Category Archives: BRICS

China Guides Bill Yields Higher

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I would expect the higher rates to support aggregate demand through the interest earned channels in the nations that hike rates.

Also, much of China’s lending by state owned/sponsored banks may be thinly disguised fiscal transfers that support demand. Cutting back by raising lending standards would then reduce demand. They apparently have a lot of excess capacity. The question is whether they increase demand to use it up, or slow down investment.

China Guides Bill Yields Higher, Seeking to Curb Record Lending

By Bloomberg News

Jan. 7 (Bloomberg) — China’s central bank sold three-month bills at a higher interest rate for the first time in 19 weeks after saying its focus for 2010 is controlling the record expansion in lending and curbing price increases.

Stocks fell across Asia and oil declined on concern growth will slow in China, the engine of the world economy’s recovery from its worst recession since World War II. The People’s Bank of China offered 60 billion yuan ($8.8 billion) of bills at a yield of 1.3684 percent, four basis points higher than at last week’s sale, according to a statement.

“It’s definitely a signal that the central bank is tightening liquidity,” said Jiang Chao, a fixed-income analyst in Shanghai at Guotai Junan Securities Co., the nation’s largest brokerage by revenue. “The rising yield is used to prevent excessive growth in bank lending.”

Premier Wen Jiabao said on Dec. 27 that last year’s doubling in new loans had caused property prices to rise “too quickly,” while surging commodity costs were increasing inflationary pressure. Guiding market rates higher may be a prelude to raising reserve requirements or benchmark interest rates, said Shi Lei, a Beijing-based analyst at Bank of China Ltd., the nation’s third-largest lender.

The MSCI Asia Pacific Index of regional stocks fell 0.5 percent and oil for February delivery slid 0.7 percent after 10 days of gains. Copper for three-month delivery dropped 0.7 percent. The Shanghai Composite Index fell 1.9 percent, led by Bank of China Ltd. and Industrial & Commercial Bank of China Ltd.

Tightening in Asia

“We expect some tightening of monetary policy in Asia in the first half,” said Norman Villamin, Singapore-based head of investment analysis for Asia Pacific at Citigroup Private Bank. “Markets will struggle to go higher.”

Australia’s central bank raised borrowing costs by a quarter percentage point on Dec. 1 to 3.75 percent after similar moves in November and October. The Bank of Korea, which meets tomorrow, will probably raise its benchmark rate one percentage point to 3 percent by end-2010, according to a Bloomberg survey of economists. By contrast, the Federal Reserve target rate is close to zero and policy makers last month discussed increasing asset purchases should the economy weaken.

Policy makers will seek “moderate” loan growth while managing inflation expectations, the People’s Bank said yesterday in a report on its annual work meeting. The government has told lenders to pace lending, while tightening mortgage rules for second-home purchases. Liu Mingkang, the top banking regulator, wrote in an opinion piece in Bloomberg News this week that “structural bubbles threaten to emerge” in the economy.

Bill Sales

Guotai Junan’s Jiang said the yield on benchmark one-year bills will climb in open-market operations next week. The central bank resumed sales of those bills on July 9 after an eight-month suspension to help drain cash from banks.

The central bank is set to withdraw 137 billion yuan from the financial market this week, the biggest since the week ended on Oct. 23, according to data compiled by Bloomberg News.

China’s one-year interest-rate swap, the cost of receiving a floating rate for 12 months, rose 10.5 basis points to 2.24 percent. A basis point is 0.01 percentage point.

The central bank kept the benchmark one-year lending rate at a five-year low of 5.31 percent last year after five reductions in the last four months of 2008. It may rise to 5.85 by the end of 2010, according to a Bloomberg News survey of 29 economists in November.

Lending Boom

“There’s no doubt that lending has been excessive and that explains why policy makers are starting to be more cautious about lending this year,” said Qu Hongbin, chief China economist for HSBC Holdings Plc in Hong Kong.

Qu estimates new loans will be limited to 7 trillion yuan in 2010. Banks extended an unprecedented 9.21 trillion yuan of loans in the first 11 months of 2009, compared with 4.15 trillion yuan a year earlier.

The People’s Bank said it would curb volatility in lending and monitor the property market, while reaffirming a “moderately loose” monetary policy. The statement contrasted with the start of 2009, when the central bank targeted “appropriate” increases in lending and said monetary policy would play “a more active role in promoting economic growth.”

Consumer prices climbed 0.6 percent in November from a year earlier, snapping a nine-month run of declines. The central bank is on alert for inflation after economic growth accelerated to 8.9 percent in the third quarter of 2009, the fastest in a year.

Property Prices

Housing Minister Jiang Weixin said yesterday that the nation will limit credit for some home purchases to reduce property-market speculation. Prices across 70 cities rose at the fastest pace in 16 months in November, gaining 5.7 percent from a year earlier, led by Shenzhen, Wenzhou and Jinhua.

The central bank didn’t state a 2010 target for growth in M2, the broad measure of money supply, after overshooting a 17 percent goal last year. The actual rate was more than 25 percent for most of 2009, rising to a record 29.7 percent in November.

“Growth will probably slow this year as tight credit will dampen the demand side,” said Zhang Ling, who helps oversee about $7.21 billion at ICBC Credit Suisse Asset Management Co. in Beijing. “That will dash investors’ hopes of another year of fast growth.”


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China News

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Sounds like the risk is that China starts judging it’s lending on finance rather than further public purpose.

Interesting how both are discussed.

HIGHLIGHTS

China’s central bank says to manage credit pace after lending spree

Survey indicates better job prospect

Banking authority reitertates credit quality, pace control

China’s currency regulator to promote trade balance

China’s central bank says to manage credit pace after lending spree
(Xinhua)
Updated: 2009-12-09 13:14

China’s central bank said on Tuesday that more efforts would be made to keep credit expansion in reasonable pace after record lending to echo government’s call to rebalance economic growth pattern.

More credit support should go to promote employment and industries of strategic importance, said Zhou Xiaochuan, governor of the People’s Bank of China.

The central bank would continue to implement the moderately easy monetary policy in 2010 to ensure stable and relatively fast economic development, Zhou said.

The move was in response to the directives of the annual Central Economic Work Conference, which was concluded Monday agreeing to advance economic structure adjustment to lift the quality and efficiency of economic growth.

The central bank would exert more strength to beef up rural development and stimulate domestic demand, as well as enhance balance of payment, and hold down potential financial risks, Zhou said.

Chinese banks lent a record 8.92 trillion yuan ($1.31 trillion) in the first ten months, far exceeding the government’s target of 5 trillion yuan for this entire year, prompting fears of bad loans and unprofitable investment.

Survey indicates better job prospect
By Wang Xiaotian and Ding Qingfen (China Daily)
Updated: 2009-12-09 07:52

Wu Liwei, a postgraduate major in journalism from Renmin University of China, has been trying to find a job for some time. And though the 24-year-old is yet to get a satisfactory offer, Wu said yesterday that she still felt lucky and hopeful.

“Next year looks better than even this year,” Wu said. “A friend who majored in the same subject last year said many big companies had stopped recruiting then.”

But this year, staff from a lot more companies, including big names, visited her university for campus recruitment. “I have attended about 10 such recruitment fairs, and many of my classmates have got offers. I am waiting for the right one,” she said.

Most university graduates like Wu feel the same. And it’s true that China’s recruitment prospects are better now than last year or early this year.

Buoyed up by the ongoing economic recovery and domestic consumption, the willingness of potential employers to hire people in 2010 will be stronger than this year, with companies in second-tier cities showing greater interest, a Manpower survey released yesterday said.

According to the survey, conducted by the world’s leading employment service provider, 19 percent of the potential employers said they would hire people in the first quarter of next year – 2 percentage points higher than in the fourth quarter of 2008, and also the highest since late last year.

Those who aim to cease recruitment in the next quarter add up to only 5 percent of the total, 1 percentage point lower than in the previous quarter and the lowest in a year.

Manpower has done such quarterly recruitment studies in China for five years. This time, it interviewed 4,317 enterprises from home and abroad for the survey.

“Actually, the recovery helped improve China’s labor market from the second quarter of this year,” said Danny Yuan, managing director for Manpower China. “Now, employers are more confident of hiring people next year,”

Xu Zhixue, senior consultant with Beijing-based Zuoyou Consulting Group, a leading local human resource service provider, corroborated Yuan.

Zuoyou’s clients are usually big State-owned enterprises (SOEs) in telecom, aerospace and mining sectors, such as Beijing Mobile. “They (SOEs) were worried over the economic trend and most of them had scaled back their recruitment,” Xu said.

“But since the last quarter, they have recovered their confidence. Now, we are much busier than before,” he said.

China’s economy began showing strong signals of recovery in the third quarter of this year, with GDP growth reaching 8.9 percent. Decline in exports began easing off, too, and the sector is expected to have taken to the growth trajectory in late 2009.

According to Manpower, employers in the finance, insurance and real estate sectors could be the biggest recruiters next year, with the mining and construction industries registering the fastest growth in the past quarter.

The survey also shows employers in cities like Chongqing, Xi’an, Qingdao, Wuhan, and Suzhou expect to see a stronger hiring environment than their counterparts in major cities. top

Banking authority reitertates credit quality, pace control
(Xinhua)
Updated: 2009-12-09 13:25

China’s banking authorities vowed to step up efforts to improve credit quality, and keep credit expansion in reasonable pace after record lending, to echo government’s call to rebalance economic growth pattern.

Chairman of the China Banking Regulatory Commission Liu Mingkang said bank loans should play a bigger role in economic restructuring as he put it the regulator would strictly control lending to industries that were energy-intensive, polluting and had overcapacity.

More credit support should go to promoting employment and industries of strategic importance, Zhou Xiaochuan, governor of the People’s Bank of China told an insider meeting.

The central bank would continue to implement the moderately easy monetary policy in 2010 to ensure stable and relatively fast economic development, Zhou said.

The move was in response to the directives of the annual Central Economic Work Conference, which was concluded Monday agreeing to advance economic structure adjustment to lift the quality and efficiency of economic growth.

The central bank would exert more strength to beef up rural development and stimulate domestic demand, as well as enhance balance of payment, and hold down potential financial risks, Zhou said.

Chinese banks lent a record 8.92 trillion yuan ($1.31 trillion) in the first ten months, far exceeding the government’s target of 5 trillion yuan for this entire year, prompting fears of bad loans and unprofitable investment.


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Chinese economist sounds off on US monetary policy

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Right, this is the nonsense that’s been moving the speculators and portfolio managers, but not the underlying fundamentals.

If an asset inflation does materialize it will be for an entirely different reason.

>   
>   (email exchange)
>   
>   On Wed, Dec 9, 2009 at 2:03 PM, wrote:
>   

Yesterday, U.S. Fed Chief Ben Bernanke declared the U.S. economy is facing “formidable headwinds” and effectively vowed to continue printing paper dollars like there’s no tomorrow.

The reaction from China came quickly, as Andy Xie, recently named by BusinessWeek as one of China’s most influential economists, pulled no punches.

Xie accused the Fed chief of “poisoning” the U.S. economy by keeping interest rates near zero and creating a tidal wave of newly printed paper dollars. He warned that the next global crisis will be driven by asset inflation.


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foreign dollar buying

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The possibility of announcing an exit from Afghanistan with the funds saved to pay down the deficit would be extremely popular short term and contribute to lower GDP and higher levels of unemployment over the medium term.

Those shorting dollars are selling them to foreign central banks who want their currencies weaker vs the dollar. This means it is unlikely they ever sell their dollars.

Float to lower crude prices and modestly declining us gasoline consumption would threaten the viability of the dollar shorts.

Much of this has been a reaction to the fed building its portfolio, which many presume to be an inflationary act of ‘printing money’ which it is, in fact, not.


Dollar Overwhelms Central Banks From Brazil to Korea

By Oliver Biggadike and Matthew Brown

Nov. 12 (Bloomberg) — Brazil, South Korea and Russia are losing the battle among developing nations to reduce gains in their currencies and keep exports competitive as the demand for their financial assets, driven by the slumping dollar, is proving more than central banks can handle.

South Korea Deputy Finance Minister Shin Je Yoon said yesterday the country will leave the level of its currency to market forces after adding about $63 billion to its foreign exchange reserves this year to slow the appreciation of the won. Chile Finance Minister Andres Velasco said the same day that lawmakers approved an increase in local debt sales to finance spending, a move that will allow the government to keep more of its dollar-based savings overseas and slow the peso’s rally.

Governments are amassing record foreign-exchange reserves as they direct central banks to buy dollars in an attempt to stem the greenback’s slide and keep their currencies from appreciating too fast and making their exports too expensive. Half of the 10-best performers in the currency market this year came from developing markets, gaining at least 14 percent on average, according to data compiled by Bloomberg.

“It looked for a while like the Bank of Korea was trying to defend 1,200, but it looks like they’ve given up and are just trying to slow the advance,” said Collin Crownover, head of currency management in London at State Street Global Advisors, which has $1.7 trillion under management.

The won, after falling 44 percent against the dollar in March 2009 from its 10-year high of 899.69 to the dollar in October 2007, is now headed for its biggest annual rally since a 15 percent gain in 2004. It traded today at 1,160.32, up 8.6 percent since the end of December.

‘Suffered Tremendously’

Brazil’s real is up 1.6 percent this month, even after imposing a tax in October on foreign stock and bond investments and increasing foreign reserves by $9.5 billion in October in an effort to curb the currency’s appreciation. The real has risen 33 percent this year.

“We have to be careful that our exchange rate doesn’t appreciate too much as to deindustrialize the country,” Marcos Verissimo, chief of staff at Brazil’s state development bank known as BNDES, said yesterday at a conference in Sao Paulo. “The capital goods industry has suffered tremendously.”

Russia’s Bank Rossii increased its foreign reserves by 15 percent since March 13 as it sold rubles in an attempt to cap the currency’s gain. Even so, the surge in commodities prices this year means Russia’s steps to fight a stronger ruble may “not be productive,” the International Monetary Fund said yesterday. Energy, including oil and natural gas, accounted for 69.5 percent of exports to countries outside the former Soviet Union and the Baltic states in the first nine months, according the Federal Customs Service.


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Obama Meets Asian Bankers Who May Call His Loan

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Keeps getting worse, as we think we need them and continue to kowtow to their demands:


Obama Meets Asian Bankers Who May Call His Loan: William Pesek

By Deborah Solomon and Jonathan Weisman

Nov. 12 (Bloomberg) — Global recession. Free trade. Security. Climate change. Afghanistan. Iraq. North Korea.

Barack Obama sure has lots to discuss on his maiden voyage to Asia as U.S. president. Yet all this is just conversation compared with the real issue on Asia’s mind: a wobbly dollar that’s putting the region’s money at risk.

Think of this trip as a visit to America’s banker, and an unpleasant one. Asia wants assurances that the U.S. can repay its fast-mounting debt and prevent a dollar crash. The reality dawning on Asia is that Obama can’t offer them such a pledge — not with U.S. borrowing so out of control.


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Faber on Gold

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He may be right, but for the wrong reason.
Central Banks buying securities and growing their portfolios of financial assets, aka ‘quantitative easing, has nothing to do with inflation or aggregate demand.

However, direct Central Bank purchase of gold do amount to what I call ‘off balance sheet deficit spending’ which does support the price of whatever they buy and can go on indefinitely as a function of political will:

Gold Price Won’t Drop Below $1,000 an Ounce Again, Faber Says

By Zijing Wu

Nov. 11 (Bloomberg) — Gold won’t fall below $1,000 an ounce again after rising 27 percent this year to a record as central banks print money to help fund budget deficits, said Marc Faber, publisher of the Gloom, Boom & Doom report.

The precious metal rose to all-time highs in New York and London today as the dollar weakened. The Dollar Index, a gauge of value against six other currencies, has declined 7.9 percent this year and today fell to a 15-month low. News last week of bullion purchases by the Indian and Sri Lankan governments raised speculation that other countries would follow suit.

“We will not see less than the $1,000 level again,” Faber said at a conference today in London. “Central banks are all the same. They are printers. Gold is maybe cheaper today than in 2001, given the interest rates. You have to own physical gold.”

China will keep buying resources including gold, he said.

“Its demand for commodities will go up and up and up,” he added. “Emerging economies will grow at the fastest pace.”

In contrast, Western countries will be lucky to avoid economic contraction, while the Federal Reserve will maintain interest rates near zero percent, he said.


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China hopes U.S. keeps deficit to appropriate size

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Translation:  China threatens to liquidate it’s dollars to keep the dollar weak so China can peg to it and increase global exports??? 

China hopes U.S. keeps deficit to appropriate size

(Reuters) – China hopes that the United States will keep its deficit to an appropriate size to ensure basic stability in the U.S. dollar exchange rate, Chinese Premier Wen Jiabao said on Sunday.

“We have seen some signs of recovery in the U.S. economy … I hope that as the largest economy in the world and an issuing country of a major reserve currency, the United States will effectively discharge its responsibilities,” Wen told a news conference in Egypt.

“Most importantly, we hope the United States will keep an appropriate size to its deficit so that there will be basic stability in the exchange rate, and that is conducive to stability and the recovery of the global economy,” he added.

The premier had expressed concern in March that massive U.S. deficit spending and near-zero interest rates would erode the value of China’s huge U.S. bond holdings.

China is the biggest holder of U.S. government debt and has invested an estimated 70 percent of its more than $2 trillion stockpile of foreign exchange reserves, the world’s largest, in dollar assets.

“I follow very closely Chinese holdings of U.S. assets because that constitutes a very important part of our national wealth. Our consistent principle when it comes to foreign exchange reserves is to ensure the safety, liquidity and good value of the reserves,” Wen said.


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Carry trade

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The article completely misses the point.

There is no ‘cash pouring into’ anything.

Nor is there a constraint on lending/deposits in any non convertible currency.

It is not a matter of taking funds from one currency and giving them to another.

There is no such thing.

Yes, the interest rate differential may be driving one currency high in the near term (not the long term) due to these portfolio shifts.

But the nation with the currency seeing the appreciation has the advantage, not the other way around.

Imports are the real benefits, exports the real costs, which the author of this piece has backwards.

The nation with the stronger currency is experiencing improving real terms of trade- more imports in exchange for fewer exports.

The most common way to realize this benefit is for the government to use the currency strength to accumulate foreign currency reserves by ‘pegging’ its currency to sustain it’s exports. This results in the same real terms of trade plus foreign exchange accumulation which can be of some undetermined future real benefit.

Better still, however, is cut taxes (or increase govt. spending, depending on your desired outcome) and sustain domestic demand, employment, and output, so now the domestic population has sufficient spending power to buy all that can be produced domestically at full employment, plus anything the rest of the world wants to net export to you.

Unfortunately those pesky deficit myths always seem to get in the way of anyone implementing that policy, as evidenced by this
article below and all of the others along the same lines. Comments in below:

>   
>   Steve Keen pointed me to it. Talks about the carry trade in US$ over to AUD$.
>   There are not Federal unsecured swap lines, would be interested in your take.
>   

Foreign speculation on our currency is a bubble set to burst

By Kenneth Davidson

Oct. 26 (National Times) — The pooh-bahs running US and British hedge funds and the banks supporting them are more than capable of reading the minutes of the Reserve Bank of Australia board meetings and coming to the conclusion that RBA Governor Glenn Stevens is committed to pushing up the cash rate from the present 3.25 per cent to 4 to 5 per cent if necessary.

And they are already betting tens of billions of dollars on what has so far been a sure bet.

But is always high risk, and not permitted for US banks by our regulators, though no doubt some gets by.

These foreign financial institutions are up to their old tricks. After getting trillions of dollars out of their respective governments to avoid GFC-induced bankruptcy – which was largely engineered by their criminal greed – because they are ”too big to fail”, they are already using their influence to maintain ”business as usual”.
Why funnel the money gouged out of American and British taxpayers into lending to their national economies to maintain employment when there are richer pickings elsewhere?

As above, these transactions directly risk shareholder equity. The govt. is not at risk until after private capital has been completely eliminated.

Two of those destinations are Brazil and Australia. Their resource-rich economies are still doing well compared with most other countries because they are riding in the slipstream of the strong demand for commodities from China and India.

Cash is pouring into these economies, not for development, but to speculate on the local currency and the sharemarket. The rising value of the Brazilian real and the Australian dollar against the US dollar has had a disastrous impact on both countries’ non-commodity export and import competing industries.

Yes, except to be able to export less and import more is a positive shift in real terms of trade, and a benefit to the real standard of living.

Brazil’s popular and largely economically successful left-wing Government led by President Lula da Silva is meeting the problem head on. It has decided to impose a 2 per cent tax on all capital inflows to stop the real appreciating further.

Instead, it could cut taxes to sustain full employment if that’s the risk they are worried about.

Arguably, the monetary strategy adopted by Stevens has compounded Australia’s lack of international competitiveness for our manufacturing and service industries, especially tourism. Since the end of 2008 our dollar has appreciated 27 per cent (as of last week). This means that financial institutions that invested money at the beginning of January are enjoying an annual rate of return on their investments of 35 per cent.

Tourism is an export industry. Instead of working caring for tourists a nation is better served taking care of its people’s needs.
And those profits are from foreign capital paying ever higher prices for the currency.

US and British commercial banks can borrow from their central banks at a rate less than 1 per cent. The equivalent RBA rate is 3.25 per cent and many pundits are forecasting the rate could go to 3.75 per cent before the end of 2009. This will increase the differential between Australian and British and US interest rates and make the scope for speculative profits even higher.

They are risking their shareholder’s capital if they do that, not their govt’s money, at least not until all the private equity is lost.
And the regulators are supposed to be on top of that.

Since the beginning of the year, $64 billion has poured into Australia in the form of direct and portfolio (share) investment and foreign lenders have switched $80 billion of foreign debt payable in foreign currencies to Australian currency. Most of the portfolio investment ($41 billion) has gone into bank shares. Banks now represent 40 per cent of the value of shares traded on the stock exchange, and while shares in the big four bank shares have increased by about 80 per cent (as measured by CBA shares), the Australian Stock Exchange Index has risen by only 30 per cent.

When anyone buys shares someone sells them. There are no net funds ‘going into’ anything.

Also, portfolio mangers do diversify globally, and I’d guess a lot of managers went to higher levels of cash last year, and much of this is the reversal. And it’s also likely, for example, that Australian managers have increased their holdings of foreign securities as well.

Foreigners have shifted out of Australian fixed interest debt and into equities because as interest rates go up, the capital value of fixed debt declines. By driving up interest rates to curb inflationary expectations and the prospect of a housing price bubble the RBA is in far greater danger of creating a stock exchange asset price bubble as well as an Australian dollar bubble. Once foreigners believe interest rates have peaked, the bubbles are likely to be pricked as financial speculators attempt to realise their gains. This could lead to a stampede out of Australian denominated securities.

Markets do fluctuate for all kinds of reasons, both short term and long term. The Australian dollar has probably reacted more to resource prices than anything else. But again, the issue is real terms of trade, and domestic output and employment.

With unemployment expected to continue to rise, and the level of unemployment disguised by growing numbers of workers being forced to work part-time, there is little chance of the underlying inflation rate, already below 2 per cent, increasing as a result of a wages break-out. The last wages breakout (leaving aside the explosive growth in executive salaries in the past three decades) occurred in 1979.

This gives the govt. cause to increase domestic demand with fiscal adjustments, including Professor Bill Mitchell’s ‘Job Guarantee’ proposal which is much like my federally funded $8/hr job for anyone willing and able to work proposal.

The world has moved on but the obsessive debate about wage inflation and union powers hasn’t. Since the beginning of the ’80s, the problem has been periodic bouts of asset price inflation. It is the biggest danger now.

Instead of controlling the unions, there should be control of financial institutions. The Australian dollar bubble and the incipient housing bubble should be micro-managed. Capital inflow could be dampened by a compulsory deposit of 1 to 2 per cent to be redeemed after a year to stop speculative inflow. Home ownership has become a tax shelter. The steam could be taken out of the rise in house prices if negative gearing was limited to new housing. This would obviate the need for higher interest rates that affect everyone.

The Job Guarantee offers a far superior price anchor vs our current use of unemployment as a price anchor. Also, I strongly suspect that the mainstream has it wrong, and that it is lower rates that are deflationary.


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China and the $US

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Looks like China is pretty much keeping its currency stable vs the dollar and depreciating against the rest of the world, probably to support it’s exporters.

(Note the recent rise in exports and rhetoric regarding the importance of exports.)

This means if the currency is ‘naturally’ strong China is buying $US financial assets to keep it fixed to the $US. The second chart shows holding of tsy secs but China could also be adding agencies and other $US financial assets now that ‘agency credibility’ has been restored.

Seems they are quietly testing the waters to see if Geithner will come down on them as Paulson did.

If we had an administration that understood the monetary system we’d encourage them to do this and export without limit, while sustaining domestic demand with fiscal adjustments (lower taxes and/or higher spending, depending on your politics) which obviously ‘good things’ (again, if you understand the monetary system).

In fact, with the entire world seeming desirous of exporting to the US if only we would let them, a serious level of prosperity is there to be had.


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Yuan Peg Spurs Exports

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If the yuan is ‘naturally’ stronger than that it means they are accumulating dollar reserves without the wrath of the US administration.
This will encourage other potential exporters to do the same and help the dollar find a bottom.

The Eurozone, however, remains ideologically inhibited from buying dollars yet is also determined to support demand through exports.

Crude oil remains key. Higher prices make dollars ‘easier to get’ overseas, lower prices make the dollar ‘harder to get.’

Yuan Peg Spurs Exports, Luring Pimco as Dollar Sinks

By Bloomberg News

Oct. 13 (Bloomberg) — Investors are the most bullish on the yuan in 14 months as China’s exporters say the currency’s link to the slumping dollar is helping revive sales.

Contracts based on expectations for the currency’s value a year from now show the yuan will appreciate 3 percent, compared with estimates for 0.5 percent two months ago, data compiled by Bloomberg show. Twelve-month non-deliverable forwards touched 6.5440 per dollar on Oct. 20, the strongest level since August 2008. They rose 0.3 percent to 6.6265 today, compared with a spot exchange rate of 6.8275.

The dollar’s decline against all 16 of the most-active currencies in the past six months has made Chinese exports more competitive because the government has pegged the yuan to the greenback since July 2008. Union Investment and Martin Currie Investment Management Ltd., which oversee a total of $250 billion, are buying contracts that will profit from an end to the peg, predicting the yuan will gain 5 percent a year.

“Exports are beginning to pick up,” said Douglas Hodge, the chief operating officer of Pacific Investment Management Co., which runs the world’s largest bond fund. “The fact that the dollar has fallen makes the yuan cheaper relative to the euro and the yen, so it does begin to improve their export picture.”


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