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?  

It's 9:16am in HK. Exactly a year ago, China devalued the yuan. Today's fixing 6.6255

Happy #Yuanniversary pic.twitter.com/nWB8k2v7AD

— David Ingles (@DavidInglesTV) August 11, 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.  

#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