Yuan Tumbles To 6-Month Lows As SGH Warns China Will Seek To Reduce US Treasuries "Appropriately"

The 'weaponized' yuan continues its collapse - back above 6.6 per USD for the first time since December and down 6% from the March highs.

The last time the yuan devalued this fast, it unleashed hell on the world's financial markets

Chinese stocks are fading at the open after yesterday's bounce in Shenzhen and CHINEXT (tech-heavy) indices...

 

And this comes shortly after Bloomberg reports that, according to a macro-research firm SGH Macro Advisors, China is girding for a full-scale trade war, and U.S. Treasuries may not be immune to the skirmish.

President Xi Jinping presided over a meeting of China’s highest decision-making body for the first time to discuss China-US relations, according to Sassan Ghahramani, CEO of SGH Macro Advisors, in a note to clients.

At a subsequent two-day meeting, Xi reportedly spent over two hours talking about U.S.-China relations and called on all provinces and ministries to be prepared for a full-scale trade war, according to Ghahramani.

Chinese officials have concluded it appears inevitable the U.S. will impose tariffs on $34 billion worth of Chinese goods on July 6, and will respond accordingly with tariffs of their own.

Contrary to reports last week, SGH's understanding is there have been no talks between the Commerce Departments of the two sides.

In the short term, officials expect the currency will weaken due to trade concerns.

The PBOC also will refrain from increasing holdings of U.S. Treasuries and, in fact, will seek to reduce them "appropriately," Ghahramani writes.

For now, Treasuries are flat as the yuan plunges, but that can all change very quickly. But for now, it is China that is bearing the brunt of global capital markets' anxiety.

 

 

 

 

 

 

 

Comments

Cluster_Frak Tue, 06/26/2018 - 22:26 Permalink

i love weaponized financial instruments. Nothing like a mass destruction at market open. Remember we still must eat, and from time to time there must be a beverage.

gdpetti BaBaBouy Wed, 06/27/2018 - 11:33 Permalink

The Art of War is mainly avoidance, but that game of cat and mouse can only last so long... sooner or later one must eat the other.... the young lions will sooner or later dispose of the old lion of the tribe... it's the wheel of life... our empire and our Axis of Evil allies, has been in the financialization phase since '71 and Nixon's dePM move...

If you know it's coming, you prepare for the storm... China, like Russia, needs to stop increasing their debt and while possible, use it to buy up whatever is necessary to prepare for this storm. The storm is here... it has been in the works for quite some time... the avoidance game is about over.... the tipping point is near, same as we are having trouble kicking our cans down the road... our Central Banks don't need the Asians to buy up our debt, we can buy it all up ourselves. The problem is the con game... short for confidence game... how much longer can we keep it up before we are only masturbating with our memories and with our allies, who are jockeying for positions in the NWO as well.... the chaos game goes on till Mother Nature arrives within the next decade.

What does this 'devaluation' do but make their products cheaper against their competition? So how does that work against the govt there? And their markets need to correct as well, same with real estate... they need to control the downside, but it needs to be done, otherwise, they fall into our trap, sucked into our drain on our OWO... which our SG puppet masters are disposing of, in favor of their NWO... post Mother Nature, post 'wave' change... as hyperdimensional aspects come out to play.

In reply to by BaBaBouy

Harry Lightning philipat Tue, 06/26/2018 - 23:16 Permalink

The message is there are a bunch of imbeciles running their trade ministry. They should accept the tariffs and say nothing, and do not retaliate under any conditions. They have a 600-800 billion dollar surplus, even if its scaled back to 500 billion, its still huge and their country's workers depend on those exports for millions of jobs. A trade war with the US only serves to reduce whatever surplus they have, better to take a small loss than a large one.

And the idea of selling Treasuries is a complete wingnut play. Either they sell into the market and the remainder of their holdings that they don't sell take a huge mark-down, or the Fed buys up all they are selling and they wind up accomplishing nothing but losing the best yields on sovereign debt they can find for the amount of capital they need to invest.

In the end, President Xi (who is a very pragmatic leader) will force the egomaniacs in the Forbidden City to be practical. They have make their objections known, and saved face in front of their people by standing up to the US. Now they need to shut the fuck up and be grateful the tariffs weren't more extensive as they could have been.

In reply to by philipat

philipat Harry Lightning Wed, 06/27/2018 - 03:42 Permalink

You are still entirely missing the point. The vast majority of the "China deficit" is imports of products manufactured offshore by US Corporations. Worse, all the profits stay offshore in tax havens to avoid US taxes. All, of course, totally against the best interests of the American people. And if the trade war persists, these same US Corporations will shift manufacturing to Thailand, Indonesian, Vietnam etc to get round the tariffs. Nobody forced them to offshore US jobs and nobody can force them to bring them back. It won't happen. Just for illustration, 2 recent examples of the integrity of US Corporations:

GM will manufacture the new Blazer SUV in Mexico to avoid the tariffs on steel imports.

HOG will offshore production to Thailand to avoid EU counter-tariffs on US manufactured hogs.

But I suppose these are both the fault of China? You Guys just want to shoot the messenger; the real culprit is much closer to home!

PS I've been posting this view for several years but PCR just published an article today which entirely supports my argument:

https://www.paulcraigroberts.org/2018/06/26/long-can-federal-reserve-st…

In reply to by Harry Lightning

Harry Lightning Mikeyyy Tue, 06/26/2018 - 23:18 Permalink

My guess is that the Fed already has told the govie bond dealers to send all sales from Chinese sources straight into the Fed account at the same price as the dealers paid. It will extend out the time of the Fed balance sheet normalization, but will not cause an interest rate shock that would unglue the stock market. 

In reply to by Mikeyyy

philipat Harry Lightning Wed, 06/27/2018 - 03:31 Permalink

China has no intention of selling ALL its UST's but I think it will sell $50-100Billion under the pretext of "Defending the CNH" whilst allowing it to devalue to its levels prior to the most recent run-up, or about another 3% from here. That would be quite enough to make the point. And sure the Fed/ESF will buy the UST's China sells, which is a/k/a "Monetizing the Debt". Not a good practice; far better to allow free markets (remember those?) to function.

In reply to by Harry Lightning

LetThemEatRand Tue, 06/26/2018 - 22:27 Permalink

Paging Yen Cross who predicted a few days ago the shit was about to hit the fan.  Pick up the red courtesy phone.  [Yen, picking up the black courtesy phone].  No, the red one.

Harry Lightning LetThemEatRand Tue, 06/26/2018 - 23:23 Permalink

Why would either country want to hold so many dollars in currency form, earning zero interest ? Do they intend to try to crash the dollar with the cash holdings ? All that would do is devalue their inventory of Treasuries, including the ones they lend to borrow the dollars. On top of that, it would give a huge benefit to US exporters, as US products would become cheaper as the dollar falls. 

I don't see the sense in that plan, and thus would be surprised if they did it. Besides, we already know that Russia did a massive swap of Treasuries for Gold in April, getting rid of something like half their Treasury holdings. 

 

In reply to by LetThemEatRand

LetThemEatRand Harry Lightning Tue, 06/26/2018 - 23:33 Permalink

I don't know.  One reason would be that you could cash out in dollars today at close to full face value (borrow close to $1T in cash with your $1T in UST), and not care if Treasuries lose value relative to other currencies/assets in a few months or years when the loan comes due assuming you're going to put those dollars to work.  You would have to believe that the dollar would lose more value at loan expiration than you would have earned in interest if you held the treasuries, or that you can gain investing your dollars in something else.  Given that real inflation is much higher than UST return, it could be that simple.

If you think the USD will lose say 5 percent a year in actual value versus whatever you're going to do with your dollars today, it could be a simple arbitrage play.   I can imagine all kinds of reasons.

In reply to by Harry Lightning

Putrid_Scum DogeCoin Tue, 06/26/2018 - 22:56 Permalink

I agree that you should now purchase precious metals, do so slowly to get the moving average: No need to panic buy.

The Reset, unfortunately, is approaching. By next year this will be official. 

In China, presently, the new rich are looking worried. The sentiment has definitely changed. The Chinese are old enough and smart enough to know a storm is gathering pace.

www.beforethecollapse.com/2017/05/23/the-reset/

In reply to by DogeCoin

Harry Lightning DogeCoin Tue, 06/26/2018 - 23:30 Permalink

The short bond position seems like a waste of time right now. The market was set up the last few weeks for a good sized selloff, the technical indicators were all bearish and the fundamental economic numbers all could have supported a sell off of more than a few bond points. And nothing happened as sellers did not materialize. 

Its very hard to get a sell off at these yields in the long end of the Treasury market unless there is Central bank participation. They hold such a huge amount of the total outstanding, that if they are not supplying bonds to the market its very hard to get a sustained sell off. 

In reply to by DogeCoin

MrNoItAll Tue, 06/26/2018 - 22:38 Permalink

When the yen devalued in 2016 and knocked a big hole in the markets, the large international trading and finance company that I work for sent out an email to all employees advising them to stay calm, don't panic, don't succumb to the urge to SELLLL!!!! I get the feeling they'll be sending out another memo like that in the near future.

MuffDiver69 Tue, 06/26/2018 - 22:58 Permalink

Let them sell off their treasuries and threaten or cancel the globalist contracts. It will be a big hit here...but only place to go is up eventually...Not exactly sure Who China is going to turn to when it comes to the next sucker...Europe doesn’t exactly have open markets...Once again..those who disagree never give alternatives...never..

GooseShtepping Moron Tue, 06/26/2018 - 22:58 Permalink

China dumping US Treasuries ought to cause the Yuan to strengthen, not weaken. A strengthening Yuan only hurts China's exports elsewhere. If China get's to de-dollarize and gets a weakening currency on top of it, that's all gravy for them. It would seem that they are employing a winning strategy, whatever it is.

Fred box Tue, 06/26/2018 - 23:05 Permalink

Pokin the china man in the eye,most likely will see them sell a chunk the U.S. Keep pokin them in the eye and thats where it gets interesting!

SnottyBubbles Tue, 06/26/2018 - 23:23 Permalink

As the MSM declared economic giant of the 21st century ... Xi's suddenly facing a 1/3 loss of revenue. China's big corps have pledged 90-100% of their publically traded stocks as debt collateral (stocks the Chinese buy for retirement).

 

China dumped $1T in treasuries in 2016. They hold $1.3T. When China sold the first $T of bonds US rates went down, stock market popped. China's 'saber rattling' selling the rest of their T-bills. Now's the time to sell. US bond sales are briskly soaking up liquidity flight to safety. The global shortage of liquid $ at the moment is frighteningly low since the FED repossesses the QE's.

 

The world needs those China T-bills to be liquidated. Hope they dump them tomorrow.

 

ChiCom communique's are increasingly for internal propaganda. ChiCom "GDP" clues haven't been released since 3/18. Even their perpetual compounded fake economic data releases are missing calendar dates.

 

Something is amiss in the Chinese house of cards.

 

 

 

 

napper SnottyBubbles Wed, 06/27/2018 - 02:39 Permalink

No, you dumbass!!

 

China is still one of the biggest creditors to the insolvent US government and has been shipping a lot of its products here for free (why? make that an exercise for you economic and financial illiterate dope.)

 

Wishing China would dump its US treasuries? You cannot possibly be more brain dead. (Why? make that another exercise for you.)

 

Better go back and repeat high school a few more times.

In reply to by SnottyBubbles

Yen Cross Wed, 06/27/2018 - 00:07 Permalink

 I can't prove it yet, but I think the Fed is selling tons of short dated debt 2-5 year paper, and rolling the cash procedes into longer dated debt to absorb the shock from Japan, Russia, soon to be China, selling longer dated debt.

  That's partially the reason for the yield curve flattening.

PitBullsRule Wed, 06/27/2018 - 00:40 Permalink

The Chinese are way ahead of our morons in DC. They loan money to little places like Cambodia, to build a port or a RR track. Then when the little place can't pay them back, they just take the port or the RR track. Then they proceed to drain the country of its natural resources using the port and RR that they own.

Meanwhile, here in the US, we lose a motorcycle manufacturer.

Sorry_about_Dresden Wed, 06/27/2018 - 01:58 Permalink

Looks like prc swf ust holdings are steady. 

So.........prc 2nd largest teading partner is Germany, so if prc shorts us......then German gear cost prc much more? 

So prc careful not to disturb aGermsn trade, so crucial to prc growth?????

napper Wed, 06/27/2018 - 02:41 Permalink

Trump is high on emotional BS and seriously low on brains. Same for many of his cabinet members.

 

Trump is ruining America as fast as, if not faster than Clinton would have if she had won the election.

 

America is doomed with brainless, petulant, juvenile assholes running the country.

Money_for_Nothing Wed, 06/27/2018 - 07:04 Permalink

Read the book, "The Great Rebalancing" by Michael Pettis. The book shows why a trade surplus nation must buy financial assets to run a trade surplus.

So what does China do with $20 billion a month if it doesn't buy US Treasuries? Pay tariffs?

Charvo Wed, 06/27/2018 - 08:30 Permalink

I think China got really complacent with the 8 years of Obama.  Obama basically let everything enter the USA tariff free from China.  Obviously, Hillary was going to continue the policies.  China has a ton of factories making stuff that is only targeted towards USA consumers.  So basically China is invested in America's consumer continuing to buy stuff.  At this moment, I think treasuries have more value on the open market than a lot of the stuff China exports to the USA if they try to pawn it off on other countries.