Currency wars are gaining momentum. China began to devalue the yuan in order to offset the losses of its exporters from the increase in the cost of deliveries to the United States. For an export-oriented economy, currency manipulation is a powerful instrument. After breaking through an important level of 7 yuan per dollar, the stock market reacted immediately with a 4% drop in the S & P500. As last week showed, corporations activated buybacks, which kept the markets from falling further. At present, the Central Bank of China continues to slightly increase the dollar, but markets already perceive these movements as predicted.This is strange, because in this case we will see the mark of 8 by the end of the year and this is a devaluation of the currency from the IMF basket by 14% for six months. Recall that the yuan is in the foreign exchange reserves of many countries, including Russia, India, Australia and others. In the context of the renminbi's instability, huge financial flows will stand on the way out of China. In the short run, this is bad for Chinese assets, especially in the debt market. But for a far-sighted investor, a devaluation of 8 points is a great chance to replenish the investment portfolio with Chinese stocks. Another point is the American dollar . The US FRS has entered a cycle of rate cuts (although Powell claims that this is only an accident). In addition, the United States stops withdrawing liquidity - the money supply of the dollar will not decline. These are significant factors for the cheapening of the dollar towards to stable currencies. In such a situation, the demand for gold, commodity assets and even cryptocurrencies (for Chinese, who find the way from the devaluation of the renminbi ) will increase. This week the reporting season ends (there will be a small part of companies that will still give their results). Among the tops we are waiting for indicators: Nvidia, Wal-Mart, Alibaba, Tencent. Restrained emotions and the right decisions in the market!
12 August 2019
Currency wars are gaining momentum.
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