US Treasury Department Secretary Timothy Geithner said that China has not done enough to allow the yuan to reflect true market value since saying last June that it would allow the currency to float.
“China took the very important step in June of signaling that they’re going to let the exchange rate start to reflect market forces,” Geithner said in an interview on Friday. “But they’ve done very, very little, they’ve let it move very, very little in the interim. It’s very important to us, and I think it’s important to China, I think they recognize this, that you need to let it move up over a sustained period of time.”
Source: Reuters
China’s confirmation that it will allow the yuan to appreciate against the dollar sent global stock markets higher Monday. The policy change is likely to help US manufacturers and exporters as it will make US-produced goods less costly for Chinese consumers, and could result in an increase in goods imported into China.
Chinese authorities also hope the more costly yen will reduce inflationary pressures and forgo the need to increase interest rates. China was recently forced to invoke several new regulations to cool a rapidly expanding property sector that come critics warned was approaching “bubble” status that threatened the entire economy.
Source: Associated Press
Latest growth figures from China indicate that for the first quarter of the year, China’s economy grew at an annualized rate of 11.9 percent. This was slightly higher than expectations and market watchers are debating how much of this growth is the result of government stimulus spending, and how much is true, organic growth.
“In the short term you can get as much growth as you are willing to pay for”, Michael Pettis, professor at Peking University’s Guanghua School of Management, told the BBC.
“[But] it has turned out to be very hard for Beijng to rein in investment spending, especially at the local [government] level,” he added.
“The worry is that these seemingly-strong growth numbers may reflect a surge in investing that turns out to be very wasteful in the longer run.”
It is this increase in investing – much of it in the form of highly-leveraged property development – that could derail China’s amazing story of late. Many economists feel that China must turn the heat down on consumer spending and borrowing, and for this reason, it appears likely that China will allow the yuan to appreciate.
Source: BBC News
The uncertainty generated by the vote in the Parliaments of Germany, France and Ireland to contribute their share of the Greek bailout has snapped the Euro’s 5 days upward trend. The EU fiscal warning to Portugal will not endear the country to bondholders when it goes in search of financing as it tries to cut down its GDP deficit to 2.8% by 2013 from 9.4% this year.
Fed chairman Ben Bernanke spoke before a Joint Economic Committee yesterday. He mainly outlined that there are still difficult choices ahed in order to cut the country’s soaring deficit. His speech was very balanced on the one hand he mentioned job losses were slowing down while on the other he was concerned about the level of long term unemployment.
The US$ is stronger in the O/N trading session. Currently it is higher against 10 of the 16 most actively traded currencies in a ‘whippy’ trading range. The USD$ is higher against the EUR -0.46%, CHF -0.39%. The JPY and GBP show very little appreciation from their levels 12 hours ago. The commodity currencies are a mixed this morning, CAD +0.08% and AUD -0.05%. The market should expect the AUD to remain better bid on any pull backs (0.9326).
Crude is lower in the O/N session ($85.68 down -16c). US Dollar strength has put downward pressure on oil, even after the EIA report pointed to a decrease of 2.2 million barrels in this week’s inventories. Technical analysts have their eye on $90 by year end.
Commodities prices could fall if the USD continues to find a foothold. Gold would lose its alternative investment status if the dollar continues its rebound USD$ ($1,154). Platinum and palladium have outperformed Gold as jewelry demand and Chinese auto industry demand have picked up. Yuan revaluation is also expected to boost gold as its price would become more attractive to Chinese buyers of the metal.
The Nikkei closed at 11,273 up +68. The DAX index in Europe was at 6,274 down -3; the FTSE (UK) currently is 5,797 up +2. The early call for the open of key US indices is higher.
Note: Dean will be away traveling for the next two week’s and will return to publication on April 29th.
China recorded a remarkable 46 percent increase in exports in February compared to the same month one year ago. The actual result was considerably higher than the earlier predictions of 35 to 40 percent and is likely to increase pressure from the US calling for the People’s Bank of China to allow the yen to appreciate.
For the past 18 months, China has pegged the yen to the US dollar. For American consumers particularly, this means that the cost of goods imported from China have remained unchanged and this certainly contributed to the impressive gains experienced by China. Naturally, this has also increased China’s trade gap with the US, and is sure to elicit further calls from the Obama administration to allow the yuan to increase in value.
“The recovery seems to have gained legs and this will give China’s government more confidence to start revaluing the yuan,” said Ren Xianfang, an economist at IHS Global Insight in Beijing.
However, China’s central bank governor, Zhou Xiaochuan, said at the weekend that the government was “very cautious” about easing exchange rate controls because the global economic outlook was still uncertain.
Source: BBC News
