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USDCNH 7.0361 after the weak fix (we saw this coming on Friday & the muted response to that means that markets & the PBOC are now ready for it to go & the fix shows that & markets interpret so); Remember all those people saying wouldn't? Don't also expect 1-one direction either. 
Take note & this is important: there is a Chinese (Vietnamese people say this often too) - YOU CROSS THE RIVER BY FEELING THE STONES. Don't ever believe that there is a magic # & a line in the sand. As I have written often, there is no line - the line moves as new normal emerges.
This much is true since August 2015 - the PBOC's more market oriented regarding its fix (meaning CNH & CNY don't just appreciate, they are allowed to entertain the other direction); We have known this for a long time that China needs a weaker FX so a matter of time not whether.
Remember this Tweet on what happens after the ECB stating its intention on lowering rates in September & what that means for the Fed & the PBOC. Now add Trump's escalated rhetoric. Don't forget Asian FX & the Fed - the Asians don't let FX appreciate vs RMB
Let's zoom this out to understand the regional & global implications of CHINA USING ITS CURRENT ACCOUNT AS A FIRST LINE OF DEFENSE (Yes, I'm copyrighting this but u're free to use it & old tweet storm below but I will go through it in bullet points soon).
CHINA USING ITS CURRENT ACCOUNT AS A FIRST LINE OF DEFENSE implications:
a) Importing less from the world (meaning buying more domestic)
b) Those that sell to China 'll have less demand (Korea (1/4 goods go to China), American firms (very global), Germans. So GLOBAL DEMAND FALLS
a) Importing less from the world (meaning buying more domestic)
b) Those that sell to China 'll have less demand (Korea (1/4 goods go to China), American firms (very global), Germans. So GLOBAL DEMAND FALLS
c) In response to China fiscal & monetary (FX just now w/ the very weak fix & both CNH & CNH going past 7) support to SHELTER DOMESTIC MARKETS VIA THE CURRENT ACCOUNT, Asian central banks will have to respond by letting their FX WEAKEN (esp KRW);
d) In response to the Asians weakening FX vs the USD (basically vs the CNH & CNY) to maintain competitiveness, the ECB cut & APP is likely to happen & so the FED & JPO have to do something and so we're looking at September rate cut in response to the PBOC letting the FX weaken.
e) China Caixin services SLOWED to 51.6 from 52 & below exps. We have the following facts for China from industrial profits & PMI data:
1) Manufacturing contraction stabilizes but very weak & to remain so due to trade-war & China'll help (CNY)
b) Services WORSE (state & Caixin)
1) Manufacturing contraction stabilizes but very weak & to remain so due to trade-war & China'll help (CNY)
b) Services WORSE (state & Caixin)
Let me show you this: CNY depreciated vs USD by 1.14% this morning. Okay, what is the response of other Asian FX vs USD:
KRW is 1.255% (greater than the CNY move by a smudge) - so economics matter - Korea is VERY EXPOSED TO CNY/CNH via trade!!!
KRW is 1.255% (greater than the CNY move by a smudge) - so economics matter - Korea is VERY EXPOSED TO CNY/CNH via trade!!!
Ready for some economic history? Well, more like FX. On 10 August 2015, the PBOC did something major but totally common sense, which WAS NOT COMMON AT THE TIME, and that it WEAKENED THE CNY.
Why? Very simple laws of economics - growth weaker, ECB & BOJ WEAKENED FX & EM also did.
Why? Very simple laws of economics - growth weaker, ECB & BOJ WEAKENED FX & EM also did.
Let me show u this, something most people outside of finance don't think about (FX crosses ex USD) & this is how u create a REER or NEER (take many of these crosses & weight them for relative importance & sum.
CNY/EUR - see how HIGH IT APPRECIATED & why it had to fall & it did!
CNY/EUR - see how HIGH IT APPRECIATED & why it had to fall & it did!
China: to ask state buyers to halt US agriculture imports. Welcome to Q3 2019 guys. I hope you are prepared. Fasten your seat belt. It will be a long summer.
SPX futures 1% cheaper & Asian equities defo cheaper. Do you have cash ready to be deployed because we're looking a summer sale happening in real time for risk assets👇🏻.
Call me James, James Bond - I thrive in hopelessness, weak global growth & escalated geopolitical tensions 🕵🏻♀️
Call me James, James Bond - I thrive in hopelessness, weak global growth & escalated geopolitical tensions 🕵🏻♀️
PBOC: Yuan past 7 due to tariff expectation, protectionism. Also said, "Able to keep yuan stable at reasonable, balanced level."
Notice that they NEVER SAY A LEVEL. Wrote about this. Markets say there is a line in the sand & said 7 but the PBOC had never promised you a 🌹 garden
Notice that they NEVER SAY A LEVEL. Wrote about this. Markets say there is a line in the sand & said 7 but the PBOC had never promised you a 🌹 garden
Listen to this, the PBOC said, "The rise and fall of the yuan is NORMAL."
Of course it is - a central bank of 1.4bn people should be able to do whatever it wants/needs. They never promised you a 🌹garden. Their job is to manage your expectations & that can change & has changed.
Of course it is - a central bank of 1.4bn people should be able to do whatever it wants/needs. They never promised you a 🌹garden. Their job is to manage your expectations & that can change & has changed.
