19.10 - yuan slide draws all the attention
- by Anna K.
Recent decrease in Chinese economy makes us doubt the strength of yuan.
So many changes happened over the last couple of months. Since to beginning of summer we have been watching the see-saw that the United States created for the trading world by starting a trade war with China. Tariffs, imposed on Chinese economy and those mirror actions, taken by Chinese government sent a lot of segment of the market along with both of the national currencies into a dance of tango where both of the economies try to knock each other down although balancing economic fate of the world.
And right now we couldn’t help but take a step back and take a look at the situation as whole. As traders we have to be prepared for every scenario and every situation and. That is why we think that months of the turbulence should have prepared us tot eh worst news imaginable.
As traders we value development and steps forward. We understand that there will be no trading with the constant fall. But that might be exactly why we have to take a step back to be horrified by the current situation. to be more specific – Chinese pace of development has fallen to the point of the financial crisis of 2008. It didn’t live up to the expected numbers and keeps on falling with so much attention focused in different thigs.
GDP numbers are on the worst level since the peaking time of financial crisis of 2008. And that is going together with the Chinese trying to find additional stimulus to the economy. Imagine if the situation would just be left as it is. what would happen to us? Yuan has already lost all of the bullish mood on plunged into the lowest point in years as well. All and all we can safely say that Chinese economy is turning into a mess to deal with.
Although not everything is as bad as we say. Chinese stocks and indices have been in the picture for a long time and we can safely say that these know how to bounce back from the low positions. Of course now the numbers in the particular segment of the market are mixed, but we have already seen a situation like that – selloff, followed by a swift recovery. Now, here we have to remark that the situation has never been this strained, but in any case – recovery will happen sooner or later and the worse the situation, the later it will happen.
We just want to say that even though the situation seems to be as bad as it is now, there is always a chance for growth and recovery. Last week after a big selloff the next day we already saw a recovery. Pretty quick, wasn’t it? Of course we want to see the same recovery in the equities, but all in good time.
Will China recover completely? Only if a certain president lifts all of the restrictions – our opinion.
No, in case you are wondering, Trump was not done with the tariffs’ imposing. There is an exclusive information coming from the sources that claim that United States have requested official help from the World Trade Organization to meddle inside the problem that the country now has with the 25 percent steel and aluminum import tariffs from China, Canada and Mexico. European union is also reportedly tangled in the conflict.
In their turn the Chinese have applied for WTO’s help in order to check the lawfulness of American tariffs in the first place. According to China, imposing tariffs was an act that goes against every economic and trading rule of the world. Of course WTO already tries to get inside tha talks, but even they failed to convince Trump to step down with the decision.
Decision of both of the sods to turn to the third side in order to resolve the conflict can be another turn in the trade war. Getting WTO involved seem to be the last resort that China in trying to turn to in order to safe its economy. Canada and Mexico, although already have gone into a new trade agreement with the United States are still under the threat of tariffs as nothing can stop Trump from hurting partners of the Unites States.
What really scares us and we guess the world traders and trading society is how easy Trump goes against the rules that were set tens of years ago and how easy he discards all of the principals of partnership. It means that until he is in the presidential seat, all of us are under threat, no matter what asset you trade – USD, CNY, EUR, CAD, MXN – all of them are under threat.
Although the situation may soon change as we get closer and closer to midterm elections in the United states. There is information that Trump’s popularity rate is getting lower and lower and that means that the image of a Republican party is getting lower and lower. And that means that less and less people would be prepared to vote for them in order to represent the people of America in the national parliament.
The less support Trump has from the parliament, the less it is likely that he will go on with the irrational international behavior like he is demonstrating now. of course for us as traders that will not mean an instant change. We will have to wait until a couple of weeks after the elections, for the power shift to happen. After all it is a parliament that can start a process of presidential impeachment. A threat, not there for Trump at the moment.
But back to WTO. Whether or not a requested panel is going to happen we cannot say at the moment, but in case it does it is possible that we will have to be the witnesses or the new set pof changes in the market.