOC’s actions are conflicting: there was suspected intervention yesterday and sentiment stabilized, but it set such a low fixing today
- PBOC may be taking dollar demand into consideration: usually at the start of a new year, retailers’ and corporates’ foreign-exchange requirements are higher
- Central bank may be using the fixing to convey a message to the market that it doesn’t want the RMB index to be too strong
Zhou Hao, Singapore-based senior economist at Commerzbank:
- Lowered-than-expected yuan fixing today shows authorities will tolerate more weakness for the time being
- Will help loosen monetary conditions; still, risk of capital outflows could increase concurrently
- Increasing outflow pressures may rule out excessive drop in yuan
Liu Dongliang, Shenzhen-based senior analyst at China Merchants Bank:
- Yuan depreciation this week aims to stabilize the yuan index amid a stronger dollar environment
- Expects 5%-10% depreciation by end of the year, though this depends on the pace of PBOC’s intervention and health of macroeconomy
So to avoid any further surprise, here is a preview of what happens next: China continues to devalue, and does so aggressively. But don't believe us. Here is what Kyle Bass said over the weekend:
"Given our views on credit contraction in Asia, and in China in particular, let's say they are going to go through a banking loss cycle like we went through during the Great Financial Crisis, there's one thing that is going to happen: China is going to have to dramatically devalue its currency."
His full thoughts here.
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Oh and the AIIB will step in to undercut the IMF. Watch the shock that comes with that obvious end-game move.
I kinda remember the market's reaction to China's last 'big' surprize in August
Apparently Wall Streeters need to read ZH more
that might or might not be a very long term goal. but China is patient and long-term oriented when it's leadership isn't rattled. there is no need for the AIIB to "undercut" the IMF. in fact I would not be surprised to see cooperation among those two bonesaws in the future
Not to mention .... one day China may actually release their real gold holdings, which will be a game changer, and everyone will swear that they never saw it coming.
one day China may actually release their real gold holdings
Or worse, one day the US may release its true gold holdings
Tell them to stop intervening. Their intervening is fucking up our intervening. Not that we are intervening, because officially we have a free market without intervention. All fellow ZH'ers, feel free to intervene with some thoughts on this intervention.
well, I have one intervention. imagine a "producer" of a unique product or service. holding a stock of this stuff, and selling when it thinks the price is too high and buying when it thinks the price is too low
isn't that free market, too? well, that's where central banks are
they are the sole issuers of their currency. it's a monopoly, yes... for that currency. but not more or less then BMW holding a kind of "monopoly for BMWs"
at what point is it really the business of the NY-FED or the US Treasury to tell China how much they ought to print or intervene on their currency?
it's not like Americans are funding their mortgages or debt or paying their taxes in Chinese currency, is it? the matter about it is trade flows. and it's there that the lying starts
The problem is, all the major currencies for global trade are:
1. having their stocks relentlessly expanded.
2. being sold and not bought.
It is a currency war after all.
How can this be good for global trade?
Okay...the slapping down of Gold (Edit..Now Gold Jumped again..this is popcorn day) and Silver has just started...what next? I really want to see this stock market fucking burn. It would just make me gleam to see a 600 to 1200 point down....
Wonder if todays market is why they had Kim Fuck Wing Ding touch off a Nuke....to try and get you to "Look over here..."
I'm taking my cues from the Mexicans on this. After all, it takes Juan to know Yuan.
+1 to ZeroHedge in pointing out what would be obvious, if it wasn't for a legion of "economic pundits" who's jobs are increasingly all about acting surprised
"So to avoid any further surprise, here is a preview of what happens next: China continues to devalue, and does so aggressively"
Given the underlying cesspool that is the foundation of the Chinese economy and economic "miracle", devaluing the yuan isn't a choice; the only question is how to contain the slide.
Like at Popeyes chicken
Get all the fixins' with the combo
Boom
Glad I'm already broke so I don't need to worry bout going broke
Competitive devaluation is a lovely way to fuck savers . Hey buddy, don't worry it is to help the CEOs. You'll. get to the middle class someday....
That's right. Any day Joe the Plumber will open his 60 truck, 5 location plumbing and fixture conglomerate. He would've already, but the 3% tax increase on future rich folk like his future self made it not even worth his time.
True, but lucky Joe the Plumber has a new season of The Bachelor and the SUPERBOWL to look forward to!!!! And don't even get me started about Kim and Kanye's new baby ... can't wait until they grace the cover of People Magazine.
"...the reality is that the devaluation relative to everyone else is only just starting."
http://comstockfunds.com/files/NLPP00000/433.pdf
China will do everything to see to it that the final phase ( plant closings ) happens elsewhere. And the USA will sit idle and just watch it happen.
This took Whore Street by surprise? Then why was the dollar so high yesterday?
These people focus their time on programming algos to "respond" to FedWords and other planted headlines. So of course anything that happens outside of that racket comes as a "surprise"...
"In theory, there's no difference between theory and practice, but in practice, there is."
Carlin would be proud.
CNBC blaming fcking N Korea, because of their recently reported successful bomb tests, so much better, than 'Sat Night Live'....
Would love to short SPG like i did last fall but then took the winnings and went into SDS. Will not allocate additional funds, but shit, SPG is higher now than it was in the fall when i shorted, before today's open anyways. Its got a 160 handle written all over it.
Hey, hey, hey! ADP Employment surprising to the upside! Yeeehaaa! We're back baby! Murica is back in the game..... yes sireeee we are.
sarc/
Perfect impression of Mr. Yellen driving the US financial market bus http://jalopnik.com/this-is-what-it-looks-like-when-you-plunge-over-the-sid-1751195561
Also applies to PBOC, ECB, Riesksbank, BOE, etc., etc.
Walmart is happy and can maybe stock some of its empty shelves now. Bullish falling prices smiley face signs.
They are playing the f*** you game to the US. This is easy to play just make sure the right politicians get speaking fees and consulting fees with them so they will sell out the US.
They already have an undervalued currency but now can even devalue it more.
A smart government would not care and simply place a proportional tarrif on all their goods making the value of their currency what it should be. The same should be said for Korea, Taiwan, Japan and on and on and on.
What everyone will be "surprised" at is the fact that manufacturing has hit a new automation revolution where robots are rapidly replacing people to do work and most everything that is made in China today will be made once again in the US because the freight costs (even though the costs have plummeted) and Chinese theft are not worth the price.
So while the US lost millions of factory jobs to China and the far east, it will gain a million or so high tech jobs with the robotic revolution, which is better than what we have today.
However, China will be faced with massive unemployment and revolutionary unrest.
What's that sound? It seems to be getting louder...
tick-tock, tick-tock, tick-tock
somewhere between 15500 and 16000 we test the august lows. will be interesting show to watch again...
It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
Upton Sinclair
All you China knockers will be in for a big surprise when you learn of the value of some of their recent construction projects. For example...
http://40.media.tumblr.com/2e841281aafd25a3643e642b3085b821/tumblr_o0hud...
Tinky:
Talk about CONspicuous consumption...
Apparently the Chinese haven't read Daniel chapter 3 in the Bible. (Nebuchadnezzar the king
made an image of Gold.)
What's next, all dissenters to the brick ovens?
I can sense Kevin Henry limbering up (to "Rocky" music) for his first ramp of the day, as I write!
THE US is at war...and we are going to loose....
I live on a farm in flyover country; I'm loose and I'm not going to lose.
I'm getting an idea good for the garden in spring: corn that make really good pop corn. Any suggestions where to get the seed?
radioactiveseeds.com?
Nah, probably something that will survive a frack-quake.
BTW, love your avatar.
Skeet...
we are ALL going to lose...
fixed it for you
so Kyle Bass yuan SHORT is working.