One Trader Asks "Did China Just Give US Assets A Cheap, Valuable Lesson On Who's In Charge?"

Just when you thought it was safe to go all-in leveraged long stocks and sell all the volatility you can eat, a spasm of fear cracks through markets this morning... driven by our 'friends' in Beijing.

While many are taking the call "to slow or halt" its Treasury-buying at face-value, former fund manager Richard Breslow believes there was a deeper, darker reason behind this shot across Washington and Wall Street's bow.

 

https://www.zerohedge.com/sites/default/files/inline-images/20180110_china.png

Via Bloomberg,

How do you turn a relatively quiet trading day into a riveting one?

Have someone with enormous amounts of actual money at work in the markets remind everyone that not everything is wonderful in paradise.

The news about China at least re-evaluating its attitude toward its U.S. Treasury holdings has stood everything that was happening overnight right on its ear. And you would be hard pressed to argue that the instant reaction across a wide spectrum of global assets wasn’t entirely appropriate nor overdone.

I get a real sense that the Chinese officials making the comments weren’t simply studying their charts of U.S. breakeven rates and concluding that yields may have bottomed. It sounded very much more a statement of, “Who the hell do you think you are?” And probably should be taken in that context.

Actions do have consequences.

You can’t incessantly bash another country, even if you think there are pieces of the criticism that are fair points, and be surprised that eventually you get some blow-back.

The U.S. objects to China’s increasingly strong economic ties to Latin America. Then Congress passes a bill last night to strengthen ties with Taiwan. The U.S. makes no secret of the fact that it will pursue policies that directly support domestically flagged companies. And then this morning in Brussels, Treasury Under Secretary David Malpass said China is creating market distortions by favoring state-owned enterprises.

I’m not even trying to argue who is right or wrong. Just warning that the very understandable inclination of traders to treat this as just another tempest in a teapot may be too cavalier. In truth, the market moves have been muted in the grand scheme of things, but the players, and bilateral relationship and relative strengths of these two countries isn’t what they were during past episodes.

This latest incident may indeed pass quickly from the market’s immediate consciousness. But it shouldn’t be forgotten. Nor the fact that the reaction wasn’t just to sell a few bonds, but to hit everything with a dollar sign in front of it. Did I mention that the Treasury has a lot of bonds to sell this year? This should be seen as an extremely cheap reality check.

Meanwhile, equities are indeed lower but still well up on this new year. Little, if any, technical damage has been done. Although it’s worth noting that the recent move higher has been impulsive enough such that reaching the first important lines of support will feel like a correction. Or at least be portrayed as such.

The dollar fell like a lead balloon but with the exception of yen, hasn’t broken any new ground, by any stretch. If anything we are just confirmed back into the recent lower range. What looked like an attempt to probe higher has been stymied. Or you were just handed a great opportunity.

And bonds? Supply, breakevens, CPI on Friday, questions about Japan’s intentions make this the most important market in major league play. With implications for all assets. The path of least resistance was clearly in evidence with today’s news.

As China prepares to launch its petro-yuan futures contract, and US-North Korea relations suddenly shift to a more positive tone (something that China has pushed for), a crazed digital dickweed could be forgiven for seeing a pattern of hegemonic transfer occurring and today's shot at the financial markets is yet another straw on the unipolar camel's back.

 

Comments

Snout the First IH8OBAMA Jan 10, 2018 1:14 PM Permalink

I recently bought a package of binder clips at Walmart to take to work. Made in China, of course. I think it was around two bucks for 36 clips. Even with our dumbed down and doped up labor force, I have blind faith that we could still manufacturer binder clips in the US. But I wonder what the price of a package of domestically produced binder clips would be?

In reply to by IH8OBAMA

Ramesees YUNOSELL Jan 10, 2018 10:00 AM Permalink

You people realize that China literally can’t stop buying UST unless they unpeg the Yuan, right? The “basket of currencies” is literally created by holding foreign reserves in the form of treasury notes from whatever country they peg against. 

Stop buying UST, Yuan skyrockets vs USD and all of a sudden China has declared currency war on itself. 

In reply to by YUNOSELL

Son of Captain Nemo YUNOSELL Jan 10, 2018 10:34 AM Permalink

Cause "Yankee Jewdle" couldn't afford it even if he wanted it!... And more importantly it defeats the purpose of his agenda as he doesn't want ANY currency that is "worth something" he only wants what he feels he needs at 'gun point" which IS THE $USD!!!

Case in point... Just look at what the U.S. put into the "collection plate" (https://www.rt.com/news/415491-us-iraq-reconstruction-aid/) to help the Iraqi government rebuild from it's 3 million dead and 15 million displaced going on 17 years with our bloody fingerprints all over it (http://www.ae911truth.org/)?...

 

In reply to by YUNOSELL

Antifaschistische YUNOSELL Jan 10, 2018 11:51 AM Permalink

Let's go the other way....The China.gov should do a backroom deal with Trump to buy ALL US Treasuries.  ALL of them, at 5%.  Expiration dates all have to be within the Trump Presidential Term.

Which brings up another point, no one, not even an American should buy anything long term and bet on what will happen 4 or 5 Presidents from now.

In reply to by YUNOSELL

LawsofPhysics Ramesees Jan 10, 2018 10:14 AM Permalink

^^^THIS!!!

 

Remember folks, China is still a centrally planned COMMUNIST state!!!

There is no way that they want the transparency required of a true reserve currency.  Of course, It really looks like the Federal Reserve or their puppets in D.C. do not want it either.  Interesting times.

Regardless, place your bets...

but do NOT call it "investing" because it is not.

In reply to by Ramesees