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The Fed wants to hike rates after years of keeping them too low for to long. In a world filled with countries cutting (easing) interest rates, the net result of raising them is a strong U.S. dollar. The greenback has surged over 9% since May, one of its three most significant six month surges on record. The ugly part of the strong dollar story is found in its IMPACT on China. Strong dollar side effects are oozing all over the planet. We MUST connect these dots……
Breaking: *MACAU LIMITS CHINA ATM CARD TRANSACTIONS; DAILY LIMIT UNCHANGED
Major US Casino’s Rocked by Possible New Regulations trying to Prevent Cash Pouring out of China
China’s foreign currency reserves, the world’s largest, fell the most since January after the yuan declined to an eight-year low. Reserves decreased $69.1 billion to $3.05 trillion in November, the People’s Bank of China said in a statement this week. That compares with the median forecast of $3.06 trillion in a Bloomberg survey of economists. Decline was biggest since reserves tumbled $99.5 billion in January. As a result, their are fears around the PBOC implementing new rules focused on cash outflows.
Macau is the biggest gambling hub on earth. China moved on Friday to clarify it had not tightened daily cash withdrawal limits for Chinese gamblers, after fears of a crackdown on illicit money outflows sent shares in casino operators tumbling. The South China Morning Post, citing a finance industry source, reported late on Thursday that the Monetary Authority of Macau would halve the amount of cash that China UnionPay cardholders can withdraw from automated teller machines (ATMs) in the territory.
The paper said this would mean halving the daily cap for clients of China’s largest provider of bank cards to 5,000 patacas ($626).
The Macau authority, however, said it limited withdrawals to 5,000 patacas per transaction, effective Friday, but had not changed its daily limit. – Reuters
Why Should a U.S. Equity Investor Care about China’s Currency?
Over the last 15 months, U.S. dollar surges have led to rapid currency devaluations in China and emerging markets. The only problem? Since 2008, there’s $13T of new dollar denominated debt on earth tied to emerging markets, oil and commodities. U.S. dollar surges make this debt worth less, each time since 2014 we’ve seen global credit risk impact U.S. stocks. The rising cost of CNH vol (above) is an expression of hedge funds betting on a weaker yuan in China. Since 2014, each time CNH vol has surged in a meaningful way, U.S. equities have fallen more than 10%.
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There’s just one problem with a surging dollar, China’s yuan and their $11T economy is pegged to her. China has to dramatically weaken the yuan just to stay competitive with global trading partners, the currency has depreciated nearly 7% since May.
A Quick Trillion has Fled
If you’re a millionaire in China and you know your currency is on a sharp depreciation path, what do you do? You move your cash OFF shore as quick as you can. China’s foreign exchange reserves, down from a record $4 trillion in mid-2014, are forecast to have fallen in November to $3.06 trillion from $3.12 trillion a month earlier when the figures come Wednesday. Some of the downward move is due to a weaker yuan, which fell 1.6 percent against the dollar last month, but some of it also reflects valuation effects. As the yen and euro weaken, so too does the headline value of China’s reserves, probably by as much as $35 billion. – Bloomberg
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