Search This Blog

Wednesday, 12 August 2015

All Heck Breaks Loose After Freaked-Out People’s Bank of China Devalues Yuan Again

Wolf Street

ow freaked out can the People’s Bank of China be about the Chinese economy that has been growing admirably at 7% this year, according to the government?

OK, there are some quibblers who might point out that car sales in July have plunged 6.6% to a 17-month low, after having already shrunk in June, and after having trended down all year, in the largest auto market in the world with the largest auto manufacturing capacity in the world that had been growing in leaps and bounds and had pushed job creation, investment, and GDP to new heights.

US automakers have bet the farm on China. This is where growth would come from. But in July, Ford sales through its joint ventures dropped 6% year-over-year, the third monthly decline in a row, and GM’s sales through its joint ventures dropped 4%. A vicious price war has broken out. In a market that has gotten used to seeing double-digit growth!

And granted, exports and imports plunged too, and producer prices plunged, and the totally crucial property sector is wobbly, and manufacturing plants get shut down as overcapacity is running rampant, and all kinds of other things plunged or stagnated or wobbled, and now the PBOC is truly freaking out.

Tuesday morning it had devalued the yuan by lowering the daily reference rate by a record 1.9% against the dollar. The spokesman called it a “one-time correction.”

The yuan – after moving no more than 0.01% against the dollar in the prior weeks and trading in Shanghai between 6.2096 and 6.2097 against the dollar for days – instantly plunged, and ended the day at 6.3248.

It shook up the markets, pushed down metals, oil, other commodities, and emerging market currencies. The Nikkei plunged until the Bank of Japan’s muscled intervention put a floor under it. As part of its well-communicated QQE policies, the BOJ buys equity ETFs when stocks start dropping. Hedge funds expect it and start buying with the BOJ. It works like a charm. And then in the US, stocks swooned too.

Read more

No comments:

Related Posts Plugin for WordPress, Blogger...