Tag Archive: China

Irredeemable Currency Is a Roach Motel, Report 9 June

2019-06-10

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2019-06-10

In what has become a four-part series, we are looking at the monetary science of China’s potential strategy to nuke the Treasury bond market. In Part I, we gave a list of reasons why selling dollars would hurt China. In Part II we showed that interest rates, being that the dollar is irredeemable, are not subject to bond vigilantes.

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FX Daily, June 05: Dollar Remains on Back Foot

2019-06-05

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2019-06-05

Overview: The Federal Reserve's patience never excluded a rate cut should conditions warrant. The acknowledgment of this without signaling a change its stance is being seized upon to justify aggressive pricing of rates. At the same time, there has some tempering of trade anxiety on the margin that is also constructive. Asia and European equities were pulled higher after the strongest rally in several months in the US. 

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Dollar Supply Creates Dollar Demand, Report 2 June

2019-06-03

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2019-06-03

Gold and Silver Price
We have been discussing the impossibility of China nuking the Treasury bond market. We covered a list of challenges China would face. Then last week we showed that there cannot be such a thing as a bond vigilante in an irredeemable currency. Now we want to explore a different path to the same conclusion that China cannot nuke the Treasury bond market.

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The Crime of ‘33, Report 27 May

2019-05-28

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2019-05-28

Gold and Silver Price
Last week, we wrote about the impossibility of China nuking the Treasury bond market. Really, this is not about China but mostly about the nature of the dollar and the structure of the monetary system. We showed that there are a whole host of problems with the idea of selling a trillion dollars of Treasurys: Yuan holders are selling yuan to buy dollars, PBOC can’t squander its dollar reserves If it doesn’t buy another currency, it merely tightens...

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FX Weekly Preview: The Evolution of Three Issues are Key in the Week Ahead

2019-05-27

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2019-05-27

As May winds down, the light economic calendar will allow investors to take their cues from the evolution of three disruptive forces--trade, Brexit and the US economy. With actions against Huawei and possibly a handful of Chinese surveillance equipment producers, the US raised the stakes. The retaliatory tariffs are effective on June 1, but Beijing has not formally responded to the moves against Chinese companies.

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FX Daily, May 22: Sterling Can’t Get Out of Its Own Way

2019-05-22

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2019-05-22

Overview:   There is a nervous calm in the capital markets.  Yesterday's rally in US shares failed to excite global investors.  China, Hong Kong, and Taiwan markets fell, while Japan was mixed. Foreign investors continued to sell Korean shares, but the Kospi rose.  European shares narrowly mixed, leaving the Dow Jones Stoxx 600 little changed.

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Rare Earths may Provide Leverage

2019-05-22

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2019-05-22

Many American observers argue that the trade imbalance gives the US an advantage in a trade war with China. The US enjoys escalation dominance in tariffs because Chinese imports of US goods are so much less than the US imports of Chinese goods.  However, the focus on quantities may be misleading.

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FX Daily, May 21: Equities Find Some Traction while the Dollar Firms

2019-05-21

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2019-05-21

Overview:  Equities are paring some of their recent losses.  The MSCI Asia Pacific Index is posting its first back-to-back gain in a month, led by a more than 1% rally in China.  Heightened prospects for an Australian rate cut in a few weeks helped extend the run in the local equity market to a new record high.  European bourses are higher, with the Dow Jones Stoxx 600 rising around 0.3% in the morning session.

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China’s Nuclear Option to Sell US Treasurys, Report 19 May

2019-05-21

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2019-05-21

Gold and Silver Price
There is a drumbeat pounding on a monetary issue, which is now rising into a crescendo. The issue is: China might sell its holdings of Treasury bonds—well over $1 trillion—and crash the Treasury bond market. Since the interest rate is inverse to the bond price, a crash of the price would be a skyrocket of the rate. The US government would face spiraling costs of servicing its debt, and quickly collapse into bankruptcy.

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FX Weekly Preview: The Week Ahead featuring the Battle for 7.0

2019-05-20

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2019-05-20

The strategic objective is to integrate China into the world economy. The liberal international solution was trade, investment flows, and cultural exchanges. The rise of nationalism and China's own willingness to flaunt the international rules are defeating the strategy.

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FX Weekly Preview: Trade, the Dollar, and the Week Ahead

2019-05-13

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2019-05-13

China is isolated on trade. No one supports its trade practices. The idea that China was going to "naturally" evolve to be more like the US, or Europe for that matter, was always fanciful and naive. The emergence of China, as Napoleon warned two centuries ago, would make the world shake.

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Trade Wars Have Arrived, But It’s Trade Winter That Hurts

2019-05-13

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2019-05-13

U.S. Imports from China, Jan 1989 - 2019
There is truth to the trade war. That’s a big problem because it’s not the only problem. It isn’t even the main one. Given that, it’s easy to look at tariffs and see all our current ills in them. The Census Bureau reports today that the trade wars have definitely arrived. In March 2019, US imports from China plummeted by nearly 19% year-over-year.

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China’s Export Story Is Everyone’s Economic Base Case

2019-05-10

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2019-05-10

China Exports, 1998-2018
The first time the global economy was all set to boom, officials were at least more cautious. Chastened by years of setbacks and false dawns, in early 2014 they were encouraged nonetheless. The US was on the precipice of a boom (the first time), it was said, and though Europe was struggling it was positive with a more aggressive ECB emerging.

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FX Daily, May 09: De-Risking as US-China Trade Talks Resume

2019-05-09

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2019-05-09

The end of the tariff truce between the US and China continues to dominate investment considerations. The truce was often cited in narratives explaining the recovery of equities from the Q4 18 slide. Ahead of the midnight US tariff hike, global equities are being smashed. Korea's Kospi was off 3%, and Hong Kong's Hang Seng was shed 2.4%. Shanghai lost 1.5%.

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FX Daily, May 06: Trump’s Tariff Tweets Help Investors Discover Volatility

2019-05-06

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2019-05-06

Reports that a US-China deal could be struck by May 10 before the weekend left investors ill-prepared for the presidential tweets yesterday that announced that the US was ending the tariff truce. Trump indicated that the 10% tariff on $200 bln of Chinese goods would be lifted to 25% at the end of the week and that the remaining $325 bln of Chinese goods that have not been subject to an extra levy, will be slapped with a 25% tariff soon.

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FX Daily, May 01: No Help on May Day, which is also Fed Day

2019-05-01

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2019-05-01

The May Day holiday has shut most markets in Asia and Europe, making for subdued market action. Equity markets that are open, like Australia and the UK, advanced and US shares are trading higher helped by Apple's upbeat forecasts and sales that beat expectations.

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FX Weekly Preview: Six Events to Watch

2019-04-22

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2019-04-22

The divergence thesis that drives our constructive outlook for the dollar received more support last week than we expected. A few hours after investors learned that Japan's flash PMI remained below the 50 boom/bust level, Europe reported disappointing PMI data as well. And a few hours after that the US reported that retail sales surged in March by the most in a year and a half (1.6%).

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China’s Blowout IP, Frugal Stimulus, and Sinking Capex

2019-04-19

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2019-04-19

China Industrial Production 1999-2019
It had been 55 months, nearly five years since China’s vast and troubled industrial sector had seen growth better than 8%. Not since the first sparks of the rising dollar, Euro$ #3’s worst, had Industrial Production been better than that mark. What used to be a floor had seemingly become an unbreakable ceiling over this past half a decade. According to Chinese estimates, IP in March 2019 was 8.5% more than it was in March 2018. That was far more...

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FX Daily, April 17: Veracity of Chinese Data Questioned, but Lifts Sentiment Nevertheless

2019-04-17

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2019-04-17

The veracity of Chinese data will be questioned by economists, but today's upbeat reports round out a picture that began with stronger exports and a surge in lending. Chinese officials, we argue, had a "Draghi moment" and decided to do "whatever it takes" to strengthen the economy in the face of US tariffs and during the 70th anniversary of the Revolution.

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Coloring One Green Shoot

2019-04-16

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2019-04-16

China Retail Sales, 2010-2018
China’s Passenger Car Association reported last week that retail sales of various vehicles totaled 1.78 million units in March 2019. The total was 12% less than the number of automobiles sold in March 2018. This matches the government’s data, both sets very clear as to when Chinese economic struggles accelerated: May 2018.

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