Share this page!

Varad Markets Profile picture
Twitter logo
Mar 16 • 6 tweets • 4 min read
#USDCNH dropped ~250pip 6.4100 to 6.3850 yday on prospect of Saudi Arabia SA receiving oil payment from China in #CNY instead of #USD

▪️ Pricing Ccy is different from Invoice/Settlement Ccy - SA can receive CNY but oil may still be priced in $$

1/5
 wsj.com/articles/saudi…
▪️ China oil imports from SA ~$45bn pa, ~1.75 mbpd
▪️ What can SA do with CNY received
1. Pay in CNY for Chinese imports/services
2. Diversify FX Reserves into CNY away from USD
2a. Invest back into China onshore say CGBs

+ve for CNY internationalization
[SAMA FXReserves $420bn]
▪️ (Oil in CNY) = (Oil in USD) x (USDCNY FX)
- Oil in CNY=>Shanghai International Energy Exchange, "Shanghai Oil" #SCPA
- Oil in USD=>say DME Dubai Oman Crude Oil #OQD

If Shanghai Oil in CNY is just an FX conversion of Dubai Oil in USD then Oil is still really priced in USD

3/5
But Shanghai Oil can gradually gain independence as it helps mitigate global fluctuations & provide deeper liquidity in Asian time zone - move towards actually pricing of Oil in CNY

Chart: Dubai Oman v/s Shanghai Oil basis in USD

4/5
Towards more non-USD invoicing:

India & Russia exploring possibility of using CNY (or #INR) as ref ccy for INR-RUB trade

But as @michaelxpettis has argued, US's large Current a/c deficit big contributor to Dollar's global status=>no easy alternatives

livemint.com/industry/energ…
Looking to investigate this topic further - please share any thoughts/information

• • •

Missing some Tweet in this thread? You can try to force a refresh
　

Keep Current with Varad Markets

Varad Markets Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @VaradMarkets

Varad Markets Profile picture
Mar 13
#China: Back In Focus
▪️ Poor credit data: Agg Financing CNY 1190bn vs 2200bn exp=>MLF rate cut possible 15 Mar
▪️ Biggest Covid crisis since Wuhan as cases surge
▪️ China Tech & HK stocks beaten down
▪️ Geopol: U.S. warns China
▪️ #USDCNH jumps to break 1m consolidation

1/6 ImageImage
▪️ China reported 3,300 cases on Saturday - worst outbreak since early days
▪️ 17.5 million residents in Shenzhen placed in lockdown till 20 March

2/6
bloomberg.com/news/articles/…

scmp.com/coronavirus/gr…
China Tech & HK stocks beaten down
- SEC: delisting concerns
- Cyberspace Authority of China (CAC): regulatory clampdown

3/6
wsj.com/articles/chine…

scmp.com/tech/policy/ar…
Read 6 tweets
Varad Markets Profile picture
Mar 13
#USDJPY: Next big trade or just a puzzle?
▪️ In 21st century, USDJPY spiked up >2% when S&P dropped >2% in a wk only on 9 occasions - last wk was one of them - prob of such occurrence <1%
▪️ Last wk $JPY 114.82=>117.29, S&P -2.9%
▪️ Dethrone Long JPY as macro risk-off hedge?
1/9 ImageImage
▪️ Recent S&P drawdown -12.5% since 3 Jan'22 on hawkish Fed & Russian invasion but $JPY +1.0% with drawdown of only 1.4%
▪️ Regime change post Covid?
- Since Mar'20, $JPY vs S&P regression reveals significant -ve beta
- Previous Fed hikes (2004-06, 16-18) also showed low beta
2/9 Image
- Post Covid, reduced (3m) correlation b/w USDJPY & S&P (+ve correl => USDJPY ⬆️, S&P ⬆️)

3/9 Image
Read 9 tweets
Varad Markets Profile picture
Jan 23
#FX/#Rates thru 2016/18 episodes of 'Equity Tantrum' on hawkish Fed: Takeaways
▪️ Short USDJPY best FX trade in both periods
▪️ Short AUDJPY even better
▪️ Short EUR/Long DXY bad idea for risk-off
▪️ Gold/Silver good value here
▪️ Long USDEM not rewarding enuf
▪️ Bonds rally 40bp
Dec 2018 Recap:
S&P -11.3% (30 Nov'18 to 3 Jan'19)
2y UST -41bp, 2.78=>2.37
10y UST -43bp, 2.98=>2.55
DXY -1.0%
Oil/WTI +0.30%
BCOM -6.2%
VIX 18=>25 (36 high)
HY OAS +119bp

But Dec'18 episode was late in hiking cycle=>had enough room for a 40bp bond rally. Lets look at 2016

2/7
Jan 2016 Recap:
S&P -10.5% (31 Dec'15 to 11 Feb'16)
2y UST -40bp, 1.05=>0.65
10y UST -61bp, 2.26=>1.65
DXY -3.1%
Oil/WTI -13.5%
BCOM -5.85%
VIX 18=>28 (32 high)
HY OAS +179bp

DXY ⬇️ on higher EUR JPY & CHF
Strong bond rally at start of hiking cycle
2/10 flatter but 5/30 steeper
Read 7 tweets
Varad Markets Profile picture
Jan 22
Where is Fed Put?

In late 2018:
- S&P touched bear mkt in mid-Dec'18 (20% correction)
- Dropped 9% in Dec'18
- Dropped 2.5% on 3rd Jan'19
Then Powell did dovish pivot on 4th Jan'19: Fed "will be patient"

In 2022:
- S&P has dropped 7.73% in Jan'22
- Corrected 8.73% off peak

1/8
Fed's dovish pivot in early Jan'19

2/8
 cnbc.com/2019/01/04/pow…
But in 2018, Powell was extremely hawkish even as Inflation did not even touch 3%

Now CPI is 7% => implies Fed's hawkishness is justified on inflation + mkt understands it => Fed's Put is further away (v/s 2018)?

What!!! So let S&P correct another ~12% before Fed wakes up?
3/8
Read 8 tweets
Varad Markets Profile picture
Jan 6
#Nasdaq v/s #FedFundRate:

Few comparisons of Fed's recent hawkishness with Powell's extreme hawkishness in late 2018

Nasdaq dropped 22% in Q4'18; currently 5.0% off its peak

1. Fed not really as hawkish as 2018
2. Fed has learnt when to back off. Or has it?
@saxena_puru
Few news reports from that time:

"Federal Reserve raises rates despite signs of economic softening"
edition.cnn.com/2018/12/19/bus…

politico.com/story/2018/11/…
Read 4 tweets
Varad Markets Profile picture
Jan 6
#FOMC Hawkish Minutes: #Fed Balance Sheet BS

Five topics discussed:
1⃣ Preferred tool for policy normalization: Rate hike v/s BS reduction
2⃣ Comparison with 2014 normalization
3⃣ Timing & sequencing of tools
4⃣ Size & composition of Long Run BS
5⃣ Yield Curve shape

1/12
Note: Quantitative Tightening = BS reduction whereas 'Tapering' is reducing pace of BS expansion (currently underway)

1⃣ Rate Hike v/s QT:
“Participants..emphasized..federal funds [FF] rate should be Committee's primary means for adjusting stance of monetary policy”

Why?

2/12
[A] FF rate more familiar tool to general public => [better] for communication

[B] FF gives policy buffer - easier to adjust FF rate in emergency - “few participants..noted..Committee could more nimbly change interest rate than BS in response to economic conditions”

3/12
Read 12 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!

Ethereum

0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy

Bitcoin

3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us on Twitter!

Like this author's thread?

Get emails when @VaradMarkets has new unrolls!

Check out other threads from @VaradMarkets!

Read all threads by @VaradMarkets

:(