Thread by @Trinhnomics

Urgh, good morning. That escalated quickly. Treasury designated China a currency manipulator after the yuan went past 7, a move that signals retaliatory measures coming, & that pushed the EUR & JPY upward vs USD & CNH. Risk assets got sold overnight & Asian open won’t be pretty🙈

Not to add fuel to the fire 🔥 but remember what I said about manufacturing & how it matters. The employment subcomponent has been declining & it is a lagging indic. Sure, for manu but a decline of manu jobs is a LEADING indicator of services. And yes, they are slowing globally🤢

So this is how it works: manufacturing contracts, orders fall (external order & internal), firms cut costs & that means labor costs & that’s employment, workers have less income & feel 🐻 & consume less services, services then start to fall. This is happening in the 🇺🇸, 🇨🇳, & EU.

Now how do you think those consumers of goods & services that firms produce feel when they open the front page & there is only bad news (to be fair, the news is always skewed towards bad & not good). This time, very bad economic news, as in China & the US ratcheting up tensions.

USDCNH 7.13 as trade-war tension escalates - eye on the fix today (note that China allows 2% trading band so the fix matters b/c it dictates the direction China allows it to go for CNY). Since trade-war escalation (washing machines end Jan 2018) CNH has lost 11.2% vs USD to help.

Question: What happens next?
A: Mnuchin (boss of @USTreasury ) consults w/ the IMF on how to ELIMINATE the unfair competitive advantage of China's latest actions. So rhetorical BUT it means tensions are ESCALATED & opens door for retaliation/tariffs.

👇🏻👇🏻👇🏻

@USTreasury PBOC: Announced plans to sell bills in Hong Kong.
So that tells you what the fix will be right? It's walking this back a bit...

@USTreasury CNY fix is 6.9683 - note that CNY is only allowed to trade +-2% of the fix so therefore the fix tells you where the PBOC is OK w/ it going.

Told you, it's walking this back a bit😉

@USTreasury Since trade-war escalated end of Jan 2019, the AUD has been the biggest loser in Asia & so the AUD is le low vs the USD (and also other Asian FX such as the CNY).

What's the downside from here? 🤷🏻‍♀️🦘🐨🇦🇺 On sale!!! RBA in 1.5 hrs btw - likely to hold at 1% until it cuts again!