China

China

There's More To Come - Offshore Yuan Signals Further Devaluation Tonight

Despite 2 significant interventions to stall what is likely an avalanche of wrong-way carry trade unwinds (or perhaps to stop the boat swinging to the other side too much), offshore Yuan has continued to depreciate since China closed and now implies another 1% devaluation is looming (having been up to a 2.6% discount earlier in the day).

Why More Conflict Is Inevitable In The Middle East

We all know how sectarian, religious and political differences have thrown many Middle Eastern countries into chaos and armed conflict. But there is a deeper factor at play which deserves greater recognition: severe water scarcity.

Charting A Decade Of Yuan Moves

China’s central bank has taken global markets by surprise with a historic shift in its management of the yuan. As Bloomberg's Tom Orlik notes, The PBOC also signaled that going forward it would adopt a more hands-off approach to the exchange rate. Given the current direction of market pressure, that likely means depreciation. The yuan has already fallen to 6.3858 at the close of trading on Wednesday afternoon, from 6.2097 at Monday's close — a level last seen in the summer of 2012. In this chart, we map out the history of moves in the yuan in the decade since the PBOC broke the dollar peg in 2005... and all the rhetoric that will now be undone...

Emerging Market Currencies To Crash 30-50%, Jen Says

"[The] devaluation of the yuan risks a new round of competitive easing that may send currencies from Brazil's real to Indonesia's rupiah tumbling by an average 30 percent to 50 percent in the next nine months, according to investor and former International Monetary Fund economist Stephen Jen."

"Severe Correction Or Cyclical Bear" Ahead: Leuthold Major Trend Index Turns Negative

Based on data for the week ended August 7th, the Major Trend Index dropped to a NEGATIVE reading of 0.90, led by declines in both the Attitudinal and Momentum/Breadth/Divergence work. The topping action evident in the MTI and other disciplines is consistent with either a severe correction, or a cyclical bear in the near future. We’ve therefore cut net equity exposure in both the Leuthold Core and Leuthold Global Funds to 38%, down from 48% in late July, and 61-62% in late June. A further reduction is possible in the days ahead.

Asset-Price Inflation Enters Its Dangerous Late Phase

Asset price inflation, a disease whose source always lies in monetary disorder, is not a new affliction. It was virtually inevitable that the present wild experimentation by the Federal Reserve - joined by the Bank of Japan and ECB - would produce a severe outbreak. And indications from the markets are that the disease is in a late phase, though still short of the final deadly stage characterized by pervasive falls in asset markets, sometimes financial panic, and the onset of recession.

How China Trades US Treasurys When It Wages Currency War

Ever wondered how a nation wages a currency war? As Reuters reports, Chinese state-owned banks were selling dollars on behalf of the central bank to stabilize the yuan around 6.43 against the dollar on Wednesday, foreign exchange traders in Shanghai said, as the devaluation collapse got a little out of hand. This follows wholesale dollar-asset buying to weaken the Yuan. But that leaves the question, how did they get the dollars? As the chart below shows, by trading Treasuries...

Dong Unleashed: Vietnam Preserves Currency Shrinkage With Wider Trading Channel

Many years ago, we said that the real comedy in the world of FX won't start until Vietnam start devaluing its currency. And even as Vietnam decided to slash its Dong on numerous occasions over the years we were looking forward to all the amusement the Asian country, once engaged in physical war with the US would provide us in its response to the just launched FX war with China, in order to preserve its currency's ongoing shrinkage. We got the answer overnight when Vietnam announced it would widen the dong’s trading band on Wednesday to further weaken the Dong in response to the comparable shrinkage by China, its biggest trading partner.