If you are long stocks, you think you might be saved by this jobs report.
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No, no, no, and no.
The onshore yuan (CNY), traded in the Chinese mainland, declined 4.05 percent against the greenback in 2015. This is not a deliberate government attempt to devalue.
What is going on with China’s stock market?
A clerk counts Chinese 100 yuan banknotes at a branch of China Construction Bank in Hai’an, Jiangsu province June 10, 2014. Their FX reserves dropped $108 billion in December with overall reserves falling $418 billion.
While China’s major stock indexes regained some ground on Friday, Beijing letting the yuan depreciate faster has raised concerns that it might be aiming for a competitive devaluation to help its struggling exporters. But it can’t beat the market, which is saying the yuan is overvalued for a weak economy.
While it was expected that the so-called national team of State institutions will continue to buy stocks, some analysts said that the rebound could be short-lived, since investors have been unable to find any positive factors in the economic fundamentals. Weak demand has seen the price of minerals such as copper and energy like crude oil plunge on weak demand from China as its economy cools.
Policy decisions on the market restraints and allowing the yuan to freefall have dumbfounded analysts. Combined with a bearish outlook for stocks and capital outflows, however, our outlook on the yuan remains negative through the coming week. In fact, Chinese t-shirts and sneakers will be cheaper for American consumers as the dollar goes up and the yuan goes down.
And while fiscal policy – essentially, spending more to offset the effects of China spending less – would surely work, how many people believe that Republicans would be receptive to a new Obama stimulus plan, or that German politicians would look kindly on a proposal for bigger deficits in Europe? “I have heard it because factories are closing”, she said at her informal street-side sorting point.
For the outlier in a world of loose monetary policy – the US Federal Reserve – it is a question of how many rate hikes will follow December’s first tightening in 9-1/2 years, with policymakers lately offering a range of options.
The Euro has declined 23%, the Yen is down 14%, the Australian dollar is off 25% and the Canadian dollar has dropped by 29%, all within the last 18 months. “It causes large market volatility as people in markets don’t like uncertainty”. By contrast, 25 percent of Apple’s revenues come from China.
Spot gold fell for the first time this week but gained more than 4 percent for the week, the most for any week since August.
The dollar is up. Dong cautioned that it’s important for investors to have a long-term strategy in place and avoid being too much of a reactionary.
Frankly, we have tended to downplay the value of average hourly earnings because this metric has some limitations as a measure of wage growth. We would dub current 2016 projections of about 6% in gross domestic product growth1 as quite strong, given that the size of the economy has grown tremendously in dollar terms from that of a few years ago, when growth rates were stronger but with a smaller base.
“Some investors even doubted if the market would still exist”.
The problem is that this tension between state and market becomes more unsafe as an economy advances.
The USA is the first of the G9 economies that is feeling confident enough to begin rising its interest rates.
Strength in China’s new economic drivers is providing the country the bandwidth to continue its rebalancing agenda even as old growth engines such as manufacturing sputter, and rate cuts and fiscal stimulus deliver limited impact. The Fed should wise up and stick to price stability rather than slamming workers.
Meanwhile, Bloomberg reported that China ended an eight-day run of reductions to the yuan’s reference rate that sent shockwaves through financial markets and escalated fears of a global currency war.
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Then we can get bullish again.
