President Trump proclaims more tariffs against Mexico due to the immigration crisis (caused in part by Trump himself whipping everyone into a frenzy by threatening to shut the border; this rhetoric causes a larger influx of immigrants towards the US since they figure it is the last chance they have to enter America). So this announcement last evening in the United States, as Asia markets began trading, tanked US futures. The S&P's are down -27.
Traders are likely more concerned about the pending retaliatory tariffs and other measures that China plans to announce this evening. That will give everyone the weekend to ponder the escalating trade war and rapidly increasing global protectionism. Protectionism is what exacerbated the Great Depression in the 1930's. All nations begin slitting each other's throats and all end up dying on the bloody floor.
The US dollar/yuan pair, USD/CNY, is trading at 6.9034 and market participants anxiously monitor the key 7.0 line in the sand. The communists may weaken the yuan (renminbi) past the 7.0 level to give their manufacturers and exporters an economic edge. The yuan is in the denominator of the currency pair so as the yuan weakens, the pair number rises. Thus, a higher USD/CNY number represents a weakening yuan while a dropping number represents a strengthening yuan. Of course the communist leaders in Beijing control the renminbi and set its daily exchange rate range.
This evening China will announce a combination of retaliatory measures including tariffs against the US, perhaps a plan for weakening the yuan, perhaps hassling US companies operating within the commie nation and other counter punches. The communist leadership is already running Korean war movies nightly across China to foster hatred for America and US products. China exports far more goods to the US than the US ships to China so the communists cannot match America's tariffs tit for tat. The commies will announce other measures in addition to tariffs that will attempt to equal the recent US tariffs. The trade war is getting uglier each day.
Bells will ring and sirens will sing when the yuan weakens past 7. Last Halloween, the yuan ran to 6.98 a breath away from 7. China may weaken the yuan past 7 to give their exporters an economic advantage which will help support the economy. But a weakening currency is not all wine and roses.
A weaker yuan will increase debt pressures on companies. It will increase the cost of imports when China's plan and goal is to grow the domestic economy which will require more imports. Most worrying for the filthy communists, is capital flight of money out of China. This has been occurring the last few years and the communists keep implementing stricter capital controls to stop the exodus of money, especially foreign capital, from China.
Another disadvantage to communist China for weakening the yuan past 7 is that their hopes for more respect in the world's currency markets will diminish. China wants the yuan to be more respected worldwide but manipulating the currency lower will severely damage that reputation. In addition, many Chinese companies maintain large balances of US dollar-denominated debt.
China's currency reserves topped over $4 trillion a few years ago and now slip below $3 trillion. China has ammunition available to shoot from both the monetary and fiscal barrels but the powder is running low. Of that $3 trillion, China needs to keep a steady base of reserves that are not touched. There are also cash-flow obligations occurring which places portions of this nest egg off limits. So China has some ammunition available to handle difficult times ahead but the piggy bank is clanging if you shake it.
The China retaliatory tariffs and other measures to be announced tonight will impact global markets and of course the yuan. Grab your popcorn and candy bars while you sit and watch the yuan weakening towards 7. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
Note: The renminbi (yuan) currency chart above is provided by CNBC and annotated by Keystone.
Note Added 6 AM EST: China strikes back against the US in retaliation for the treatment of Huawei. The communists announce plans to release a list of "Unreliable Entities." This list will obviously slap US companies in the face. Let the festivities begin. USD/CNY 6.9019. S&P futures are deteriorating to -34. VIX jumps to 19.666.
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