From FT Alphaville:
RMB devaluation as a whack-a-mole game
The renminbi depreciated to as much as Rmb7 per dollar — its lowest level since the 2008 global financial crisis on Monday — in what is widely believed to be a state-sanctioned response to Trumpian tariff threats.
The managed-nature of the renminbi/dollar exchange rate ensured it wasn’t long before Donald Trump formally accused China of manipulating its currency.
But what everyone wants to know is . . . what does renowned China watcher Michael Pettis of the Guanghua School of Management at Peking University in Beijing think about the devaluation tactic?
We got in touch professor Pettis to find out.
First, he noted that a 1-1.5 per cent appreciation of the renminbi is roughly equal to the potential impact on the Chinese economy of a 10 per cent tariff (as threatened by Trump). This, according to Pettis, gives the world some idea about how much the currency would have to move to offset the impact of tariffs.
But, the devaluation tactic isn’t as straightforward an offset to tariffs as many might think.....MORE
From Pettis:
There are three problems with devaluing the currency, however.
First, it works for China by spreading the cost of US tariffs on to all of China's trading partners, and not just to the US, which may only increase global tensions.
Second, it may raise further concern among wealthy Chinese worried about protecting the value of their wealth and so intensify flight capital....
Everything is connected, call it the ecology of macro. This is where having an internalized mental matrix to hang all this stuff on comes in very, very handy.
Which reminds me of another post from Ms Kaminska and the intro it triggered.
From the introduction to an April 2016 post:
Global Macro: There Are Many Ways To Approach It, Here's A Good One
A couple weeks ago I emailed a friend:
Re: posts on moneyYears ago one of the mentors said you can approach macro from a lot of starting points, for him it was bonds, he had internalized the price/interest rate teeter-totter to the point that if the other parts of the matrix, currencies or metals or equities, whatever, didn't fit the paradigm he'd know he was looking at either danger or opportunity.
I can't go so far as to say they are all fungible but along with empirically derived lead/lag times, grit in the gears/slippage inefficiencies and leverage it's a close enough first approximation to use as a mental model.The key is to have enough exposure to your subject that your understanding is innate, that you don't have to consciously think "Now when interest rates go down, bonds go up". When you've achieved this level of mastery you immediately sense when the presented facts aren't conforming to the mental model and may be worth further scrutiny.
Another way in to global macro is commodities and if this is your choice it helps to internalize curves to the point the dangers/opportunities pop when you look at them.
Permit me to present Izabella Kaminska, writing at FT Alphaville:...MORE
