Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Forget The VIX, The Yuan FIX Is The New Fear Gauge

By Stephen InnesMarket OverviewAug 08, 2019 01:17AM ET
www.investing.com/analysis/forget-the-vix-the-yuan-fix-is-the-new-fear-gauge-200452747
Forget The VIX, The Yuan FIX Is The New Fear Gauge
By Stephen Innes   |  Aug 08, 2019 01:17AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

The CNY Fix is the number one game in town right now and will continue to dictate the pace of play for risk assets over the near-term. Nothing else matters at this stage.

Forget the VIX. The USD/CNH is the market's new fear gauge, now the best barometer for investor sentiment after President Trump's threat of more tariffs on China. That's depressing at best.

Today's fix signals to investors that the Pboc is using market synergies drive the fix while trying to tame the beast by slowing the move higher. This has markets breathing a sigh of relief since it also signals an unwillingness to engage in a currency war while offering a trade truce gesture the U.S. administration.

Hopefully, this olive branch is accepted by the U.S. administration hawks.

But ...

And while the Pboc continues to deny they will weaponize the yuan they have a sturdy tool at their disposal and will not hesitate to use it as a direct tariff offset. Indeed, this is a very scary offset.

In the face of a weakening yuan and the potential for full-blown trade and currency wars, I no longer believe that the Fed or other central banks can offset the economic carnage, provided escalation policies remain in play. It matters little how cheap and plentiful money is under these downtrodden economic war conditions, firms will not take up central bank policy and borrow to invest, and for that matter, neither will investors.

Any further escalation in trade tensions—which appears likely—could push USDCNY to 7.20, and frankly, the markets seem happy to remain short CNHJPY SGDJPY and KRWJPY as trade war escalation hedges despite the omnipresent threat of U.S. FX intervention or at minimum a more explicit Fed-driven, weaker dollar policy. It's simply not the right time to fade this move.

Oil prices and the USD

The market should quickly look through OPEC verbal intervention as oil supply cuts could be offset by U.S. production. After all, we just had a shocking counter-seasonal build in U.S. inventories. Not to metnion, the Kremlin could be unwilling partners not wanting to give up any market share to the U.S.

If Trump levies the tariffs as expected, the USDCNH will trade at 7.20. So to put oil and currency markets in the proper context of a stronger USD, which will move through Asian currencies like a wrecking ball.

Sure, lower oil prices could offset the stronger USDASIA effect as the trade war escalates. But this view belies the fact that global economic data continues to struggle.

And with the weaker yuan pressuring the Asian basket of currencies lower, the stronger USD in Asia not only makes oil more expensive in local terms but when compounded by slowing growth it suggests the path for oil prices could be much lower.

Forget The VIX, The Yuan FIX Is The New Fear Gauge
 

Related Articles

Paul Rejczak
Should We Buy the Dip? By Paul Rejczak - Jan 21, 2022 8

The S&P 500 broke below its early December low. Are we in a new bear market or is this still just a downward correction? The broad stock market index lost 1.10% on Thursday...

James Picerno
S&P 500 Risk Profile By James Picerno - Jan 21, 2022

The US stock market is knee-deep in another one of its periodic bouts of selling. Is this the big one or just another short-term correction? The only honest answer, as always:...

Forget The VIX, The Yuan FIX Is The New Fear Gauge

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Ephraim Shavit
Ephraim Shavit Aug 08, 2019 3:38AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
somehow I believe that China has not operate yet their retailation.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email