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Page added on August 11, 2015
China devaluation heralds currency war
China’s surprise 2 percent devaluation of the yuan on Tuesday pushed the dollar higher and raised the prospect of a new round of currency wars, just as Greece reached a new deal to contain its debt crisis.
Stocks fell in Asia and Europe as investors worried about the implications of the move to support China’s slowing economy and exports.
The stronger dollar hit commodity prices, driving crude oil down after Monday’s hefty gains.
Weaker stocks lifted top-rated bonds, with yields on euro zone debt also driven lower by the Greek deal, nine days before Athens is due to repay 3.2 billion euros to the European Central Bank.
China’s move, which the central bank described as a “one-off depreciation” based on a new way of managing the exchange rate that better reflected market forces, pushed the yuan to its lowest against the dollar CNY=CFXS in almost three years.
The Australian dollar AUD=D4, often used as a liquid proxy for the yuan, fell 0.9 percent to $0.7346 as the U.S. dollar rose 0.4 percent against a basket of currencies .DXY before paring gains.
In Asia, the Singapore dollar SGD=D3 hit a five-year low while the Malaysian ringgit MYR= and the Indonesian rupiah IDR= hit lows not seen since the Asian financial crisis 17 years ago. The Japanese yen JPY= hit a two-month low of 125.08 to the U.S. dollar.
The euro EUR=, buoyed by the Greece deal, rose 0.2 percent to $1.1040.
“Devaluation of the yuan likely won’t end here. Currencies like the Singapore dollar, South Korean won and Taiwan dollar which stand to compete with China, are falling and today’s move could generate headlines heralding the start of a devaluation war,” said Masafumi Yamamoto, senior strategist at Monex in Tokyo.
U.S. reaction will be crucial. Washington has for years pressed Beijing to free up the exchange rate to allow the yuan to strengthen, reflecting growth in the world’s second-largest economy.
Today, China’s economy is slowing and the new exchange rate mechanism gives markets greater ability to push the yuan lower, just as the United States prepares to raise interest rates – a step that should add to dollar strength.
European shares fell. The pan-European FTSEurofirst 300 index .FTEU3 was down 0.5 percent, led lower by car makers and luxury goods companies, whose products just got more expensive for Chinese consumers. Shares in Athens .ATG rose 1.6 percent.
This followed falls in Asia. MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS gave up early gains and was last down 1.2 percent at its lowest since February 2014. Japan’s Nikkei .N225 slipped 0.4 percent.
On Chinese stock markets, airlines and importers fell, though exporters rose. The CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen lost 0.4 percent and the Shanghai Composite .SSEC closed flat.
BONDS
Weak stocks boosted top-rated bonds. Germany’s benchmark DE10YT=TWEB fell 2.7 basis points to 0.68 percent and U.S. 10-year yields US10T=RR dropped more than 4 basis points to 2.19 percent.
The deal on a third bailout for Greece also helped yields on lower-rated Spanish and Italian bonds drop 3 bps apiece while Greek two-year yields GR2YT=TWEB fell 4 percentage points to 15.25 percent.
“The Chinese devaluation was taken as ‘things are not going that well in China’ and this is a risk-off move,” said Martin van Vliet, senior rate strategist at ING, adding that “with the Greek deal secured and the ECB continuously buying bonds, peripheral spreads would have been much tighter otherwise.”
Oil prices fell as the dollar strengthened. Brent crude LCOc1 was last down 32 cents a barrel at $50.09.
Gold XAU= fell as low as $1,093.25 before recovering to $1,114.56.
31 Comments on "China devaluation heralds currency war"
Rodster on Tue, 11th Aug 2015 8:23 am
China is NO different than the Western Banksters. Their actions prove they are even more corrupt than what we already have. Trust China at your own peril.
Makati1 on Tue, 11th Aug 2015 8:50 am
Reuters: “Rah Rah Rah! US! US! US! LMAO
All this means is that the US trade gap is going to grow even faster and the flow of dollars to China, for their exports, is going to increase.
A ‘strong dollar’ means that it just has that much higher a position to plunge from when it all collapses.
There will be NO rate increase in the US unless TPTB decide to pull the plug and make ALL of the 99%, beggers in reality and to possibly start WW3.
If they even try a 1/4% increase, I suspect that they will either pull back quickly or start another money printing binge, like the last 3, to try to keep the house of cards standing a bit longer. Maybe a check to the serfs this time? Nah! The TBTF banks come first, then the M.I.C., then the politicians, and then, if there is any left, (never) the peasants.
Davy on Tue, 11th Aug 2015 9:08 am
Poor, Mak, trying to put a happy face on a really ugly Chinese economic situation that has major repercussions for all of us but in particular Asia. His tiny Island will soon catch the cold China has. It is a tiny Island of a 100MIL so that can’t be good. Makster the US is going to crash and burn too but unfortunately all your super heroes (Brics) are ahead of us. Too bad for your failed agenda that has egg all over your face. You are so pathetic when you are wrong. You remind me so much of Baghdad Bob!
Davy on Tue, 11th Aug 2015 9:16 am
Zero Hedge is really “Hot and Bothered” over China. Makster please put a happy face on this. I need a good morning laugh!
China Enters Currency War – Devalues Yuan By Most On Record
http://www.zerohedge.com/news/2015-08-10/china-devalues-yuan-fix-most-record-plunges-28-month-lows-against-dollar
China’s Historic Devaluation Sends Equity Futures, Oil, Bond Yields Sliding, Gold Spikes
http://www.zerohedge.com/news/2015-08-11/chinas-historic-devaluation-sends-equity-futures-oil-bond-yields-sliding-gold-spikes
China “Loses Battle Over Yuan”, And Now The Global Currency War Begins
http://www.zerohedge.com/news/2015-08-11/china-loses-battle-over-yuan-and-now-global-currency-war-begins
Who Could Have Possibly Foreseen China’s Shocking Devaluation?
http://www.zerohedge.com/news/2015-08-11/who-could-have-foreseen-chinas-shocking-devaluation
Rodster on Tue, 11th Aug 2015 9:26 am
China has overbuilt, oversupplied it’s RE markets, and infrastructures including ghost cities and factories. They have taken on massive debts, pumped more funny money into their banking system and some estimates are about $23-25 Trillion which pales in comparison to what The Fed was doing between 2008-2013.
China is a shitshow and i’ll be amazed if the citizenry doesn’t come marching with pitchforks after their leaders when they’ll lose everything.
penury on Tue, 11th Aug 2015 9:41 am
The ongoing “debate” between Mak and Davy is always entertaining, however it is my opinion that both the U.S. and China are going in the same direction at the same speed, the only question really is when will the shooting start?
Davy on Tue, 11th Aug 2015 10:08 am
Pen, when have I ever said differently?
If the shooting starts that will likely be the end. Both economies are too interdependent and globally dominant in synergistic ways as importer and exporter.
I have always said this China project was a collaboration of the global elite for personal gain at the global public and global ecosystem’s expense. No one in their right mind could think the China project good for the earth. The U.S. Off-shored its waste so the ecological destruction in China is owned by the U.S. too.
Pen, it is The Makster that is unbalanced. Have you ever heard him say one good thing about the west or one bad thing about any of the Brics? I haven’t.
The Makster is a narsasitic anti-American with an agenda of resentment and hate. He is the worst kind for a board like ours in search of the truth. Many people like him because he preaches a populist message of hate towards the western establishment especially the U.S.
That goes with the territory because the U.S. Is one of the biggest dangers now to world peace. Naturally people are disgusted with American culture but Pen show me an alternative. There are none. The whole world is a mess. We have to rise above that hate and resentment for what is ahead.
Nony on Tue, 11th Aug 2015 10:37 am
In an interconnected economic world, it’s not about bad things for China being good for the US and visa versa. The US benefits when China does well and China benefits when we do well.
Yes, if it were a zero sum game, I would surely pick the US over China. But it really is the opposite of that.
Bad news for China is not good news for the US.
Nony on Tue, 11th Aug 2015 10:52 am
By the way, WTI has actually dropped more than Brent. 3.5% versus 2.8%.
http://www.fxstreet.com/news/forex-news/article.aspx?storyid=caae8263-7035-42ec-b9f8-aae4f54e5902
So while the China news should send oil down overall it ought to affect Brent more than WTI, because China pays world prices, not US prices (where the export restrictions limit WTI price realization). But the opposite of what should have happened, happened. Seems like the market is factoring in some more ideas of US shale fortitude or new knowledge that downplays the idea of export bans going away (although seems like recent news was the other way).
It could also be that I am reading too deep into tiny random hourly variations. 😉
BobInget on Tue, 11th Aug 2015 11:19 am
Stronger USD’s are great for Canada’s chief export, oil. Today’s sell-off in Canadian oil companies points up how knowledgable typical energy investors are not.
Determined shorts are using China’s devaluation to great advantage.
http://www.nytimes.com/2015/08/12/upshot/why-did-china-devalue-its-currency-two-big-reasons.html?_r=0&abt=0002&abg=0
Yes, China wants to replace USD’s as world’s reserve currency. Is this a news flash for you?
Here’s more of what I’ve been trying to articulate for years.
http://www.dailyreckoning.com.au/what-every-resource-investor-needs-to-know-about-the-middle-east/2015/08/11/
Overlooking Mideast wars, Climate Changes,
is like ignoring moving buses in crosswalks.
Both have profound effects on a daily basis.
Davy on Tue, 11th Aug 2015 12:47 pm
Bob, the idea that China will replace the USD with their own is hubris just as the US believing it will continue to dominate a multi-polar world is a dead end of brinkmanship. Both side have leaders with unrealistic expectations. It is not possible at this point for either country to dominate. The math will not allow it.
Nony on Tue, 11th Aug 2015 1:44 pm
Just looked at the tape again. WTI is definitely getting pounded harder than Brent. WTI just dipped under 43 and Brent popped over 49. That’s opened to a $6+ spread. I think the market is suspicious of the LTO crazies. “Put down the drilling rigs and walk away from the table!” is what the market is saying.
idontknowmyself on Tue, 11th Aug 2015 1:50 pm
Governmental officials all round the world seem in panic mode and are not hiding it very well.
There is a possibility that panic from the governmental official trick down and make people panic too. That could mean lost of confidence in currency, stop of international trading, hoarding of all kind of goods and empty store shelve, more violence behaviour from the poor like we see in Ferguson.
It looks like human biological behaviour is about to bring down confidence in currency and die off of human.
Davy on Tue, 11th Aug 2015 1:57 pm
I don’t, what part of the world you from Sir? Just curious not for or against you. You are new to this board.
idontknowmyself on Tue, 11th Aug 2015 1:59 pm
I am from Canada. The land where it is always cold.
Davy on Tue, 11th Aug 2015 2:25 pm
Thanks, Idont, if I could I would move far into the Canadian wilderness but this is my home in the central Missouri Ozarks. I love Canada great country.
Plantagenet on Tue, 11th Aug 2015 2:31 pm
Canada is always cold? Its going to be 91° today and hit 93° tomorrow in central BC
http://www.wunderground.com/cgi-bin/findweather/getForecast?query=harrison+hot+springs%2C+canada
Global Warming is going to hit us all….even Canada
Apneaman on Tue, 11th Aug 2015 2:36 pm
Davy is a Hell Raising Ozark Mountain Daredevil.
https://www.youtube.com/watch?v=kYvOsnhV6ZY
And I’m a “Clearly Canadian” Redneck Doomer.
https://www.youtube.com/watch?v=QZ_-IhpGXb8
Apneaman on Tue, 11th Aug 2015 2:38 pm
planty, no worries. I’m going to off-set all of it by recycling my plastic water bottles on my next international flight that I am taking to get more dopamine hits.
Davy on Tue, 11th Aug 2015 3:09 pm
Damn Ape Man, back when I used to get stone in the mornin and drunk in the afternoon I used to go out late at night and howl with the coyotes. My nickname was crazy Davy. That was 10 years ago….wow time flys.
Plantagenet on Tue, 11th Aug 2015 3:34 pm
Do the math, apie.
Recycling your plastic water bottles after you take an international flight has absolutely no effect either your personal CO2 footprint or on global CO2 levels in the atmosphere.
Cheers!
BC on Tue, 11th Aug 2015 3:56 pm
China’s devaluation only makes up for the decline in exports and the hit to GDP. China’s export drag will now vanish from the balance of payments ledger but be a one-off effect as is likely occurring for Germany and the EZ, and for Japan.
“Currency wars” no longer have the implied/desired effect when real GDP per capita and trade has stalled and capital, credit, and trade flows have effectively reached parity between the three major trading blocs.
Beggaring thy neighbor today with fiat digital debt-money currencies and LTG has effectively little or no net economic effect.
Apneaman on Tue, 11th Aug 2015 3:59 pm
That’s right planty were too late by decades. Suicidal cancer apes.
Makati1 on Tue, 11th Aug 2015 9:56 pm
There is a noticeable difference between China and the Empire of Chaos:
US reserves: $ 120,820,000,000.00
CHina: $ 3,784,838,000,000.00
US National Debt: ~$ 17.5 Trillion
China: ~$ 5.3 Trillion
(As of today, 12 August)
http://www.nationaldebtclocks.org/
The Chinese can live on $2 per day.
Americans? That would not even buy their 7-Eleven coffee and doughnut.
Davy on Wed, 12th Aug 2015 4:48 am
Folks, the Makster is so fun. He can’t stand that his super heroes have fallen ill. Every one of the Brics is sick and now the dangerous fall of China. The US is in bad shape granted. I am not like the Makster trying to put lipstick on a pig.
Makster there was a time when the Chinese could live on $2 a day. No longer because they traded their bikes in for polluting autos. They destroyed their farmland so they can’t feed themselves. They used to be subsistence people in the rural China but no longer. Now they are dedicated to production agriculture. Besides, Makster, it is you claiming the US will go third world and China 1st world. That sure ain’t happening! Give up the agenda Makster so we can go about solid scientific analysis here on this board.
“The Top’s In” David Stockman Warns Of “Epochal Deflation”
http://www.zerohedge.com/news/2015-08-07/tops-david-stockman-warns-epochal-deflation
“The truth hurts… especially permabullish CNBC anchors. But when David Stockman explained why “the top is in,” and warned that the world is overdue for an “epochal deflation, like nothing it has ever seen,” one should listen. The “debt supernova” of the last decade or two has created massive over-capacity and this commodity deflation “is not temporary, it’s the end of the central bank bubble.” The catalyst has already happened -“It’s China,” Stockman exclaims, “China is the most lunatic pyramid of credit and speculation.. and capital is now fleeing the swaying towers of the China ponzi.”
“China Has A Massive Debt Problem”, And Why It Is About Get Much Massiver
http://www.zerohedge.com/news/2015-04-22/china-has-massive-debt-problem-and-why-it-about-get-much-massiver
China has a $28 trillion problem. That’s the country’s total government, corporate and household debt load as of mid-2014, according to McKinsey & Co. It’s equal to 282 percent of the country’s total annual economic output.
China’s Communist-Capitalist Ecological Apocalypse
http://www.truth-out.org/news/item/31478-china-s-communist-capitalist-ecological-apocalypse
This article seeks to explain why China’s environmental crisis is so horrific, so much worse than “normal” capitalism most everywhere else, and why the government is incapable of suppressing pollution even from its own industries. I begin with an overview of the current state of China’s environment: its polluted air, waters, farmland and the proximate causes, including overproduction, overdevelopment, profligate resource consumption, uncontrolled dumping and venting of pollutants. I then discuss the political-economic drivers and enablers of this destruction, the dynamics and contradictions of China’s hybrid economy, noting how market reforms have compounded the irrationalities of the old bureaucratic collectivist system with the irrationalities of capitalism resulting in a diabolically ruinous “miracle” economy.
BobInget on Wed, 12th Aug 2015 2:59 pm
It’s being said because oil is denominated in UDS’s, China, despite thriving export markets won’t be able to import the 7.23 million barrels it does today.
This, I maintain is total uninformed bullshit.
On the contrary. China has been busy for many years making deals, loans, exportations in South America, Venezuela, Ecuador, Central American countries etc. In Africa China is a prime customer. Middle East nations Iran and Iraq. Best for last. China created Markets for its goods and services. China is in the best position today to barter goods (cars,. trucks, farm and mining equipment etc) for food and oil.
IOW’s they don’t need to exchange currently overvalued dollars for oil or food products.
China has developed trade with India in the same fashion. China can sell India/Pakistan
oil on the same sort of deals.
Sanctions on Iran worked the same magic for China that fear of low oil prices worked for
savvy energy investors who put on boots, stepped through ‘blood in the streets’ and picked up Canadian and US E&P’s equities on the cheap.
marmico on Wed, 12th Aug 2015 3:14 pm
Doomer-Davy, you are an innumerate word salad prattle moron.
There are 50 million “5 percenter” Chinese that would move to southern California in a heart beat and gladly pay for desalination infrastructure. Don’t worry, they have no interest in the Ozarks. They know it is the home of dipshits.
Davy on Wed, 12th Aug 2015 3:50 pm
Marmi, are you ok? You have been acting strange these last days. Are you spooked? I am sorry I had to say I told you so but I told you so. Remember about 8 months ago when I said the shit is goin down. Marmi, the shit is goin down.
marmico on Wed, 12th Aug 2015 4:05 pm
Ya right. In your world the shit has being goin [sic] down since 1798 (Malthus).
apneaman on Wed, 12th Aug 2015 4:55 pm
No, 20 years ago I thought we were 60 – 100 years away from where we are today on resources and centuries away on the biosphere – too much faith in tech and free will back then. Your still playing that game that says if a prediction date was not 100% right then it means it can never happen. A few ape decades or generations don’t mean shit to universal laws. There is a long long list of dead civilizations and belief systems that had the same arrogance and certainty of their permanence as this one. Do you think they are extinct because they did not practice econ 101? There is an even longer list of dead species and we have all but guaranteed our reservation. You really think that abstract mathematical resource distribution system you have all your faith in is the be all and end all? It’s just the latest in a long line of failed ape social constructs.
Davy on Wed, 12th Aug 2015 5:04 pm
Marmi, who the hell is Malthus? Oh, Marmi, you mean Walter Matthaus. You devil Marmi, I love the “Odd Couple” too. Marmi, he didn’t live in 1798 he was born in 1920.