China Slashes Yuan

[errolanderson]

It's race to the bottom for which country has the cheapest currency and greatest export advantage. China just slashed their currency tonite, that most since 1994.

http://www.bloomberg.com/news/articles/2015-08-11/china-weakens-yuan-reference-rate-by-record-1-9-amid-slowdown

This is now turning into a massive global currency war.

[riders2010]

I m confident we ll win. With an economy that is basing itself on one industry oil when ther are new discoveries everywhere with China Russia and the middle east trading more than ever. We ve got this! Is there some type of trophy or award for the lowest dollar?

The only way we lose this race to the bottom is if we go to war in the Middle East and control the oil fields. So that they don't flood the world market. But we d never do that. We'd have to say to our own citizens and the world we re over there concerned about those refugees and bring 10,000 of them over here and then start a domestic counter terrorism plan. The wheel just goes round and round.

[SASKFARMER3]

So if its a advantage to have a low currency why aren't we getting any benefits. Why is our fertilizer based on USdollar yet produced here. Grain companies do nothing to give us the benefit.

[errolanderson]

China devalued their currency 2% last nite fueling the prospect of intensified currency wars. This has huge ramifications to markets worldwide.

Stocks falling globally as a result as investors worried about the implications designed to support China's exports.

Biggest Yuan drop in 20 years.

This will likely close the case entirely of the U.S. Fed hiking rates in 2015 (IMO).

[cottonpicken]

High exports but also low imports the current account and balance of trade rescipe for success.

Race to the bottom not so much. 3rd world vs 1st not sure i want to think about this to much.

[errolanderson]

China's move appears destabilizing to commodity markets and Asian currencies. Also, the fact that the Chinese made this currency devaluation ahead of the Sept Fed rate decision smells of a brewing trade war with the U.S.

Oh, Donald Trump will have lots to shout about now.

[errolanderson]

Another 2% slash by China overnight . . . this is a full on global currency war. This is gonna get ugly . . .

[Oliver88]

http://www.bloomberg.com/news/articles/2015-08-11/asian-futures-tip-another-down-day-as-yuan-move-rattles-markets

China Roils Markets for Second Day as Yuan Tumbles With Stocks

China’s yuan led the biggest two-day slide in Asian currencies since 2008, fueling concern that financial-market volatility will curb global economic growth. Stocks fell around the world, while Treasuries rose with gold.
The yuan slid 1 percent in onshore trading even as people familiar with the matter said the People’s Bank of China intervened to stem losses after setting the currency’s reference rate 1.6 percent lower. The turmoil sent European stocks down to a one-month low, dimmed the outlook for U.S. inflation and caused investors to reduce bets on higher Federal Reserve interest rates. That in turn weakened the dollar against the euro and the yen.
“China is a big growth driver around the world, so there’s a certain risk to global growth,” said Otto Waser, chief investment officer at R&A Research & Asset Management AG in Zurich. “If the world economy turns out to be weaker, the Fed will keep an eye on the dollar.”
The MSCI All-Country World Index of equities dropped 0.5 percent at 8:44 a.m. in New York. The Bloomberg JPMorgan Asia Dollar Index extended its two-day slide to 2.1 percent while the yield on 10-year Treasuries fell three basis points to 2.11 percent and the rate on two-year German notes dropped as low as minus 0.29 percent.
China’s decision on Tuesday to devalue the yuan and shift to a more market-determined rate sparked concern that the world’s second-largest economy is faltering. Vietnam widened the trading band on its currency Wednesday, underscoring the risk of competitive devaluations that’s dragging down emerging-market exchange rates from Brazil to South Korea.
Options Volumes
The yuan dropped 2 percent in offshore trading and has returned to levels last seen in January 2011. There’s no economic or financial “basis” for the exchange rate to fall continuously, the PBOC said. Data Wednesday showed fixed-asset investment grew at the slowest pace since December 2000 in July, while the rate of expansion for retail sales and industrial production also weakened.
Malaysia’s ringgit weakened to more than 4 per dollar for the first time since the 1998 Asian financial crisis, while the Indonesian rupiah also traded at the weakest in 17 years.
Developing-nation stocks extended declines in a bear market, with the MSCI Emerging Markets Index losing 1.2 percent.
The Stoxx Europe 600 Index fell 2 percent, led by a slump in commodity producers and automakers. Standard & Poor’s 500 Index futures lost 0.7 percent.
Alibaba Buyback
Alibaba Group Holding Ltd. declined 5.6 percent in premarket trading, paring earlier losses, after saying it will buy back as much as $4 billion of stock as it tries to revive a share price battered by concerns about China’s economy.
European currencies led developed-market gains in foreign-exchange markets as the Bloomberg Dollar Spot Index reversed an earlier advance to drop 0.7 percent.
The euro jumped 1 percent to $1.1153, rising for a sixth day and reaching its highest level since July 13. The yen strengthened 0.8 percent to 124.16 per dollar amid speculation the Bank of Japan doesn’t want it to weaken much further.
U.S. government debt is getting a boost from a drop in the inflation outlook, with the 10-year break-even rate sliding as low as 1.62 percentage points, the lowest since March.
Fed Bets
Traders are pricing in a 40 percent chance the Fed will raise borrowing costs at its September meeting, based on the assumption that the benchmark rate will average 0.375 percent following the increase, data compiled by Bloomberg show. That’s down from 54 percent on Aug. 7.
Gold rose for a fifth day, the longest stretch since May, as China’s devaluation spurred demand for haven assets. Bullion advanced 0.9 percent to $1,118.25 an ounce.
Most industrial metals fell as nickel plunged to the lowest level since 2008, while copper and aluminum traded near six-year lows. Nickel fell as much as 15 percent on the London Metal Exchange to $9,100 a metric ton before paring losses to 2.1 percent. The drop was the biggest since 2011.
Oil rebounded from the lowest close in six years. West Texas Intermediate rose 1.5 percent to $43.73 a barrel. Crude has fallen about 30 percent since this year’s peak closing price in June amid speculation the global surplus that drove prices into a bear market will persist.

[errolanderson]

China appears panicking . . . .

Their July exports dropped by more than 8%. They have to keep their population working in factories.

[farming101]

The folks in China invest in new cities that no one lives in.
Why not keep the factories running and send the finished product straight to the the recycler?
MADNESS!!!

[bucket]

Tell me I need more tin foil but I can't help but think this is a market play for the Chinese to buy product they need cheap.

If the devalue their currency by 2 percent but commodities drop 10 to 20 percent somehow I think we are being played.

And the Chinese are master marketers - centuries more experience.

Tin foil please?

[errolanderson]

bucket . . . a currency devaluation makes it more expensive for China to purchase / import. Their concern appears on the export side.

They are so heavily reliant on factory production for ship to Long beach terminal and through the U.S. Walmart chain.

[TOM4CWB]

I don't think anyone should be surprised... that China is doing what the IMF told them they needed to do. The US$ is King by a long shot... and will remain on top for now if protectionist policies can be resisted.

Here is a very good DTN article by Cliff Jamieson Canadian Grains Analyst.

China's Currency Devaluation and its Implications
"If you are going to use probability to model a financial market, you had better use the right kind of probability. Real markets are wild. Their price fluctuations can be hair-raising -- far greater and more damaging than the mild variations of orthodox finance." -- Benoit Mandelbrot, The Misbehavior of Markets

**

Today's 1.9% devaluation of the Chinese Yuan against the U.S. dollar blindsided the entire world and had a tremendous negative impact on both commodities and equity prices on Tuesday. The short-term uptrend in grains and oilseeds may have come to an end, and around the globe, number crunchers will be trying to forecast the impacts from such a move. The world may be quickly divided into two camps -- those who will enjoy the benefit of cheaper imports from China's marketplace while others will be faced trying to export to this nation whose currency devaluation has led to reduced purchasing power.

This story may be far from over. While the country referred to this move as a one-time adjustment and the first of its kind seen in 20 years, a new market-driven scheme has been announced for the daily fixing of the Yuan against the U.S. dollar, based on the previous day's market close and a plus/minus-2% range.

There may be many reasons for such a move. To date, China has been unsuccessful in courting the International Monetary Fund to have its currency included in a basket of currencies which is viewed as a benchmark for global currencies. In order to meet the needs of the IMF, China must have a "freer floating and accessible currency," with Bloomberg reporting that the Chinese Yuan's share of world payments in December 2014 was 2.2%, as compared to 2.7% for the Japanese Yen, 7.9% for the British Pound, 28.3% for the Euro and 44.6% for the U.S. dollar.

China's other enormous problem remains its struggling economy and ongoing risks of deflation. Despite the country's weak economic data, which saw exports fall 8.3% in July from the previous year, its currency has been dragged higher by the trending U.S. dollar while compounding the country's issues, with the country said to be facing its weakest performance in 25 years.

The implications are many. Concerns exist that an outflow of capital from China could result in further upward pressure on the U.S. dollar, in turn weighing further on U.S. dollar denominated commodities as well as commodity currencies such as the Canadian dollar. Other reports suggest that the use of commodities as collateral for bank loans in China could result in commodities sold off as deals are unwound, further pressuring commodity markets. As well, overall import demand will be tempered as commodity prices move higher in Yuan terms.

Some headlines are already suggesting a potential race to the bottom with respect to currencies and a looming currency war as countries around the world struggle to defend their domestic economies. Only time will tell...

**

We sold old crop wheat and canola yesterday and very decent prices. Great basis and the bounce and cheap CDN$ is helping greatly!

[rockpile]

One thing to remember is that Chinese markets are very corrupt, dishonest and open to manipulation. And the IMF will not recognize the Yuan as part of the global currency basket. Also I believe, correct me if I'm wrong, that over 90 % of Chinese stocks and markets are owned by the Chinese themselves so they should be the ones to really take the hit. As for buying market share - who wants to deal with them right now? Good post Tom. Will be interesting to see how this plays out.

[cottonpicken]

Right back to where we where eleven years ago pretty weird.

Playing devils advocate put the us back on top and china goes back to santas workshop. Lots of holes in that though.