The Fed wants to be “reasonably confident” that inflation is returning to its 2 percent target before raising rates.
Trade has been weakening in China and investors are seeing the government’s move to weaken its currency as a sign of sluggishness in China’s economy.
The world’s second-largest economy has slowed markedly this year and some economists believe it is expanding at much less than the official 2015 target of 7 percent. By definition, some countries must have stronger currencies so that others can be weaker in comparison, and not everyone can devalue at the same time. This underlines the sharpness of the regime’s u-turn. Authorities had been propping up the yuan to deter capital outflows, protect foreign-currency borrowers and make a case for official reserve status at the worldwide Monetary Fund. Oil prices plunged into a bear market last month and are off more than 50% from past year.
China’s economy has slid deeper into deflation this year, with this process likely to be reinforced by the spectacular collapse of its share price bubble in June-July.
The yield on the benchmark 10-year Treasury note remained lower, down 11.5 basis points to trade at 2.1213 percent.
“Part of the increase is probably due to the local government debt swap and other stimulus measures”.
Outstanding yuan loans grew at 15.5 percent by month-end, faster than expectations for a rise of 13.6 percent.
Following last night’s move by China to devalue the yuan by almost 2%, Australia and New Zealand, two of China’s major trading partners, saw their currencies get slammed. The PBoC sets a band in which the currency is allowed to trade. In this context, China has merely adopted the maxim “if you can’t beat them, join them”.
But talk of a global currency war was mooted.
As a weaker yuan would make Chinese export prices more competitive, this could pose a threat to US manufacturers. The yuan quickly fell 1.3 percent against the dollar and was down 1.9 percent by the afternoon. “The risk is that depreciation triggers capital flight, dealing a blow to the stability of China’s financial system”, Orlik warns. Stock markets also suffered falls worldwide.
The Australian dollar AUD=D4, often used as a liquid proxy for the yuan, fell 1.1 percent to $0.7324 as the U.S. dollar rose 0.4 percent against a basket of currencies.DXY before paring gains.
But Tsai also said that there are many factors affecting the performance of imports and exports, and that currency depreciation will only be a short-term stimulus tool.
Rob Marshall-Lee, head of emerging and Asian equities at Newton – which is owned by BNY Mellon -says China is still a fertile ground for stock pickers despite today’s news.
The yuan dropped 1.8 per cent to 6.3231 per dollar in Shanghai. But this stance has, rightly, met with widespread skepticism.
The People’s Bank of China said that it will keep the daily rate depending more on market conditions which is a further hint pointing at an additional drop in the currency.
Shares in Athens, however, gained 1.5 percent after the country secured a third bailout deal with creditors, making it the only European bourse to rise.
“Probably gold is benefiting from fears that this is a new round of currency war”, Macquarie analyst Matthew Turner said, adding that the move had increased uncertainties about the global economy, which tends to be good for gold. “The race to the bottom just became a good deal more treacherous”.
These shifts underline the serious crisis that engulfs global capitalism. Each “solution” of the capitalists can at best only postpone an aggrievement of the situation, and invariably creates new and more serious problems. The only real solution is to bury capitalism, by reorganising society on socialist lines.
