Categories: world

Before the clock: the yuan has fallen close to crisis levels. What China does if it will shape the trade war

A US dollar bought 6.92 yuan on Friday. The Chinese currency has weakened by nearly 2.7% this month and is now uncomfortable near the symbolically important level of 7 to the dollar, which was recently broken during the 2008 financial crisis.What happens next is important. China has an interest in stabilizing the currency, as well as the US. President Donald Trump has long argued that China is devaluing its currency to make it more competitive.But Beijing is in a hard place.Currency depreciation can help China by interrupting the effects of new US tariffs and keeping exports affordable in America. But a large drop in the yuan could kick out cash from China and damaged economic stability. At the same time, the Chinese government may be hesitant to defend its currency, as it could open Beijing for further criticism from Washington. "China is caught between a stone and a difficult place," says Miguel Chanco, senior Asian economist at the Pantheon Macroeconomics. China may be tempted to use its currency as a weapon against the United States, analysts Athanasios Vamvakidis and Claudio Piron in a note to clients on Friday. Letting the yuan write off would be a "softer" option than targeting US companies or investing in China, they said. Mark Yusko believes that China could do so without causing its own economy too much pain. As the yuan weakened, China would have to worry about an abundance of money from the country, as investors lose confidence and change yuan for dollar…

A US dollar bought 6.92 yuan on Friday. The Chinese currency has weakened by nearly 2.7% this month and is now uncomfortable near the symbolically important level of 7 to the dollar, which was recently broken during the 2008 financial crisis.

What happens next is important. China has an interest in stabilizing the currency, as well as the US. President Donald Trump has long argued that China is devaluing its currency to make it more competitive.

But Beijing is in a hard place.

Currency depreciation can help China by interrupting the effects of new US tariffs and keeping exports affordable in America. But a large drop in the yuan could kick out cash from China and damaged economic stability.

At the same time, the Chinese government may be hesitant to defend its currency, as it could open Beijing for further criticism from Washington.

“China is caught between a stone and a difficult place,” says Miguel Chanco, senior Asian economist at the Pantheon Macroeconomics.

China may be tempted to use its currency as a weapon against the United States, analysts Athanasios Vamvakidis and Claudio Piron in a note to clients on Friday.

Letting the yuan write off would be a “softer” option than targeting US companies or investing in China, they said. Mark Yusko believes that China could do so without causing its own economy too much pain.

As the yuan weakened, China would have to worry about an abundance of money from the country, as investors lose confidence and change yuan for dollar and other currency assets. Yusko argues that it is not a problem for Beijing, that could enforce capital injection.

This does not mean that such a strategy is without risks.

yuan drops below 7 to US dollars can trigger additional salesoffs, pushing it still lower, chanco said. It would probably be unattractive for Beijing, he added.

Letting the yuan deteriorate may also increase Chinese inflation. It is a risk at a time when the economy is already showing signs of weakness, while the retail sector is cooling considerably.

Another big question is whether China chooses to sell US government bonds at a higher rate, in turn buying the yuan and strengthening its value.

China reduces its US debt holdings in March to $ 1

.12 trillion in US Treasuries, the lowest level of nearly two years.

Chanco sees dumping of US sovereign debt as nuclear node while Yusko believes China will definitely speed up the sale of Treasury bills if a resolution is not reached soon.

“I think it’s very likely,” he said.

2. Annual meetings: Amazon’s annual shareholders’ meeting is Wednesday, and this year’s proxy statement is a doozy, with 12 shareholders suggesting everything from face recognition technology to food waste.

A resolution supported by thousands of its own employees would require a report on the company’s actions to manage and prepare for climate change.

Amazon’s investors have been famously exposed to company management, but with increasing institutional support for environmental and social decisions, this time may be different. BP ( BP ) has his annual meeting Tuesday and also faces resolutions on climate change.

On the dock there is also Deutsche Bank’s annual meeting, which will take place in Frankfurt on Thursday. Deutsche Bank ( DB ) who has been struggling since the financial crisis is under great pressure to map a way forward, as revenues fall faster than it can lower costs. Crosstown rival fusion negotiations Commerzbank ( CRZBF ) were intercepted last month.

3. Retail profit: Retail profit kicking to high gear this week. Wall Street will monitor the results of Target ( TGT ) Best Purchase ( BBY ) Norden (] ) JCPenney ( JCP ) and Kohls ( KSS )

Walmart [19659028] ( WMT ) put a high bar last week. America’s largest retailer said sales last quarter in stores open at least one year increased 3.4% from the previous year. Its growth on the net increased to 37% last quarter.

But Walmart warned that it would raise the prices of some products due to the Trump administration tariffs on Chinese goods. “Increased fees will lead to increased prices, we believe, for our customers,” Walmart’s finance director said.

Expect analysts to press the retailers on how they plan to handle tariffs and their exposure to China.

4. Meeting in the desert: Armed drone attacks. An in-depth trade war. Devastating sanctions against Iran and Venezuela. There is no shortage of flash points for OPEC and its allies to discuss at the Sunday meeting in Jeddah, Saudi Arabia.

The summit, which is held by the group’s survivor committee, could provide clues as to whether producers will bend to push from Trump to ramp up production at the next monthly meeting in Vienna.

5. Next Week:

Monday – Japan BNP; Twitter ( TWTR ) annual meeting; Xiaomi Income
Tuesday – BP Annual Meeting;
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