This post was published at SilverDoctors
Where will it go from here?
Today is another down-day for the US dollar, the third in a row, capping a nasty year for the dollar, the worst since 2003. In 2017, the dollar dropped 7% against a broad basket of other currencies, as measured by the Trade Weighted Dollar Index (broad), which includes the Chinese yuan which is pegged to the US dollar. It was worse than the 5.7% drop in 2009, but not as bad the 8.5% plunge in 2003.
Here are the past four years of the dollar as depicted by the Broad Trade Weighted Dollar Index, which tracks 26 foreign currencies. The index is updated weekly, with the last update on December 26, and has not yet captured the declines of past three days:
This post was published at Wolf Street on Dec 29, 2017.
When it comes to the global economy, few things matter as much as China, the trajectory of its economy and especially the pace and impulse of its credit creation, which is ironic because virtually all data coming out of China is fabricated and manipulated, and thoroughly untrustworthy, either on purpose or “by accident.”
The latest example of the former was highlighted over the weekend, when we discussed that a nationwide Chinese audit found some local governments inflated revenue levels and raised debt illegally, once again making a mockery of China’s credibility on the global stage. As Bloomberg reported ten cities, counties or districts in the Yunnan, Hunan and Jilin provinces, as well as the southwestern city of Chongqing, inflated fiscal revenues by 1.55 billion yuan, the National Audit Office said in a statement on its website dated Dec. 8.
An even more blatant example of the former was highlighted in October ahead of China’s Communist Party Congress, when the local securities watchdog literally “advised” some loss-making companies to avoid publishing quarterly results ahead of the Congress as authorities sought to ensure stock-market stability during the critical gathering of China’s political elite. As a result, at least 17 Shenzhen-listed companies announced delays to their earnings reports from Oct. 20 to Oct. 24, up from three during the same period last year.
This post was published at Zero Hedge on Wed, 12/27/2017.
Pakistan is considering replacing the U. S. dollar with the Chinese yuan for bilateral trade between Pakistan and China, Pakistan’s Minister for Planning and Development Ahsan Iqbal said according to Dawn Online and The Economic Times. Interior Minister Iqbal, who has been central to the planning and implementation of China-Pakistan economic ties, was reported discussing the proposal after unveiling a long-term economic development cooperation plan for the two countries, Reuters added.
Iqbal spoke to journalists after the formal launch of Long Term Plan (LTP) for the China-Pakistan Economic Corridor (CPEC) signed by the two sides on November 21, Dawn online reported on Tuesday. The CPEC is a flagship project of China’s Belt and Road initiative. The 3,000 km, over $50 billion corridor stretches from Kashgar in western China to Gwadar port in Pakistan on the Arabian sea.
Asked if the Chinese currency could be allowed for use in Pakistan, the minister said the Pakistani currency would be used within the country but China desired that bilateral trade should take place in yuan instead of dollars, in yet another push to de-dollarize what China considers its sphere of influence.
This post was published at Zero Hedge on Dec 21, 2017.
China wants to dethrone the dollar and it could take a step in that direction before the end of the year.
According to numerous reports, China is prepared to launch a yuan-denominated oil futures contract before Christmas. Last week, the Shanghai International Energy Exchange successfully completed a fifth round of yuan-backed oil futures testing. According to a report by RT, the organization has met all the listing requirements and is set for an official launch.
Chinese trader Yuan Quwei told Bloomberg the holiday season would be the perfect time to get oil trading in yuan off the ground.
An official launch during Christmas would be appropriate. The Western market would be quiet and allow the Shanghai exchange as well as Chinese investors to adjust in the early days.’
This could be a nightmare before Christmas for the petrodollar.
This post was published at Schiffgold on DECEMBER 19, 2017.
Here we go again…
On December 8, we lamented how every few days we return to the subject of systemic risk in China related to its big four highly-indebted conglomerates, HNA, Anbang, Evergrande and Dalian Wanda. We also noted how our chief source of concern had become HNA, after it issued a bond with less than one year to maturity with the extortionately high coupon of 9%. And S&P downgraded HNA’s credit rating from b+ to b, five levels below investment grade. The reason for our continuing focus on HNA is its $28bn of short-term debt which matures before the end of next June, much of it accumulated during a $40 billion binge of acquisition-driven growth which saw it become a major shareholder in Deutsche Bank, Hilton Worldwide and others.
In our update less than two weeks ago, we noted how HNA business units had suffered further credit downgrades and been forced into cancelling bond issues. For example, Hainan Airlines cancelled a 1 billion yuan ($151.2 billion) issue of perpetual bonds to repay maturing debt, HNA Investment Group (hotels and real estate) cancelled a 5.22 billion yuan ($790 million) issue and S&P cut the long-term credit rating of HNA’s Swissport Group Sarl to b-, six levels below investment grade, citing concerns about its parent.
This post was published at Zero Hedge on Dec 18, 2017.
First it was the Chinese, now it’s the Europeans, as the rest of the world is suddenly very unhappy with the prospect of US tax reform (or maybe it is an unexpectedly strong US economy). As we discussed yesterday, with the historic Trump tax reforms on the verge of passage and the Fed’s dot plot signalling another 7-8 rate hikes (soon to be revised much lower), China is nervous that the capital outflows, which it thought it had bottled up, might be about to return. China is preparing a contingency plan which includes ‘higher interest rates, tighter capital controls and more-frequent currency intervention to keep money at home and support the yuan’.
Amusingly, the Wall Street Journal quoted a Chinese official who described Washington’s tax plan as a ‘gray rhino’. The latter is a combination of an ‘elephant in the room’ and a ‘black swan’, i.e. a high probability threat which people should see coming, but don’t. The focal point of China’s fears is the Yuan, which the authorities have spent so much time and effort stabilising during the last two years. Speaking to the WSJ, the Chinese official sounded a warning: ‘We’ll likely have some tough battles in the first quarter.’
Switching to Europe and five European finance ministers have sent a letter criticising the US for undermining the ‘rules of the game’ and international trade. Notwithstanding Brexit, the signatories included the UK Chancellor, Philip Hammond, as well as his counterparts in Germany, France, Italy and Spain. Essentially, the European nations are warning the US that it risks starting a trade dispute.
This post was published at Zero Hedge on Dec 12, 2017.
There have been signs since October’s Party Congress that China’s infrastructure boom was about to cool off as the leadership seeks to contain debt levels and focus on the quality not the quantity of growth. Subway building is one sector which has seen some high-profile project cancellations. In mid-November 2017, Caixin reported that China’s top economic planning authority, the National Development and Reform Commission, was ‘raising the bar for subway proposals’ – increasing scrutiny in terms of fiscal conditions, population and GDP. In recent weeks, we’ve seen two large subway projects shelved, one in Hohhot, the capital city of Inner Mongolia (worth 27 billion Yuan) and another in Baotou, another Inner Mongolian city (worth 30 billion Yuan). As Caixin noted.
The cancellation of the Inner Mongolia subway projects is having a ripple effect in other cities. Several city governments, including those of Xianyang in Shaanxi province and Wuhan in Hubei province, said in statements that their subway plan are unlikely to win immediate approval under the central government’s crackdown on financial risks related to borrowing for such projects. The crackdown on local government debt, a key source of infrastructure financing, will have a knock-on effect on Chinese GDP growth. A difficulty for China’s central planners is that the infrastructure share of Chinese fixed asset investment has been on a rising trend, surpassing 20% during 2017 versus just over 15% in early 2014. While we’ve been expecting China’s infrastructure spend to slow next year, we are surprised by the rate of slowdown estimated by Bloomberg, which surveyed a large number of forecasters.
This post was published at Zero Hedge on Dec 6, 2017.
Three months ago, in a not entirely surprising move meant to circumvent US economic sanctions on Venezuela, president Nicolas Maduro announced that his nation would stop accepting dollars as payment for oil imports, followed just days later by the announcement that in a dramatic shift away from the Petrodollar and toward Beijing, Venezuela would begin publishing its oil basket price in Chinese yuan. The strategic shift away from the USD did not work quite as expect, because a little over two months later, both Venezuela and its state-owned energy company, PDVSA were declared in default on their debt obligations by ISDA, which triggered the respective CDS contracts as the country’s long-expected insolvency became fact.
Fast forward to today when seemingly impressed by the global crypto craze, Maduro on Sunday announced the creation of the “Petro“, Venezuela’s official cryptocurrency “to advance in the matter of monetary sovereignty, to make financial transactions and to overcome the financial blockade”.
“Venezuela announces the creation of its cryptocurrency, the Petro; this will allow us to move towards new forms of international financing for the economic and social development of the country,” Maduro said during his weekly television program, broadcast on the state channel VTV.
This post was published at Zero Hedge on Dec 3, 2017.
After the Party Congress finished in October and China’s centrally planned markets were released (somewhat) from the vice-like grip which had prevailed during the proceedings, we noted the comment from Huachuang Securities that China’s bond holders may be about to get hit by ‘daggers falling from the sky’, referring to deleveraging. They were right, to some extent, as first the government bonds, then corporate bonds sold off during November. This was driven by the authorities tightening credit conditions and redemptions in Wealth Management Products, which led to some unravelling in the latter Ponzi scheme. However, as Bloomberg explains, another factor has been at work, a rise in short-selling, which might not please the central planners.
While the nation’s debt market has no official measure of short sales, analysts say a surge in bond lending has been partially fueled by rising bearish bets. A record 1.82 trillion yuan ($274 billion) of notes has been lent out this year, 18 percent more than the total for all of last year, according to clearinghouse ChinaBond. Short sellers profit from falling bond values by selling borrowed notes and buying them back after prices fall. “This creates a vicious feedback loop — when institutions think bonds will fall, they borrow and sell, causing a plunge in the securities, which then drags futures down, and thus there’s more shorting,” said Wang Wenhuan, an analyst at Huachuang Securities Co. in Shanghai. “As investors are still quite cautious, there will likely be more bond borrowing in the near term as yields climb.”
This post was published at Zero Hedge on Dec 2, 2017.
Fresh startups with millions of dollars in funding run out of cash and collapse. Bike-sharing companies – with their capital-intensive, cash-burning, ride-subsidizing business model – were among the hottest startups in China. They’ve attracted $2 billion in venture funding over the 18 months of the frenzy. They now count over 40 platforms, though the industry is dominated by huge piles of mutilated, stolen, and abandoned bicycles and by two unicorns (valued over $1 billion), Mobike and Ofo, that kicked off the frenzy and carve up 95% of the market.
But this is how quickly a frenzy can deflate.
On Thursday, Chinese media reported that Mingbike, with operations in major cities, had laid off 99% of its staff, after consumers had complained that they’d been unable to get their deposits of 199 yuan (about $30) back. Some of the laid-off employees ‘posted complaints on social media saying their salary had been withheld for several months,’ according to the South China Morning Post:
Calls by the South China Morning Post to Mingbike’s main phone line were not answered. The last post on the company’s Weibo account was in earlier October and its WeChat account has not been updated since November 10.
In response to the latest closure and growing risk of deposit refunds, Chinese authorities have stepped in, with Ministry of Transport spokesman Wu Chungeng saying on Thursday that local governments would play a major role in ensuring protection of consumer rights. He added that regulations for the industry were being drawn up by authorities.
This post was published at Wolf Street on Nov 26, 2017.
In a first for not just China, but the entire world, Alibaba’s online auction website, Taobao, has successfully auctioned off two Boeing 747-400 jumbo jets for a combined $49 million. The jets were bought by Chinese cargo airline SF Airlines after they were seized by courts during Jade Cargo’s bankruptcy proceedings in 2013. According to the South China Morning Post, the successful online auction was conducted after six failed private auctions.
Two Boeing 747-400 Freighters were sold on Tuesday on Taobao, the online shopping platform owned by Alibaba, for a combined 322.8 million yuan (US$49 million), reflecting the first time such jets were sold via online auction in China, and possibly the first-ever globally at online auction.
The sale was concluded after six failed attempts at offline private auctions organised by the seller – a state court – in the past few years.
SF Express, China’s largest private courier, bought the jets from the Intermediate People’s Court in the southern city of Shenzhen, which seized them after Jade Cargo International filed for bankruptcy in 2013.
Three Boeing 747-400s had been put up for sale on Taobao’s judicial auction arm from Monday to Tuesday. One of the jets parked at the Shenzhen Bao’an International Airport went unsold, with a starting bid of 122.6 million yuan.
This post was published at Zero Hedge on Nov 22, 2017.
On March 2017, we discussed the sudden 90% drop in the share price of China’s largest dairy farm operator, the Hong Kong-listed China Huishan Dairy Holdings. The collapse occurred the day after its creditors convened an emergency meeting to discuss the company’s cash shortage and was three months after Muddy Waters’ Carson Block questioned its profitability and said the company was ‘worth close to zero.’ After the collapse in the share price we joked that ‘it suddenly almost is.’ Now we have confirmation that Block was correct, as Huishan is entering provisional liquidation, citing liabilities of $1.6 billion. From Bloomberg.
China Huishan Dairy Holdings Co., the Hong Kong-listed company targeted by short sellers including Muddy Waters Capital LLC, is preparing for provisional liquidation in a move that could protect its assets as it negotiates with creditors. The firm had told its Cayman legal advisers to make the preparations, it said in a Hong Kong stock exchange filing Thursday.
Huishan’s board earlier found that the net liabilities of its units in China ‘could have been’ 10.5 billion yuan ($1.58 billion) as of March 31, the company said. A provisional liquidation generally is used to safeguard a company’s assets before a court rules what action to take.
This post was published at Zero Hedge on Nov 17, 2017.
The PBOC stepped up cash injections this week, suggesting authorities are trying to shore up financial markets as a selloff in bonds spreads to equities… but it is not working!
As Bloomberg reports, the central bank has already added a net 510 billion yuan ($77 billion) via open-market operations into the financial system this week, matching the third biggest weekly injection this year.
This post was published at Zero Hedge on Nov 17, 2017.
Yesterday’s torrid, broad-based rally looked set to continue overnight until early in the Japanese session, when the USD tumbled and dragged down with it the USDJPY, Nikkei, and US futures following a WSJ report that Robert Mueller had issued a subpoena to more than a dozen top Trump administration officials in mid October.
And as traders sit at their desks on Friday, U. S. index futures point to a lower open as European stocks fall, struggling to follow Asian equities higher as the euro strengthened at the end of a tumultuous week. Chinese stocks dropped while Indian shares and the rupee gain on Moody’s upgrade. The MSCI world equity index was up 0.1% on the day, but was heading for a 0.1% fall on the week. The dollar declined against most major peers, while Treasury yields dropped and oil rose.
Europe’s Stoxx 600 Index fluctuated before turning lower as much as 0.3% in brisk volumes, dropping towards the 200-DMA, although about 1% above Wednesday’s intraday low; weakness was observed in retail, mining, utilities sectors. In the past two weeks, the basic resources sector index is down 6%, oil & gas down 5.8%, autos down 4.9%, retail down 3.4%; while real estate is the only sector in green, up 0.1%. The Stoxx 600 is on track to record a weekly loss of 1.3%, adding to last week’s sell-off amid sharp rebound in euro, global equity pullback. The Euro climbed for the first time in three days after ECB President Mario Draghi said he was optimistic for wage growth in the region, although stressed the need for patience, speaking in Frankfurt. European bonds were mixed. The pound pared some of its earlier gains after comments from Brexit Secretary David Davis signaling a continued stand-off in negotiations with the European Union.
In Asia, the Nikkei 225 took its time to catch up to the WSJ report that US Special Counsel Mueller has issued a Subpoena for Russia-related documents from Trump campaign officials, although reports pointing to North Korea conducting ‘aggressive’ work on the construction of a ballistic missile submarine helped the selloff. The Japanese blue-chip index rose as much as 1.8% in early dealing, but the broad-based dollar retreat led to the index unwinding the bulk of its gains; the index finished the session up 0.2% as the yen jumped to the strongest in four-weeks. Australia’s ASX 200 added 0.2% with IT, healthcare and telecoms leading the way, as utilities lagged. Mainland Chinese stocks fell, with the Shanghai Comp down circa 0.5% as the PBoC’s reversel in liquidity injections (overnight net drain of 10bn yuan) did little to boost risk appetite, as Kweichou Moutai (viewed as a bellwether among Chinese blue chips) fell sharply. This left the index facing its biggest weekly loss in 3 months, while the Hang Seng rallied with IT leading the way higher. Indian stocks and the currency advanced after Moody’s Investors Service raised the nation’s credit rating.
This post was published at Zero Hedge on Nov 17, 2017.
Submitted by Gordon Johnson of Axiom Capital
CREDIT LEADS ‘ALL OTHER’ ECONOMIC DATA IN CHINA
China until recently euphoric credit growth, is rapidly grinding to a halt. As we published last week, and a key underpinning of our negative outlook on commodity prices through the remainder of 4Q17 and into 2018, the moderation in China’s credit seen more recently appears to be gaining momentum. The evidence?
Well, we note that: (1) new yuan loans in October came in at CNY1.04tn (vs. expectations of CNY1.1tn, and CNY1.8tn in the prior month), with banks making up CNY663.2bn of this amount – which was below the Consensus estimate of CNY783bn for October, and down from CNY1.27tn the prior month (Exhibit 1), (2) shadow banking remains around one-third of total social financing (‘TSF’), showing little signs of providing the ‘lift’ to credit it has previously when bank debt issuance underperformed – Exhibit 2, (3) year-over-year growth of new yuan loans, on a three-month-rolling average, has slowed to just +7.5% in October (Exhibit 3), (3) Y/Y M2 growth in China hit a multi-decade low of +8.8% in October (Exhibit 4), (4) household loan growth (i.e., mortgages) continued its precipitous fall in October (Exhibit 5), (4) Y/Y corporate bond and government bond issuance continues to trend negative (Exhibit 6), all ultimately resonating in (5) broad credit growth that continues to moderate (Exhibit 7).
In short, we believe
China’s efforts to deleverage are, increasingly, bearing fruit. What this means, in our view, is that China’s economic indicators will continue to slow, weighing on bulk commodity prices, and ultimately industrials, metals, and mining stock prices.
This post was published at Zero Hedge on Nov 14, 2017.
China keeps moving gradually to open up their economy to international forces. The People’s Republic of China has expanded the trade in gold in yuan and thus the internationalization of the national currency is moving closer. Gold merchants from the industrial metropolis of Shenzhen have been trading their yuan gold at the Hong Kong Stock Exchange since last week. Previously, this was only possible for Hong Kong gold traders. While some immediately claim this is China attacking the dollar, they are completely ignorant of international capital necessities.
This post was published at Armstrong Economics on Nov 14, 2017.