Bloomberg reports Yuan Set for Biggest Weekly Gain in a Year as PBOC Shows Support.
- My first question was “So what?”
- My second question was “At what cost?”
I will answer those questions with a chart momentarily, but first let’s consider a few snips from the article.
China’s yuan headed for the biggest weekly advance in a year with sentiment getting a boost from a central bank show of support and government steps to bolster economic growth.
The monetary authority strengthened the currency’s reference rate for the fourth week in a row, the longest run of increases since 2013, while Governor Zhou Xiaochuan said the nation’s balance of payments position is good, capital outflows are normal and there’s no basis for continuous yuan depreciation. An estimated $1 trillion of funds left China in 2015, about seven times that of the previous year, according to Bloomberg Intelligence.
“It’s not a good choice to short the yuan now, because the authority has sent a strong signal by letting Zhou make those comments, and it’s very difficult for any lender to fight against the Chinese central bank,” said Xia Le, a Hong Kong-based economist at Banco Bilbao Vizcaya Argentaria SA. “Sentiment has improved lately. But considering the capital outflows, the yuan will be pressured to weaken in the long run.”
Yuan in Pictures
Time to Short?
Given the yuan is now probing the area the very area China devalued into, this would actually be a good risk/reward area from which to short.
That is an observation, not a recommendation.
Regardless, I certainly agree with this statement “Considering the capital outflows, the yuan will be pressured to weaken in the long run.”
To stem the tide capital outflows China has spent $1 trillion in reserves. The above chart shows what China got out of that: Not much.
Meanwhile, China rebalancing has gone into reverse: Nonperforming Loans Jump 51% from 2014 as Lending Hits Record High.
The Bloomberg article suggests artificial growth via stimulus will be good for the yuan. I suggest otherwise.
Mike “Mish” Shedlock
Pingback: Yuan Has Biggest Weekly Rally in One Year: At What Cost? « Financial Survival Network
Tony Bennett said:
China – only a matter of time till they go completely off the rails.
Another day another sign of CLOWN SHOW:
By Didi Tang | AP February 19 at 10:39 AM
BEIJING — Chinese President Xi Jinping made a rare, high-profile tour of the country’s top three state-run media outlets Friday, telling editors and reporters they must pledge absolute loyalty to the party and closely follow its leadership in “thought, politics and action.”
Is this a prelude to the yuan collapse, a la’ Kyle Bass’ hedged bet?
C D said:
Hey Mish, this is my first bear market experience. Not because I’m youthful by any means, just that I’m only just recently taking notice. It seems a lot of the talking heads act like this is all pretty normal but with ur experience, would this bull market have ended long ago without the degree of global reserve bank intervention? Is this truely unpresidented amounts of intervention? Are we really in completely uncharted waters with QE and ZIRP? Is it true they have absolutely no idea what they are doing and how this will end? I’m just trying to separate the facts from noise and ur opinion I trust. I’m in total awe of what seems to be blatant lying from officials with no regard for the consequences they are likely creating for their constituents. With the truth, people would possible be better prepared for what I Think is coming, at the expense of corporate profits and stock valuations. I completely understand however if u have many other stories to cover but if u get chance to pen a small reply it would be greatly appreciated. A simple yes will suffice 😉
Sent from my iPhone
Yan9000 (@yan9000) said:
Can you recommend any ETFs that short the Chinese RMB?
I do not believe there are any
Is it even possible to sustainably devalue the currency of a chronic net exporter with a surplus of production capacity for both domestic and export?
I personally don’t think so. If anything, the Yuan belongs dramatically higher. Especially with all the deflation that is in the pipeline after the Chinese debt bubble pops.
No one knows the proper level for any currency since they are all artificially maintained by banks. We are in an age of currency chaos where no currency has any intrinsic value. Everything is just paper or now just numbers in a computer. Governments spend with no care about debt allowing it to climb ever higher. Banks and governments are simply cooperating to maintain the status quo. The powerful countries are imposing standards on the lesser countries that they are no even maintaining themselves. It is all a big financial game. Governments allow banks to carry ridiculous amounts of bad debt to continue the game. Sooner or later some slick debt forgiveness for banks, countries, cities, states, etc. will take place. Then we will continue on with the status quo.
Ron J said:
“To stem the tide capital outflows China has spent $1 trillion in reserves. The above chart shows what China got out of that: Not much.”
That’s because a trillion just doesn’t go as far as it used to. How long until we are saying that about quadrillions?