On the heels of more turmoil in the currency markets, today one of the greats in the business sent King World News a note from the President of "China Beige Book International" in which he says talk of currency wars is overblown. He went on to clarify exactly what China is doing by adjusting the value of the yuan.
From Art Cashin's notes: "More Logic And Reason On The China Move – Wednesday there was a lot of hair on fire, ranting about the China currency move. I tried to introduce a more reasoned explanation of the move by citing my friend Peter Boockvar since his thoughts closely paralleled mine.
This morning, I would like to present part of another reasoned analysis from a very knowledgeable source.
Leland Miller is the very insightful President of "China Beige Book International". Tuesday, he penned a note on the Chinese currency move. Here's how he opened the note:
China took world markets largely by surprise last night with the announcement that it would “devalue” the Yuan by 1.9%, leading to significant volatility today as investors struggled to determine what signals the Chinese leadership is actually trying to send. Some observers seem to be overreacting and, barring moves outside of China, this over-reaction is likely to be reconsidered in the coming days.
Later he described what this move was not:
This Is Not A Major Shift In Currency Policy. Beijing has been talking about a wider trading band for some months, if for no other reason than to give the IMF the impression that progress is being made towards liberalization. However, the spread between CNY and CNH is rather large right now, and potentially growing. If more movement was allowed, it could have simply translated to more depreciation pressure. Beijing sees a one-off devaluation to tighten that band as less problematic.
This Is Not The Onset Of A Stimulus Via Devaluation Program. We understand that many analysts are trained to believe that China loves boosting growth by devaluing the currency and thus juicing exports. While CBB data have indeed shown export weakness intensifying since Q4 2014, a 1.9% move of the currency is not going to move the needle. At all.
This Is Not Currency Wars (At Least Not Yet). The context here is critical. Over the past year, the RMB has appreciated more than 10% against the won and 20% against the euro and the yen. If China intended to meaningfully engage in a competitive devaluation, 10% might be justified in these circumstances, especially if there was then some daily movement upward. This move can better be described as tweaking around the edges.
Of course, what China’s trading partners do now is a harder question. In light of their own behavior, they are not justified in treating this as aggressive on China’s part. But they might anyway.
Logically laid out, don't you think?
Overnight And Overseas – Shanghai and Tokyo saw rallies of better than 1% as an overnight PBOC press conference seemed to slow talk of further devaluation.
Europe is having a catch-up rally after the New York rebound Wednesday. They seem to have regained half of yesterday's losses by midday.
Oil is a touch firmer, while gold slips a bit. The dollar is slightly stronger against the Euro. U.S. futures are up a smidge.
Today we'll get to see Initial Claims, Retail Sales and Inventories.
Consensus – May be a day of review and reassessment. Traders will carefully monitor oil as yesterday's energy stock surge hints some folks think crude has bottomed. Stay wary, alert, and very, very nimble." ***KWN has now released the incredible audio interview with 50-year veteran Art Cashin, where he discusses why the worldwide liquidation scramble could morph into a full-blown 2008-style collapse, the chaos in China, global stock markets, commodity markets, whether the U.S. stock market has finally put in a major top and much more, and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***ALSO JUST RELEASED: Peter Boockvar On China's Devaluation And A Bonus Piece About How A Major Turn In A Key Currency Will Impact Gold And Silver CLICK HERE.
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