Cockroach Theory
Yesterday, I reported China Joins Currency War With Surprise Devaluation, Biggest One-Day Move on Record.
The yuan fell about 2% vs the dollar yesterday, the biggest one-day currency move since 1993.
Economists surmised this was a “one time” event. I begged to differ.
After all, when you see one cockroach, you can be assured there are more. And so it was.
China Pushes Yuan Sill Lower
Today we learn, China Pushes Yuan Down Further, Fuels Fears of Currency War.
China's yuan hit a four-year low on Wednesday, falling for a second day after authorities devalued it in a move that sparked fears of a global currency war and accusations that Beijing was giving an unfair advantage to its struggling exporters.
Spot yuan in China fell to 6.44 per dollar, its weakest since August 2011, after the central bank set its daily midpoint reference at 6.3306, even weaker than Tuesday's devaluation.
The currency fared worse in international trade, touching 6.57.
The central bank, which had described the devaluation as a one-off step to make the yuan (CNY=CFXS) more responsive to market forces, sought to reassure financial markets on Wednesday that it was not embarking on a steady depreciation.
One Time Event
Yesterday, China said this was a one time event.
In essence, China said “Don't worry, there's only one cockroach.
Clearly there are more than one. In fact, it is nearly impossible for there to be only one cockroach.
Second Cockroach Sighting
The Guardian reports China Stuns Financial Markets by Devaluing Yuan for Second Day Running.
China stunned the world's financial markets on Wednesday by devaluing the yuan for the second day running, sparking fears that the world's second largest economy is in worse shape than investors believed.
The currency hit a four-year low on Wednesday after the People's Bank of China set the yuan's daily midpoint even weaker than in Tuesday's devaluation.
With the bank having said that Tuesday's move was a “one-off depreciation”, the rapid drop in the value of China's currency – around 4% in the last two days – dealt a blow to appetite for risky assets, and markets across the region plunged amid concerns that Beijing has embarked on a damaging currency war.
The Australian dollar, often seen as a proxy for the Chinese economy, fell again to a fresh six-year low of US$72.25c, having been sold off heavily on Tuesday. The US dollar, on the other hand, rose strongly again against all Asian currencies.
Oil was hit, too, with Brent futures were down 31c at $48.87 per barrel at 0251 GMT. US crude was trading at $43.02 per barrel, down 6 cents from Tuesday when it marked its lowest settlement since March 2009. Key industrial and construction materials nickel, copper and aluminum also hit six-year lows.
