The Chinese Yuan is Flirting With a Breakdown
Aren't we all.
But do stick around, you'll want to see how everything turns out....
From Marc to Market, April 22:
Overview: The dollar is surging into the weekend, amid tumbling stocks and rising rates. The euro has been sold through $1.08 after reversing lower yesterday, despite the stronger than expected flash April PMI. Poor UK consumer confidence and a sharp drop in retail sales has seen sterling sold to new lows since November 2020, below $1.2900. The beleaguered yen is consolidating its recent drop and remains inside the range seen Wednesday for the second consecutive session. Most Asia Pacific equities fell though China's CSI 300 rose 0.45% to snap a five-day slide. Europe's Stoxx 600 gapped lower and is now lower on the week. US futures are slipping lower. European rates are a bit firmer after yesterday's surge that lifted the 10-year Gilt above 2% for the first time since 2015. The German 2-year trade at almost 0.25%, is the highest since 2014. The US 10-year yield is up around four basis points to 2.95% and the 2-year yield is up seven basis points to 2.76%. It is up about 30 bp this week. Most emerging market currencies are lower. The dramatic sell-off of the Chinese yuan gained momentum. It is about 0.6% lower to bring this week's drop to 1.8%. It is the largest drop in several years.
Gold is off around $10 to almost $1940. It settled last week closer to $1978. June WTI is consolidating in a $101-$104 range. US natgas is slightly softer and is set to end a five-week surge. Europe's natgas benchmark is off 2% after rallying 9% yesterday. It is up about 3.7% this week after falling more than 14% in the previous two weeks. Iron ore was firm today but off 3% for the week. Copper is giving back yesterday's 1% gain and is about 1.5% lower on the week, the first weekly loss in three. July wheat is falling for the fourth consecutive session and is around 3.5% lower this week after a 12% gain over the past couple of weeks.
Asia Pacific
Some sensationalized reports played up the intervention angle on talks between Japan's Finance Minister Suzuki and US Treasury Secretary Yellen. The call out from the meeting suggests the rapid yen moves were discussed, foreign exchange was not the main focus. They reiterated the boilerplate G7/G20 stance that markets ought to determine exchange rates, but excess volatility is not desirable. A senior IMF official acknowledged yesterday that the yen's weakness reflects economic fundamentals. The Fed is tightening. The BOJ is not. As we have noted central banks want exchange rates to follow monetary policy, otherwise it offsets or blunts official efforts.
Japan's data showed an economy recovering and energy-led price pressures. The preliminary April PMI shows slightly slower growth in manufacturing activity (53.4 vs. 54.1) and better services (50.5 vs. 49.4). The composite rose to 50.9 from 50.3. The headline March CPI rose to 1.2%, as expected, from 0.9%. Excluding fresh food, its core rate, edged up to 0.8% from 0.6%. However, excluding fresh food and energy, Japan is still in deflation (-0.7% vs. -1.0%). The BOJ meets next week and is expected to lift its inflation forecast from the 1.1% projection in January.Australia’s flash April PMI shows the economy gaining momentum. The manufacturing PMI edged up to 57.8 from 57.7. The service PMI rose to 56.6 from 55.6. This translated into a 56.3 composite reading after 55.1 in March. It is the highest since last June. After Australia's national elections next month, the central bank is expected to hike rates in June to begin the tightening cycle. The market is pricing in a 40 bp more that would bring the cash target rate to 0.50%....
....MUCH MORE
