Displaying items by tag: yuan

China has banked an inordinate amount of U.S. dollars in the last couple of months as trade surpluses and inflows flow into its bond market. The Chinese trade surplus through September was about $100 billion larger than its 5 year average preceding the pandemic. This current account will provide a buffer against any foreign debt problems regardless of any economic situations China faces this year. The current account surplus could allow China to deleverage its corporate debt market, particularly in real estate, which has faced a difficult bond market. China’s dollar holdings have allowed the yuan to appreciate like other emerging market currencies, such as in Russia and Columbia. Holding greenbacks is a bet on a growing U.S. Economy, and could help China hedge their slower growth.

FINSUM: The large current surplus could mean myriad things for China, but it could also just be another symptom of the global economic disruption due to Covid-19.

(New York)

Markets took a nosedive yesterday. Last week was bad, but yesterday’s falls were so steep they amounted to about as much as all of last week. All fears over rates and the trade war came to a head when Trump labeled China a currency manipulator. The S&P 500 fell about 3%, meaning the total decline in the index since last week is around 6%. The Dow lost 760 points. The losses amounted to the worst single day drop since early 2018.

FINSUM: The “currency manipulator” claim is largely symbolic. While it certainly won’t help a deal get done, it is hard to see it having a tangible outcome. This seems like a lot of pent-up market anxiety manifesting itself.

(Houston)

The Chinese Yuan reached a landmark and worrying level today. It fell to below 7 versus the Dollar, marking its weakest point in 11 years. The weakening currency could help Beijing offset economic weakness from tariffs. “We will see a new wave of depreciation among Asian currencies in the foreseeable future, and there could be further risk-off movements in the global markets. It looks like a tsunami is coming”, said an economist at Commerzbank. This will have major implications for commodities as China is the world’s biggest consumer, and now that the currency is weaker, it will be harder to buy, meaning prices must come down.

FINSUM: Dollar prices for commodities (almost all are priced in Dollars) will need to come down commensurately with the Yuan in order for the Chinese to maintain their purchasing power.

(Beijing)

The pain rippling through emerging markets has spread from Turkey and Argentina to Indonesia, the Philippines, and South Africa. Some are calling the major selloffs a full blown crisis. Now, a big threat looms as the trouble may spread to the big one: China. The major worry is that the pressure on EMs, coupled with rising US sanctions on China, could conspire to drive the Yuan down as much as 15%. Other EMs would be forced to weaken their currencies, and the pandemonium could hit the global economy and markets in a way it hasn’t so far.

FINSUM: China’s weight looms large not just in an economic sense, but in the market’s psychology. If real trouble started to flare up there, it would quickly spread to western markets.

(New York)

There is a lot of turmoil going on in emerging markets right now. So much so that many are now considering it a full crisis. So far, though, the problems have yet to materially impact US markets. However, Barron’s explains that there is a mechanism through which EMs could cause trouble for the US and the rest of western markets. Because the trade war with China continues to escalate, the country’s yuan may devalue significantly, hurting all EMs. If this happens, the ripple effects through the global economy might be very strong. India and Mexico seem to be the safest EM destinations at present.

FINSUM: China is big enough to bring down the whole world economy, so the real threat here is the trade war first, and then how EMs compound that problem.