China Devalues Yuan Most In 10 Months As Premier Li Warns Of Brexit "Butterfly Effect" On Financial Markets, Economy

In a somewhat shockingly honest admission of the frgaility of the global financial system, Chinese Premier Li warns that a disillusioned British butterfly has flapped its wings and the entire global financial system could collapse. Responding to the plunge in offshore Yuan since the Brexit vote (down 7 handles to 5-month lows over 6.65), PBOC devalued Yuan fix by 0.9% (6 handles) - the most since the August crash - to Dec 2010 lows. Finally, we note USD liquidity pressures building as EUR-USD basis swaps plunge.

Offshore Yuan is 3 handles cheap to onshore Yuan and 9 handles cheap to Friday's fix...

And so PBOC was somewhat forced to devalue yuugely...

  • *CHINA WEAKENS YUAN FIXING BY 0.9%, MOST SINCE AUGUST
  • *PBOC TO INJECT 270B YUAN WITH 7-DAY REVERSE REPOS: TRADER

 

While Chinese stocks remain 'stable' (despite Goldman suggesting more pain is due - regional cost of equity to rise 50-75bps as risk appetite shrinks after Brexit, equal to 5%-10% index decline), the less managed rest of the world is struggling and China knows it...

Premier Li Keqiang said an increase in instability in a particular country or region could trigger the "Butterfly Effect," which could, in turn, affect the global economic recovery and financial market stability, according to comments posted on Chinese central govt’s website.

 

All economies highly dependent on each other and no country can manage alone, Li said during meeting with WEF executive chairman Klaus Schwab in Tianjin.

 

Li called on all nations to enhance coordination and work together to address difficulties.

The shift in the Yuan Fix (red) seemed clear from the collapse in offshore Yuan... CNH > 6.65 (7 handles weaker than pre-Brexit)

 

Here's why Americans might want to care about this Brexit butterfly and China crash...

 

Finally, we note that USD liquidty needs are getting very serious as EUR-USD basis swaps surge lower indicating major USD demand...