"We Understand The Chinese Government Has Halted Purchases Of US Treasuries": SGH

On Friday, we reported that among the five "nuclear" options available to Beijing to retaliate against Trump's latest $100BN in proposed import tariffs, was the choice whether to sell US Treasuries. But what if Beijing did not want to unleash a full-blown market nuke, and instead was hoping for a targeted, EMP hit?

Then it would simply stop buying US paper, instead of dumping it outright; in the process it wouldn't hurt the US too much - avoiding a furious tit-for-tat response - but would still send a clear signal to the White House, whose fiscal spending plan will more than double net Treasury issuance this year from under $500BN to over $1 trillion, and which needs every possible marginal buyer of US paper, both domestic and foreign. 

Which is precisely what a new report by SGH Macro Advisors claims.

According to the consultancy, a long-time favorite of macro hedge funds, Beijing has twice threatened deliberately targeted tit-for-tat punitive measures against the US to date: "first, in response to the Trump Administration’s threat of steel and aluminum tariffs, and second, in response to broader measures aimed at $50 billion of products that lie directly at the heart of Chinese technology transfers, intellectual property violations, and strategic, “Made in China 2025” plan."

But even as US cabinet officials lined up yesterday to calm jittery equity markets, SGH says in a note released over the weekend that "China had already signaled an aggressive and potentially more ominous escalation in the developing trade wars to the White House":

From what we understand, the Chinese government has halted its purchases of US Treasuries. Despite the direct encouragement, according to Chinese sources, by US Treasury Secretary Steve Mnuchin for China to "stay put,” Beijing has apparently discontinued purchases of US Treasuries “for the past few weeks.”

Some more details from the note:

Chinese officials hold out hope that “equal-footing consultations and negotiations” could be held on specific trade issues, with results potentially by mid-June. But that timing was envisioned before President Trump's formal statement calling for US Trade Representative Robert Lighthizer to consider an additional $100 billion worth of Chinese goods that could fall under a US tariff regime.
 
Furthermore, there have been no discussions to date yet of substance, at a high level, on what an agreement might hold. Within Beijing, concessions under consideration remain focused on opening some “newly emerging industries,” as well as financial industries, to the US, and broad assurances that China might keep the growth rate of US imports to at least 15% this year. And on the currency front, Chinese officials consider the Renminbi, which has remained relatively strong, to be at a “broadly reasonable” level, and hold out that if bilateral trade disputes are finally settled through negotiations, it could continue to rise steadily this year.

But those are all small, and insufficient, steps, and more significant tensions loom.

Beijing, and President Xi Jinping, remain focused on extracting concessions from the US on high-tech export restrictions to China. But Beijing remains on its back heels in continuously underestimating the imperative for the Trump Administration to “deliver” – in a material fashion – on the President’s campaign promises to bring an "unchecked China" to heel.
 
That includes, in the background, discrete by significant proposals that are under active consideration by the White House and Congress to add teeth to the CFIUS (Committee on Foreign Investment in the United States) approval process of vetting mergers and the acquisition of sensitive technologies by foreign firms.
 
A hard line on China remains, along with immigration, on the top of the Trump political agenda before the critical November mid-term elections that loom, ominously, ahead.
 
A (Very Precise) Tit-for-Tat
 
The measures announced on Wednesday by China in response to the formal release by the White House of US Trade Representative Robert Lighthizer’s list of potential targets subject to an additional tariff was a direct tit for tat in magnitude, as well as in timing, of the threat of 25% tariffs covering $50 billion worth of exports from China.
 
It was, furthermore, intended as a “precision blow,” targeted at the heart of President Trump’s political base.
 
In an executive meeting chaired by Premier Li Keqiang on Wednesday morning, Beijing time, China’s State Council decided to threaten actions with China’s own list of 106 products in 14 categories of American products worth $50 billion, including automobiles, aircraft, chemical products, soybean, corn, sorghum, and cotton.
 
At the meeting, and in subsequent statements to the public, participants stressed that the aim of the trade retaliation was to make Trump feel real political pain, and to warn him against launching a head-on “trade war” with China. And, as we had expected, the main targets of trade retaliation were, by design, geographically aimed at the Rust Belt and agricultural states that strongly supported Trump in the 2016 elections.
 
Premier Li, from what we understand, is said to have characterized these measures as “a precision blow” to punish Trump, but he furthermore went on to add that the objective is not to engage in a trade war with the US, but rather to force the Trump Administration to conduct “equal-footing consultations and negotiations” with China on bilateral trade disputes.

Beijing's Eye on November, and 2020
 
Beijing has studied closely the US political landscape and aimed its latest measures directly at American farmers and workers who they believe, correctly or not, are Trump’s main source of support. It has not gone unnoticed in Beijing that the American farm and agricultural sector and workers are already feeling the heat, and running advertisements on TV in opposition of a “trade war.”
 
The Rust Belt vote could swing either way, but without the support of the farm and agricultural demographic, Chinese sources believe, Trump would struggle to win the 2020 presidential elections. At least that is the desired effect – if all goes wrong for China.
 
But, at least as of last night, Chinese officials were also heartened to hear what they thought was a softening in tone from senior Administration economic officials, including NEC Director Larry Kudlow, Secretary of Commerce Wilbur Ross, and the architect of the harshest of administration trade policies, the White House trade adviser, Peter Navarro.
 
That conciliatory response was welcomed by Beijing, but not without some chest thumping in public, including a crowing, victorious editorial in the China Daily.
 
That tone may have been premature, and seen by the White House as ill-advised, as well as the continued insistence by Beijing on some semblance of “equivalence” in these escalating trade tensions with the US.

While the report has not made it into the public arena, it is worth noting that 10Y nominal yields have barely moved on the news, rising from a session low of 2.78% to 2.80%, and are currently trading back with a 2.79% handle. Of course, should China proceed to announce that it is now a matter of official policy not to buy US paper, the adverse reaction will be far more aggressive.

As for FX impacts, the rolloff of TSY purchases would be superficially positive for the Yuan, hardly what exporters China wants, although Beijing has an effective way of fixing that: just devalue the currency, something which Bloomberg reported overnight China is now actively contemplating.

Comments

Croesus beepbop Mon, 04/09/2018 - 15:37 Permalink

The USD, love it or hate it, is still the "cleanest turd in the toilet".

I've been hearing "the end is nigh" for most of my life, as my parents' generation did...

We're still here. It's still the same unjust world, where the saver is punished, and the corrupt have wildly successful careers in banking and politics

In reply to by beepbop

philipat Clint Liquor Mon, 04/09/2018 - 21:16 Permalink

Yes, all part of "Plan B" by the "elites" to bring down Trump and pin all the blame for an economic collapse on him not The Fed.

The Fed (Bernanke) claimed that the expansion of its Balance Sheet from about $800 Billion to $ 4.5 Trillion was not "debt monetization" because it was only "temporary". That was 6 years ago!

The only way out of this funding problem is for the Fed and the ESF in particular to step in and buy Treasuries. Just temporary of course.

In reply to by Clint Liquor

Richard640 beepbop Mon, 04/09/2018 - 18:12 Permalink

THE SO CALLED "NEW TESTAMENT" IS NOTHING BUT A DOCUMENT OF CONTEMPT TOWARDS THE JOOISH FOLK

*********************************************

SHAME ON ALL OF YOU FOR DENIGRATING THE JOOS...YOU SPAWN...GET A LIFE...MAYBE 20 MILL JOOS IN THE WORLD OUT OF 7 BILLION? ARE U KIDDING ME? ALL THIS FOCUS AT THE U.N.--ALL THIS HATRED? WHAT THE F IS WRONG WITH YOU?...YOU FILTH...LOOK DEEP DEEP WITHIN YOURSELF...JESUS WAS A JOO, SO WHY NOT YOU? 

*******************************

Teaching of Contempt Primary Source Sampler

https://www.bc.edu/content/dam/files/research_sites/cjl/texts/.../conte…

**********************************

The Christian Teaching of Contempt for Jews and Judaism: A Primary Source Sampler. Introduction. The debate over the Mel Gibson movie, The Passion of the Christ, has made it clear that most Christians simply are not aware of the history of Christian anti-Jewish teachings. These teachings were conveyed in several ways ...

Jules Isaac - Wikipedia

https://en.wikipedia.org/wiki/Jules_Isaac

********************************************

Jules Isaac was “a well known and highly respected Jewish historian in France with an impressive career in the world of education” by the time World War II began. Internationally, Isaac was most well known for his tireless work after the War in the field of Jewish-Christian relations, culminating in his decisive key role in the ...

Life · ‎Career · ‎Judaeo-Christian relations · ‎Death and legacy

The teaching of contempt returns | David Brog | The Blogs | The Times ...

blogs.timesofisrael.com/the-teaching-of-contempt-returns/

In reply to by beepbop

founthead Four Star Tue, 04/10/2018 - 07:49 Permalink

The US treasuries market :
Supply Side - Tax Cuts and Increased spending leading to high Fiscal Deficit, resulting in more than $1.2Tr. in borrowings by the US Govt. (just at the Federal  level) per year.
Demand Side -
1. The Fed Reserve starting to unwind its bloated balance sheet of $2.3Tr USTs (plus another $2.1Tr in MBSes)
2. China threatening to unwind its $1.2 Tr position in USTs as part of the looming trade war. The "allies" who traditionally come to the rescue (Swiss, Belgium, Norway, Saudi CBs/Sovereign Funds) have already being doing so, so not sure how much of additional hit will they be willing to take on behalf of the US.
3. But the biggest factor no one is talking about is the US Social Security winddown of the UST purchases. In the previous decades, the working population of the US contributed to Social Security, which far exceeded the payouts made to Retirees/On-the-dole population. Thus about 45% of all USTs offered were taken up by the SS (called non-marketable USTs since they could not be traded on the open market). Now the demographic bomb of retiring Baby-Boomers is ensuring that SS will be doling out more than it receives by 2020! Thus from a Net big purchaser, SS is turning into a Net big Seller of USTs - and this, unlike the Fed, or Chinese case, is totally non-discretionary!!!

So, the end result? Increasing Yields on the USTs. Add increased inflation due to the looming Trade Wars, and maxed-out Debt levels (Public, Corp. and Household) and you have the perfect storm. Watch out for UST 10 Yr yields to cross 3.00% and settle down (with obligatory beer and popcorn) to watch the shit-storm.....

In reply to by Four Star

FBaggins GeezerGeek Mon, 04/09/2018 - 13:29 Permalink

Buy Yuan. Dump the dollar.

If you are one of the decent persons remaining in the world and you look at and fairly consider the following:

- The continuous stream of establishment lies;

- All the unjust wars to protect the petrodollar and destroy nations which nationalize their oil or trade in other currencies;

- All the fake-news Russian collusion crap to date;

- The bullshit Skripal poisonings;

- All the false flags from 9/11 to WMD's to the multiple US-UK-Israeli engineered false-flag gas attacks in Syria;

then you will likely become extremely nauseated with having supported any establishment political party, and then also likely become very angry with all Western leaders including fake President Trump and particularly with the Western establishment and deep state pulling his strings and our chain, whether you are on the left or the right.

If you cannot TRUST the US, the UK, or Israel in what they say or do as nations, then there is absolutely no basis to trust any of their currencies. That is what the rest of the world is waking up to. These three powerful nations are without resources of their own and they constantly  plunder and destroy other weaker nations killing and displacing millions of people for their own advancement. Kick them out of all  the trading loops and make them pay for the devastation and suffering they have caused before even considering letting them back in. 

The Israeli bombings of Syria yesterday were done under the auspices of the US strategic military command with Trump warhawk administrative approval. Israel would not budge without US assurances. Israel is of course largely to blame, but like Al Qaeda and ISIS, it is mainly a proxy nation for the US-UK based Zio-Nazi establishment stranglehold on everything in the West.  

It is populists in the middle who must now unite and take back their nations. 

In reply to by GeezerGeek

Richard640 FBaggins Mon, 04/09/2018 - 18:14 Permalink

THE SO CALLED "NEW TESTAMENT" IS NOTHING BUT A DOCUMENT OF CONTEMPT TOWARDS THE JOOISH FOLK

*********************************************

SHAME ON ALL OF YOU FOR DENIGRATING THE JOOS...YOU SPAWN...GET A LIFE...MAYBE 20 MILL JOOS IN THE WORLD OUT OF 7 BILLION? ARE U KIDDING ME? ALL THIS FOCUS AT THE U.N.--ALL THIS HATRED? WHAT THE F IS WRONG WITH YOU?...YOU FILTH...LOOK DEEP DEEP WITHIN YOURSELF...JESUS WAS A JOO, SO WHY NOT YOU? 

*******************************

Teaching of Contempt Primary Source Sampler

https://www.bc.edu/content/dam/files/research_sites/cjl/texts/.../conte…

**********************************

The Christian Teaching of Contempt for Jews and Judaism: A Primary Source Sampler. Introduction. The debate over the Mel Gibson movie, The Passion of the Christ, has made it clear that most Christians simply are not aware of the history of Christian anti-Jewish teachings. These teachings were conveyed in several ways ...

Jules Isaac - Wikipedia

https://en.wikipedia.org/wiki/Jules_Isaac

********************************************

Jules Isaac was “a well known and highly respected Jewish historian in France with an impressive career in the world of education” by the time World War II began. Internationally, Isaac was most well known for his tireless work after the War in the field of Jewish-Christian relations, culminating in his decisive key role in the ...

Life · ‎Career · ‎Judaeo-Christian relations · ‎Death and legacy

The teaching of contempt returns | David Brog | The Blogs | The Times ...

blogs.timesofisrael.com/the-teaching-of-contempt-returns/

In reply to by FBaggins

Richard640 FBaggins Mon, 04/09/2018 - 18:15 Permalink

THE SO CALLED "NEW TESTAMENT" IS NOTHING BUT A DOCUMENT OF CONTEMPT TOWARDS THE JOOISH FOLK

*********************************************

SHAME ON ALL OF YOU FOR DENIGRATING THE JOOS...YOU SPAWN...GET A LIFE...MAYBE 20 MILL JOOS IN THE WORLD OUT OF 7 BILLION? ARE U KIDDING ME? ALL THIS FOCUS AT THE U.N.--ALL THIS HATRED? WHAT THE F IS WRONG WITH YOU?...YOU FILTH...LOOK DEEP DEEP WITHIN YOURSELF...JESUS WAS A JOO, SO WHY NOT YOU? 

*******************************

Teaching of Contempt Primary Source Sampler

https://www.bc.edu/content/dam/files/research_sites/cjl/texts/.../conte…

**********************************

The Christian Teaching of Contempt for Jews and Judaism: A Primary Source Sampler. Introduction. The debate over the Mel Gibson movie, The Passion of the Christ, has made it clear that most Christians simply are not aware of the history of Christian anti-Jewish teachings. These teachings were conveyed in several ways ...

Jules Isaac - Wikipedia

https://en.wikipedia.org/wiki/Jules_Isaac

********************************************

Jules Isaac was “a well known and highly respected Jewish historian in France with an impressive career in the world of education” by the time World War II began. Internationally, Isaac was most well known for his tireless work after the War in the field of Jewish-Christian relations, culminating in his decisive key role in the ...

Life · ‎Career · ‎Judaeo-Christian relations · ‎Death and legacy

The teaching of contempt returns | David Brog | The Blogs | The Times ...

blogs.timesofisrael.com/the-teaching-of-contempt-returns/

In reply to by FBaggins