Chinese currency pegged to USD

[Trembling Hand]

Taiwan Unexpectedly Raises Rate in Signal of Asia’s Confidence

June 25 (Bloomberg) -- Taiwan’s central bank unexpectedly raised its benchmark interest rate for the first time since 2008, joining Asian policy makers from China to Malaysia in signaling confidence the global recovery will withstand Europe’s debt woes.

The decision came five days after China, Taiwan’s biggest trading partner, pledged to end a currency peg to the dollar, and after South Korean officials said risks to the economy are now balanced between inflation and threats to growth from Europe’s crisis. The policy shifts also reflect Asia’s role in leading the world rebound, and rising asset prices that could destabilize markets without monetary tightening to avert bubbles.

15 % fall here we come :

< EDIT> and by the looks of it the Yuan has been reset up again

 

[sinner]

Taiwan Unexpectedly Raises Rate in Signal of Asia’s Confidence



15 % fall here we come :

< EDIT> and by the looks of it the Yuan has been reset up again

Are CB rate rises supposed to be some sort of measure of confidence? Like the ECB rate rise into the all time Euro high at 1.6 during 2008? Or the 6 consecutive panic rate cuts from the RBA after they did the same?

Hang on a sec, let me check the Taiwan Central Bank track record:
"March 27 (Bloomberg) -- Taiwan's central bank raised its benchmark interest rate for the 15th straight quarter to cool inflation and signaled that more increases are likely."

...that's March 27 2008, mind you.

Let me mark that day on a TWDUSD chart for you TH...


Looks good for TWD rises from here then

 

[Trembling Hand]

Let me mark that day on a TWDUSD chart for you TH...
Looks good for TWD rises from here then

Please...... all I want you to do for me is work on smoothing that chip on ya shoulder off. just a bit.....

Just a note because you seem to get very upset & carry on for months when I go away and don't respond to your ever so important request. Thankfully I'm not around for the next 2 months.

 

[sinner]

I have been arguing with my Dad about this one for ages! China is not growing, plain and simple. Now even the bigwigs have revised down their silly numbers:

http://www.bloomberg.com/news/2010-...eading-index-for-april-with-smaller-gain.html

The Conference Board corrected its April gauge for the outlook of China’s economy, saying its leading index for the country rose the least since November, rather than registering the biggest gain in 14 months.

The gauge compiled by the New York-based research group rose 0.3 percent, less than the 1.7 percent gain reported on June 15. The Conference Board said in an e-mailed statement today that the previous release contained a “calculation error” for total floor space on which construction began.

Stocks tumbled after the statement, which added to evidence that China’s acceleration in growth has passed its peak after an 11.9 percent jump in gross domestic product in the first quarter from a year before. The Shanghai Composite Index slid 1.8 percent, the most since June 18.

“This correction doesn’t affect our outlook for the Chinese economy,” William Adams, resident economist for the Conference Board in Beijing, said in a telephone interview. “Growth was not likely to accelerate in China, and in fact, a moderation is possible. This correction also supports the same view.”

"Calculation error" yeaaaa right. The Baltic Dry Index is a way better gauge still:

 

[sinner]

CDS traders have pushed China into the top 3 Gov/state/muni for the first time in a long time.



Either everyone and their bigdog is buying CNY and hedging with PRC CDS or (more likely) CDS traders know something the rest of us don't. Todays PMI for China was a miss with the HSBC China PMI 2 points lower than that again. Below 50 is supposed to be contraction, so we are toying with an important level here.

 

[Aussiejeff]

CDS traders have pushed China into the top 3 Gov/state/muni for the first time in a long time.



Either everyone and their bigdog is buying CNY and hedging with PRC CDS or (more likely) CDS traders know something the rest of us don't. Todays PMI for China was a miss with the HSBC China PMI 2 points lower than that again. Below 50 is supposed to be contraction, so we are toying with an important level here.

Interesting stuff, sinner.

Keep it coming!

 

[sinner]

Interesting stuff, sinner.

Keep it coming!

Alright Aussiejeff, I've got a bit more of "it" to keep coming...

Here's a great one from today:
http://www.bloomberg.com/news/2010-...-for-bad-asset-company-extended-10-years.html

Bank of China Ltd., the nation’s third-largest lender, said China Orient Asset Management Corp. will extend 160 billion yuan ($23.6 billion) of bonds expiring today by 10 years.
...
China’s government set up Orient, Huarong Asset Management Co., Cinda Asset Management Corp. and Great Wall Asset Management Corp. in 1999 to help rid the banking industry of 1.4 trillion yuan of non-performing loans. The firms issued bonds to banks as part of payments for assets they took over, and were given 10 years to recover the soured debts.

So let me get that one right. PBoC set up HAM, CAMC and GWAMC (sounds like the Chinese equiv of Freddie, Fannie, Maiden Lane, etc doesn't it) to essentially take 1.4 trillion yuan (206bn USD) of bad assets off their books. About a tenth of those bad assets are about to expire today unpaid so the PBoC is going to not only extend the bond duration but actually (click the article to read on) provide support payments for these bonds at the current yield. If this bond issue was even remotely market influenced, investors would be demanding huge increases in yield to hold another 10 years till maturity!

I mean, if you thought the US Fed was good at these sort of shenanigans then you just got schooled by some real pros. Paul Krugman would be so proud.

So, weekly attempts by the PBoC to paper over cracks in their financial system aside, what else is going on?

Well. According to the Chinese Commerce Minister in May of this year, the average profit margin for Chinas export oriented companies is roughly 1.8%.
http://english.peopledaily.com.cn/90001/90778/90861/6936424.html

What does that mean to me and you? It means that companies like Foxconn and Honda (which are in the news almost daily now) can definitely not afford any meaningful pay rises to their extremely low paid employees. But this is exactly what industry analysts are predicting will be demanded by those employees:
http://www.bloomberg.com/news/2010-...toothless-unions-fueling-wildcat-strikes.html

Which is why companies like Foxconn are up and moving out of the industrialised south and into the cheaper north of China. Gee Foxconn, I thought you just doubled the wages of your factory workers?
http://www.marketwatch.com/story/fo...o-north-china-2010-06-30?reflink=MW_news_stmp

This shows me two very obvious things:
1. Export manufacturers in China are in such a high competition environment that there is really no room for more competition or any slippage. Any deviation on profit margins or volume of sales will completely destroy the business model.
2. A significant upward revaluation of the CNY against the EUR and USD will destroy whatever profit margins are left to be had. Take a look at Japanese companies like Toyota (which generates roughly 70% of its income from exports) who were ground up against the wall by USDJPY and EURJPY cross rate in 2008 and 2009.
http://online.wsj.com/article/SB125448498910659227.html

TOKYO -- Toyota Motor Corp.'s president on Friday warned that the rising yen will make it harder for the company to return to profitability, illustrating the effect of the strengthening Japanese currency on the nation's key exporters.
...
"We understand that we are facing a tough situation" because of the yen's gains, he said.

He added, "As we [already] have excessive production capacity, it will be hard to return to profitability...just by increasing sales volume."

Do these comments in Oct 2009 from Toyota head Akio Toyoda sound prescient to you? China definitely has excess production capacity in many many industries (especially shipbuilding which supports many vertical industries like steel and coal) and full control of the global market volume. If the "Yuan throws a Yen" against the USD then expect to see similar statements coming from the likes of Honda and Toyota in China.

This is my point really, something has to give, even if the CNY goes up at first. Because sooner or later a rising CNY will hurt the whole model of the Chinese "growth" economy.

Andy Xie has more to say on Chinese wage inflation, for inquiring minds:
http://www.bloomberg.com/news/2010-...ng-wage-inflation-commentary-by-andy-xie.html

While the yuan may not appreciate much, China’s factory wages will rise a lot. Americans will pay more for Chinese goods anyway. When the supply of labor is endless, as in China over the past 20 years, productivity goes to consumers, investors or tax collectors, but never workers. This is why China has had a rapidly growing economy, but stagnant wages.

When the labor market moves toward full employment, wages will rise faster than the overall economy to catch up with productivity gains. Chinese labor incomes as a share of gross domestic product may rise by more than 10 percentage points in a decade.

Meanwhile, US business groups with their heads screwed on straight try and stop idiot politicians restarting a tit for tat protectionist war with China
http://www.reuters.com/article/idUSTRE65T6RN20100630?type=politicsNews

Lastly, what does Premier Wen have to say about all this today?
http://online.wsj.com/article/BT-CO-20100630-701682.html

"The current domestic and international economic situation is still extremely complex," Wen said in meetings on Monday and Tuesday with executives and economists, according to the cabinet statement. "(We) need to focus on the current and long-term plan to lay the foundation for stable and rapid economic development for next year and even longer period of time."

Beijing has so far this year allowed the yuan to appreciate, increased banks' reserve requirement ratio three times and introduced a variety of tightening measures for the property market and industrial sectors such as the steel industry.

China's gross domestic product grew a robust 11.9% in the first quarter from a year earlier, and in May the consumer price index, the key measure of inflation, rose 3.1% from a year earlier, breaching the government's 3% annual target for 2010.

Earlier this month, the nation's central bank removed the yuan's peg to the U.S. dollar and allowed the currency to appreciate to modern-era records.

Economists say the decision by the People's Bank of China to increase the yuan's flexibility should help counter inflationary pressures, while policies aimed at curbing exports and energy emissions will help cool industrial activity.

Wen said China needs to make its macro-controls more precise and flexible and "grasp well the magnitude, rhythm and focus of policy implementation to further consolidate and develop the economic trend."

The government is scheduled to issue its official purchasing managers' index for June on Thursday, which will provide an early snapshot of second-quarter economic activity.

The government is due to issue trade and money supply data, as well as quarterly foreign exchange reserves figures in early July. The release of GDP data for the April-June quarter is scheduled for July 15.

We await the trade figures and monetary aggregates with great anticipation, Premier Wen. It will be of great interest to see what effect (if any) Chinas recent "tightening" measures have had on broad money supply.

 

[Aussiejeff]

Ok sinner!

We await the trade figures and monetary aggregates with great anticipation, Premier Wen. It will be of great interest to see what effect (if any) Chinas recent "tightening" measures have had on broad money supply.

Of course, I would suspect Premier Wen has instructed his henchmen - sorry - lawfully elected officials, to "massage" these pending figures to the max in order to rebound the markets.

I suspect "an unexpected rise in the Purchasing Managers Index" to kick things off.

 

[sinner]

Ok sinner!

Of course, I would suspect Premier Wen has instructed his henchmen - sorry - lawfully elected officials, to "massage" these pending figures to the max in order to rebound the markets.

I suspect "an unexpected rise in the Purchasing Managers Index" to kick things off.

Still bad news coming out of China as a result of yesterdays PMI:

http://www.zerohedge.com/article/cebm-warns-china-exports-and-imports-decelerate-q3-and-onward

From the report: "Our CEBM China export leading indicator has already peaked, indicating that China’s exports are likely to peak soon. Our export model suggests that China’s exports may decelerate from 3Q due to weakening domestic and foreign demand."
...
"As the government has unofficially adopted normalization strategy away from the stimulus we are likely to see property, infrastructure, and manufacturing investments lose steam in the second half. The deceleration of FAI may put downward pressure on China’s imports."

Ahuh. The whole CEBM macro report is posted in the link, it provides an in depth macro analysis. Chinese rates have certainly not been immune to the shenanigans occuring in Europe currently.

Meanwhile the USD continues to plummet against the CNY

 

[wildkactus]

Well. According to the Chinese Commerce Minister in May of this year, the average profit margin for Chinas export oriented companies is roughly 1.8%.
http://english.peopledaily.com.cn/90001/90778/90861/6936424.html

what is not mentioned in this article is the rebates they give to exporters, the factories I deal with get anywhere up to 12% back on each export order.
the only problem is the time it takes for them to get it back, the gov is rather slow at paying these rebates.

also these companies are making rather good profit on their internal sales.
but things have definatly slowed for most manufactors since 2008, that you can see.

Happy trading

 

[sinner]

what is not mentioned in this article is the rebates they give to exporters, the factories I deal with get anywhere up to 12% back on each export order.

It might not be mentioned in that specified article but Government intervention into many many Chinese industrial/materials markets to keep employment up is well known fact.

Another fact is that China is not the rosy 11%-per-year-growth-forever story that everyone seems to be banking on. This is a fact the Chinese government has been much more willing to acknowledge than its Western counterparts!
http://www.dailyfinance.com/story/china-finally-admits-its-economy-is-facing-challenges/19541419/

The Chinese government has finally admitted that the country is facing an economic slowdown. In comments posted at the Central Government website, Premier Wen Jiabao said he was concerned about the short-term prospects for China's growth. The premier warned that China's economy is facing mounting difficulties as a result of the international financial crisis and the unpredictable nature of the global economic recovery.

...
On Friday, Goldman Sachs cut its forecast for China's GDP growth this year to 10.1% from 11.4% citing government restrictions on lending and real estate.

China may be lucky to post 10% GDP growth this year -- especially if data from Europe and the U.S. continues to show that the they cannot match the recovery that occurred during the first four months of the year.

Government restrictions on lending and real-estate? Can you even imagine Kevin Rudd or John Howard (who both had their hands in FHOG) or the likes of Obama with his fingers in ACORN and similar projects putting restrictions on lending and real-estate! Hah, surely a joke, they are too busy doing the opposite with programs like FHOG and ACORN!

 

[wildkactus]

Another fact is that China is not the rosy 11%-per-year-growth-forever story that everyone seems to be banking on. This is a fact the Chinese government has been much more willing to acknowledge than its Western counterparts!

yeap your right there, more like 1.1%

was at a steel milling in ChongQing a few weeks back and their stock pile of steel was amazing, it was about 8 months worth of sales, apparently this is common, just keep producing, we'll sell it some time.
Aluminiun is going the same way as well I'm told.

Happy Trading

 

[CanOz]

Are CB rate rises supposed to be some sort of measure of confidence? Like the ECB rate rise into the all time Euro high at 1.6 during 2008? Or the 6 consecutive panic rate cuts from the RBA after they did the same?

Hang on a sec, let me check the Taiwan Central Bank track record:
"March 27 (Bloomberg) -- Taiwan's central bank raised its benchmark interest rate for the 15th straight quarter to cool inflation and signaled that more increases are likely."

...that's March 27 2008, mind you.



Looks good for TWD rises from here then

June Taiwan CPI rises.



CanOz

 

[sinner]

June Taiwan CPI rises.



CanOz

CPI up PMI down, weakest PMI in one year. Another economy toying with the <50 level on PMI:
http://online.wsj.com/article/BT-CO-20100630-716813.html

Here is a point from HSBC analyst in the above article:

"Following surging output over the first five months of the year, the growth of Taiwan's economy is starting to cool. This, however, does not necessarily signal a hard landing. New exports orders are still growing at a decent pace and job growth was broadly unchanged since May," HSBC senior Asian economist Frederic Neumann said in a statement. "Meanwhile, price pressures are easing again, if from an elevated pace, suggesting that recent rate hikes are aimed more at bubbly property prices rather than inflation risks."

WTOs second ever trade policy review on Taiwan still leaves some room to be desired:
http://focustaiwan.tw/ShowNews/WebNews_Detail.aspx?Type=aECO&ID=201007050039

According to that article Taiwan economy is 72% of GDP as exports.

Good luck with that. Taiwan Business Forecast Q3 2010:
http://www.companiesandmarkets.com/...n-business-forecast-report-q3-2010-317011.asp

 

[sinner]

yeap your right there, more like 1.1%

was at a steel milling in ChongQing a few weeks back and their stock pile of steel was amazing, it was about 8 months worth of sales, apparently this is common, just keep producing, we'll sell it some time.
Aluminiun is going the same way as well I'm told.

Happy Trading

Good to have some first hand info, thanks kactus! Stockpiles and overcapacity are huge right now in China. Not just in steel but in everything. Overcapacity usually leads to buying strikes:
http://www.theaustralian.com.au/bus...n-bearish-signal/story-e6frg90x-1225873940964

China imported record levels of copper in 2009. In April, the International Copper Study Group cited “the potential release” of inventories in China as one of the biggest risks copper prices face this year. That month, China's refined copper imports declined 2.7 per cent from a year earlier, according to the country's General Administration of Customs. “They had imported much more than they could use last year, so they may be” tapping inventories this year, said Ana Rebelo, chief statistician of the group.

After a field trip to China in mid-May, analysts at Macquarie Securities said some end-users of steel, such as auto makers and home-appliance producers, are “choosing to eat into their own inventory, rather than continue to purchase” on the open market.

It is a typical “buyers’ strike” when prices are falling, the analysts wrote. “Why buy steel today when it'll be cheaper tomorrow?”

 

[sinner]

Well, due to other commitments yesterday I pretty much missed all the action around yesterdays RBA rate decision. But when I hit the wires this morning there was a lot of blather about the commentary being China bullish. So I typed "China RBA" into google news and it came up with this article:

http://blogs.wsj.com/marketbeat/2010/07/06/exactly-what-did-the-rba-say-about-china/

Despite being cited as a source of Tuesday’s bullish sentiment, the Reserve Bank of Australia’s comments on China don’t look out-and-out bullish to us. The official statement Australia’s central bank offered alongside its widely expected decision to leave its key benchmark rate unchanged offered only one direct statement on China:

“The expansion remains uneven, with the major advanced countries recording only modest growth overall, but growth in Asia and Latin America, to date, very strong. There are indications that growth in China is now starting to moderate to a more sustainable rate.”

To us, that doesn’t sound like fist-on-the-table insistence that China’s growth is holding up. Rather, it sounds like an acknowledgement that the People’s Republic is seeing growth cool. But what do we know? The markets seem to be trading on expectations that China’s growth will keep chugging, fueling its seemingly bottomless appetite for commodities.

Fair enough, Mark Phillips of WSJ blogosphere...there doesn't seem to be any particularly bullish reference to China anywhere.

I also spotted this interview of Ken Rogoff on Bloomberg TV which was posted onto Zerohedge:
http://www.zerohedge.com/article/ken-rogoff-china-property-market-collapse-starting

Tomorrow morning Bloomberg TV conducted an interview with Ken Rogoff in Hong Kong (the same way you land in New York before you take off in London via the now defunct Concorde) in which the Harvard professor recently made famous for his words of caution that overlevering sovereigns always eventually leads to economic slow down, financial collapse, and ultimately bankruptcy, warned, when discussing China real estate, that "you’re starting to see that collapse in property and it’s going to hit the banking system." With this coming days ahead of the massive Agri Bank of China IPO, it is interesting just how much influence the person who has been warning all along that the world is headed on an unsustainable path will finally have, now that the permabullish cackle of the MSM punditry has finally been discredited as futures are about to reenter triple digit reality. Oh yes, and score one for Jim Chanos, and all those who have long been warning about the inevitable Chinese bubble pop. Additionally, in discussing the suddenly prevalent topic of perpetual stimulus, and particularly envisioning Paul Krugman's thesis that the world will end unless another couple of trillion are thrown into the fire of irresponsible deficit spending, Rogoff says "I couldn't disagree more... Just to keep drinking bottles of aspirin because you are worried you are going to get a headache, or it is going to turn into a migraine, it's too much prophylaxis."

Meanwhile, the USD continues to eat **** against the CNY and JPY. I remain bearish on the CNY and JPY.

 

[wildkactus]

not a problem, sinner
will be back up there soon will see if anything has changed

keep up the good reporting

Happy trading

 

[Timmy]

The US Treasury has declined to label China as a currency manipulator in their report:
US Declines to Say China Is Manipulating Currency
http://www.cnbc.com/id/38155665/
(I can't believe I am quoting CNBC ... but I am sure there will be a credible source out there too )

There is a longer article, too:
Yuan Rises as US Says China Doesn't Manipulate
http://www.cnbc.com/id/38162479
(sheesh, CNBC again...and from the website, at least if I was watching it on TV I would get the pretty presenters).

So, I wonder if this means Congress will be less likely to label China a currency manipulator, how does this work?


This is a link to the Treasury report. Saves some money on sleeping pills, this does.
http://www.treasury.gov/offices/int...tes/pdf/Foreign Exchange Report July 2010.pdf

 

[explod]

The US Treasury has declined to label China as a currency manipulator in their report:

(I can't believe I am quoting CNBC ... but I am sure there will be a credible source out there too )

So, I wonder if this means Congress will be less likely to label China a currency manipulator, how does this work?

The US is dependant on China to support thier treasury bills. The Federal Reserve have been guarded for some time in the rhetoric towards China for some time now. The US Congress and Senate have not, and in looking for someone on which to lay blame for thier curreent economic situation it has been easy to try and blame China.

This is a very dangerous game for the US right now so softly softly is now getting through to even the knuckle heads. Of course China too is between a rock and a hard place as they cannot afford to offload treasuries too fast or the value will collapse even faster than they have been. It is also a reason why they are accumulating gold whilst at the same time averring publicly that they are not. As a cross reference it is worth following a link on this aspect posted up on the Gold thread this morning

My souces are general from reading the "Privateer", "The daily pfennig", and other similar rags.

 

[Timmy]

so softly softly is now getting through to even the knuckle heads.

Yes, diplomacy seems to be winning out ... seems to be encouraging the authorities to allow the exchange rate to move in a direction helpful to the bilateral (US-China) government relationship.

Explod, did you see the report during the week where the Chinese explicitly stated they are not going to dump their UST holdings? Bit of a "well d'uh" statement (I thought), but interesting nevertheless that they made it.