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Showing posts with label PBOC. Show all posts
Showing posts with label PBOC. Show all posts
Saturday, 17 September 2016
Friday, 12 August 2016
Reflecting back a year after the PBOC Yuan devaluation
Calmness and confidence were the flavours of the day yesterday as the world used a moment of retrospection to remind itself of the events that happened a year ago when the People's Bank of China sudden devaluation of the Yuan marked the beginning of a financial volatility storm that blew away out of touch complacency and filled the air with fear.
Although the move helped bring about a correction in Chinese equity valuations that had drawn in so many deluded citizens hoping to cash in on the "never ending" stock craze casino, it hasn't driven it back enough for real investors to feel comfortable of a realistic outlook.
At the time I can recall making the suggestion that the weight of China in the global economic equation was truly felt by the shockwaves it sent throughout the world financial system that held it down for the next six months after it had happened. I still believe the day marked a point where China could no longer throw smokescreens in front of the market and expect it to go unnoticed.
The core of uncertainty emanated from the consistent interference from Chinese officials in various parts of the economy with many expecting such drastic action by the PBOC to imply greater intervention in the future. However the central bank must be applauded for staying its ground after realizing soon enough that such undertaking would tarnish the reputation of its fragile investment image that's suffered tremendously and possibly harm future prospects.
But the real test a year later is will they continue to abide by this stance of non-interference or will they take their chances and challenge the limitless might of the market as a whole?
Although the move helped bring about a correction in Chinese equity valuations that had drawn in so many deluded citizens hoping to cash in on the "never ending" stock craze casino, it hasn't driven it back enough for real investors to feel comfortable of a realistic outlook.
At the time I can recall making the suggestion that the weight of China in the global economic equation was truly felt by the shockwaves it sent throughout the world financial system that held it down for the next six months after it had happened. I still believe the day marked a point where China could no longer throw smokescreens in front of the market and expect it to go unnoticed.
The core of uncertainty emanated from the consistent interference from Chinese officials in various parts of the economy with many expecting such drastic action by the PBOC to imply greater intervention in the future. However the central bank must be applauded for staying its ground after realizing soon enough that such undertaking would tarnish the reputation of its fragile investment image that's suffered tremendously and possibly harm future prospects.
But the real test a year later is will they continue to abide by this stance of non-interference or will they take their chances and challenge the limitless might of the market as a whole?
It's 9:16am in HK. Exactly a year ago, China devalued the yuan. Today's fixing 6.6255— David Ingles (@DavidInglesTV) August 11, 2016
Happy #Yuanniversary pic.twitter.com/nWB8k2v7AD
Wednesday, 20 July 2016
The PBOC is speculated to be using intervention again
Last week I spoke about the ramifications of Brexit on the nature of global monetary policy going forward and said the Bank of England was poised to open its war chest of monetary tools to avert a deepening crisis in the British economy. I also said I thought a loosening stance from the BoE was likely to apply pressure on the US Federal Reserve regarding their divergent pledge to see interest rates normalised as opposed to its developed world counterparts such as Europe and Japan.
My assertiveness that this will indeed be the case was strengthened after it was reported the People's Bank of China may have intervened in the onshore currency market following an appreciation in the US Dollar which should've been offset by a devaluation in the Chinese Yuan with officials decidedly fixed the rate stronger.
The PBOC had steadied its hand with intervention when it abruptly devalued the local currency in the middle of last year causing shockwaves throughout the global financial system. After finding stability towards the beginning of this year it took the decision to allow market forces to dictate the direction of the price rather than set it itself.
Having followed this decision up until the Renminbi reached a six year low of 6.70 in the days gone by, its becoming abundantly clear that policymakers have reached an end of this resolution by observing the sudden appreciation of the local currency in an attempt to ward it away from this critical resistance.
Either the PBOC will be left to vehemently defend this level with all its might or it envisions a situation where the US economy is susceptible to economic headwinds that defer the Fed from raising rates as the global outlook remains bleak. Its own economy has yet to inspire forecasts that's turning the tide against the notion of a perpetual economic value generating machine.
My assertiveness that this will indeed be the case was strengthened after it was reported the People's Bank of China may have intervened in the onshore currency market following an appreciation in the US Dollar which should've been offset by a devaluation in the Chinese Yuan with officials decidedly fixed the rate stronger.
The PBOC had steadied its hand with intervention when it abruptly devalued the local currency in the middle of last year causing shockwaves throughout the global financial system. After finding stability towards the beginning of this year it took the decision to allow market forces to dictate the direction of the price rather than set it itself.
Having followed this decision up until the Renminbi reached a six year low of 6.70 in the days gone by, its becoming abundantly clear that policymakers have reached an end of this resolution by observing the sudden appreciation of the local currency in an attempt to ward it away from this critical resistance.
Either the PBOC will be left to vehemently defend this level with all its might or it envisions a situation where the US economy is susceptible to economic headwinds that defer the Fed from raising rates as the global outlook remains bleak. Its own economy has yet to inspire forecasts that's turning the tide against the notion of a perpetual economic value generating machine.
#Yuan rises most in a month as it looks like #PBOC may be defending 6.7: https://t.co/zTkiPB56w0 via @business pic.twitter.com/GQNxGI1bFQ— Quinton Mendes (@CadeTradeR) July 20, 2016
Thursday, 30 June 2016
How to analyse the Chinese yuan depreciation?
When combing through the past three months of financial market news flow you'd agree that the issue of China has gone very quiet lately which leaves investors wondering, why the sudden silence?
It's fair to say that Brexit and the rally in oil prices have dominated headlines for a while causing a disruption in the coverage on matters relating to China although it must also be said that a number of changes implemented by the Chinese government in terms of a lessening of financial market regulation have gradually been taking shape with the installment of a new Chinese Securities Regulatory Commission's chairman Liu Shiyu.
What we've seen evolve since Shiyu's appointment is a steadiness in the depreciation of the Chinese yuan against the dollar that eclipses the abrupt and sharp devaluation that took place in August last year that sent shockwaves through global markets.
The stark difference between the two events comes down to the fact that Shiyu has allowed the free market to decide an appropriate equilibrium whereas his predecessor, Xiao Gang, liberalised the market far too quickly that by the time it came to regulate the necessary parts in the market, participants saw this as signs of fear from the government.
Working hand in hand with the People's Bank of China (more commonly known as the PBOC) the CSRC has coordinated a greater certainty in policy going forward and in doing so has indirectly cooled down market fears from the height they had reached late last year.
This is yet another positive improvement stemming out from Chinese financial markets that will allow their securities to be included into global investment funds, thus broadening the diversification of investors in China.
However as much as China needs to be applauded with its efforts to align its own financial markets to a global benchmark, the actual depreciation of the yuan begins to tell a worrisome story of the future that'll have a profound impact on the global economy.
It says to us that foreign investors don't perceive a strong bounce in economic activity anytime soon indicated by the level of outflows that have exited the financial system this year alone. In the short term it may pull the brakes on the economy but over the long term it would certainly stimulate exports from China again.
Whether developed nations, who are suffering from severe currency appreciation, take kindly to this is another question altogether and will probably cause fingers to be pointed, increasing the chances of the world seeing a resurgence of currency wars.
It's fair to say that Brexit and the rally in oil prices have dominated headlines for a while causing a disruption in the coverage on matters relating to China although it must also be said that a number of changes implemented by the Chinese government in terms of a lessening of financial market regulation have gradually been taking shape with the installment of a new Chinese Securities Regulatory Commission's chairman Liu Shiyu.
What we've seen evolve since Shiyu's appointment is a steadiness in the depreciation of the Chinese yuan against the dollar that eclipses the abrupt and sharp devaluation that took place in August last year that sent shockwaves through global markets.
The stark difference between the two events comes down to the fact that Shiyu has allowed the free market to decide an appropriate equilibrium whereas his predecessor, Xiao Gang, liberalised the market far too quickly that by the time it came to regulate the necessary parts in the market, participants saw this as signs of fear from the government.
#China Onshore Yuan drops to 5.5yr low. pic.twitter.com/BGlT2q6YMz— Holger Zschaepitz (@Schuldensuehner) June 28, 2016
Working hand in hand with the People's Bank of China (more commonly known as the PBOC) the CSRC has coordinated a greater certainty in policy going forward and in doing so has indirectly cooled down market fears from the height they had reached late last year.
This is yet another positive improvement stemming out from Chinese financial markets that will allow their securities to be included into global investment funds, thus broadening the diversification of investors in China.
However as much as China needs to be applauded with its efforts to align its own financial markets to a global benchmark, the actual depreciation of the yuan begins to tell a worrisome story of the future that'll have a profound impact on the global economy.
It says to us that foreign investors don't perceive a strong bounce in economic activity anytime soon indicated by the level of outflows that have exited the financial system this year alone. In the short term it may pull the brakes on the economy but over the long term it would certainly stimulate exports from China again.
Whether developed nations, who are suffering from severe currency appreciation, take kindly to this is another question altogether and will probably cause fingers to be pointed, increasing the chances of the world seeing a resurgence of currency wars.
Exclusive: China to tolerate weaker yuan, wary of trade partners' reaction - sources https://t.co/rVYUP3BnvT pic.twitter.com/10xVNrxSkj— Reuters Top News (@Reuters) June 30, 2016
Friday, 8 April 2016
Focus turns to central bankers to qualm uncertainty
Markets have been edgy this week with much of the movement stemming from currency pairs as developed world's central banks and economies took centre stage as risk begins to build up. Most notably was the Japanese Yen's remarkable appreciation against all of its major peers with the government attempting qualm bullish optimism by saying it was ready to intervene in the market at any given time.
The abrupt appreciation of the Yen flies in the face of policymakers at the Bank of Japan who have tried but failed in their attempts to depreciate the currency with extremist monetary policy that's seemingly had an inverse impact.
We also saw shakiness in the Euro as a number of issues take strain on the economic bloc. The ECB came out reassuring the market of it's willingness to up its ante if the stimulus measure currently in place failed to produce the desired outcome market participants had been expecting.
Apart from the monetary woes weighing heavily on the Eurozone, political scandals are not afar with leaked transcripts of conversation between IMF officials providing impetus to believe that negotiations surrounding a renewed bail out deal with Greece and the Troika is set to display the same indecisiveness produced at the beginning of last year.
Notwithstanding this, the worry that the Brexit referendum vote will need more convincing than once thought adding further complexity to matter within the region with the date of both aforementioned issues falling within a tight schedule that wouldn't allow policymakers to give enough attention to each.
It was the turn of Fed Chair Janet Yellen to face the scrutiny of the market's nervousness after she sat on a panel with former Federal Reserve Chairman Paul Volcker, Alan Greenspan and Ben Bernanke discussing the state of the US economy as well as the direction of monetary policy around the globe. Yellen said she did not believe that the US economy had formed a bubble and there were no risks of a burst either. This after presidential candidate Donald Trump made remarks that the US economy could be on the brink of implosion at anytime.
Evidence is pointing to the market becoming unsettled and the lack of response to central bankers dovish tones is spelling danger for the weeks that lie ahead. The focal point around major central bankers of the world happens as the backdrop of political uncertainty takes hold of fears however this time the once turned to financial superheroes of yesteryear are tripping up over their own powers to save the world economy from it's inevitable fate.
The reasoning could lie in the fact that New Zealand's economy operates with a wide exposure to agricultural production which probably gives a clue to the performance. In the article below its said that the lack of foreign investment and defensive stock all played its part in helping lift the index. If this were the case it could possibly be one of the first indications that investors are starting to channel their capital towards defensive plays as they expecting a world recession.
The abrupt appreciation of the Yen flies in the face of policymakers at the Bank of Japan who have tried but failed in their attempts to depreciate the currency with extremist monetary policy that's seemingly had an inverse impact.
We also saw shakiness in the Euro as a number of issues take strain on the economic bloc. The ECB came out reassuring the market of it's willingness to up its ante if the stimulus measure currently in place failed to produce the desired outcome market participants had been expecting.
Apart from the monetary woes weighing heavily on the Eurozone, political scandals are not afar with leaked transcripts of conversation between IMF officials providing impetus to believe that negotiations surrounding a renewed bail out deal with Greece and the Troika is set to display the same indecisiveness produced at the beginning of last year.
Notwithstanding this, the worry that the Brexit referendum vote will need more convincing than once thought adding further complexity to matter within the region with the date of both aforementioned issues falling within a tight schedule that wouldn't allow policymakers to give enough attention to each.
It was the turn of Fed Chair Janet Yellen to face the scrutiny of the market's nervousness after she sat on a panel with former Federal Reserve Chairman Paul Volcker, Alan Greenspan and Ben Bernanke discussing the state of the US economy as well as the direction of monetary policy around the globe. Yellen said she did not believe that the US economy had formed a bubble and there were no risks of a burst either. This after presidential candidate Donald Trump made remarks that the US economy could be on the brink of implosion at anytime.
Evidence is pointing to the market becoming unsettled and the lack of response to central bankers dovish tones is spelling danger for the weeks that lie ahead. The focal point around major central bankers of the world happens as the backdrop of political uncertainty takes hold of fears however this time the once turned to financial superheroes of yesteryear are tripping up over their own powers to save the world economy from it's inevitable fate.
Discussing it earlier this week in Travelling Technicals I had said that the New Zealand NZX 50 Index looked to be the best looking technical chart I've done analysis on so far this year and it proved the best performing index this year amongst its developed market peers.It's been a rocky week for the $5.3 trillion-a-day forex market https://t.co/Uz3hFWDqG4 pic.twitter.com/N23tksqJ3I— Bloomberg (@business) April 8, 2016
The reasoning could lie in the fact that New Zealand's economy operates with a wide exposure to agricultural production which probably gives a clue to the performance. In the article below its said that the lack of foreign investment and defensive stock all played its part in helping lift the index. If this were the case it could possibly be one of the first indications that investors are starting to channel their capital towards defensive plays as they expecting a world recession.
New Zealand is a rare case of a developed market that's posting gains this year https://t.co/JDp7BT4ixs pic.twitter.com/Gv1Jm42Xwh— Bloomberg (@business) April 8, 2016
Wednesday, 2 March 2016
Moody's slashes China's outlook from stable to negative
Moody's rating agency has slashed China's outlook from stable to negative as it cites growing debt piles as a concern that could possibly send the Asian economy into turmoil if more isn't done to prevent it. The rating agency says that the government's reliance on fuelling demand with credit growth as well as the dependency by state owned enterprise to plug seeping holes could haunt them in the future if they aren't careful.
We've seen an outpouring of supportive statements from policymakers particular those involving the matters of the economy in an effort to get reforms back on track after volatility spread an ugly mess throughout the financial system late last year.
Part of government's promises was to overhaul the system whereby their currency is traded more freely however this has been mired with uncertainty as a recent devaluation cause a tremendous wave of doubt rippling through the global economy which was subsequently placed on hold so as to not cause further harm.
The PBOC has resorted to drawing down foreign currency reserves to protect the currency from external pressures that would require it to devalue more than what would be desired pushing authorities into a corner over what decision needs to be made.
I think China will be unable to sustain the rate of drawdown it is currently experiencing in its foreign accounts although there may be a hefty sum on hand it certainly won't last if the situation were to spin out of control, a scenario Moody's sees as possible. China's alignment to global standards in terms of financial markets means that it cannot meddle the way it is use to deeming their efforts worthless if not worrisome.
Hinderance of a financial market by any institution equates to the same outcome, a distortion that skews the picture away from reality that eventually ends up in tatters. Chinese authorities recent effort to bolster confidence in its ability to reform did show signs of integrity however that is not the end of the line of communication with more transparency is needed in relation to the timeframe with which policymakers intend on implementing a change to a more open market platform.
We've seen an outpouring of supportive statements from policymakers particular those involving the matters of the economy in an effort to get reforms back on track after volatility spread an ugly mess throughout the financial system late last year.
Part of government's promises was to overhaul the system whereby their currency is traded more freely however this has been mired with uncertainty as a recent devaluation cause a tremendous wave of doubt rippling through the global economy which was subsequently placed on hold so as to not cause further harm.
The PBOC has resorted to drawing down foreign currency reserves to protect the currency from external pressures that would require it to devalue more than what would be desired pushing authorities into a corner over what decision needs to be made.
I think China will be unable to sustain the rate of drawdown it is currently experiencing in its foreign accounts although there may be a hefty sum on hand it certainly won't last if the situation were to spin out of control, a scenario Moody's sees as possible. China's alignment to global standards in terms of financial markets means that it cannot meddle the way it is use to deeming their efforts worthless if not worrisome.
Hinderance of a financial market by any institution equates to the same outcome, a distortion that skews the picture away from reality that eventually ends up in tatters. Chinese authorities recent effort to bolster confidence in its ability to reform did show signs of integrity however that is not the end of the line of communication with more transparency is needed in relation to the timeframe with which policymakers intend on implementing a change to a more open market platform.
#China's credit rating outlook cut to negative over debt concerns https://t.co/nIMSNKj3o0 pic.twitter.com/0SsN8DHBTn— CNNMoney (@CNNMoney) March 2, 2016
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