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Nations Notice As China Allows Yuan To Lose Value

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Nations Notice As China Allows Yuan To Lose Value

Exchange-rate strategies in Beijing in regards to the U.S. dollar, as well as thirteen other currencies, are still causing uncertainty and doubt.

The money in China, termed the yuan, has experienced a fall of around 3% against the dollar since the start of 2016.

During this same period, the yuan has fallen about 6% against 13 other currencies from around the world.

The graph below shows this drop:

yuan 1

Chengdu, China

Beijing has somehow allowed the yuan to press against the U.S. dollar during 2016 without causing an uproar of protests from its trading partners.

However, things seem to be changing as of late.

A larger depreciation against a much broader selection of currencies is garnering more and more attention.

This past weekend, there was a two-day meeting where Group of 20 finance chiefs gathered and discussed this recent depreciation of the yuan.

The meeting was held in Chengdu, a southwestern city in China.

During this conference, officials from a few of China’s major trading rivals expressed that they were having concerns due to the decline of the yuan, as seen this year.

The yuan has fallen almost 6% when compared to a group of thirteen separate currencies.

Out of these thirteen, the dollar, euro, and yen are included.

When isolated only to show the yuan against the dollar, there was a 3% drop.

The emergence of a weaker yuan against varying other currencies can cause Chinese exporters to have an advantage over those from different countries in global markets.

Taro Aso, the Japanese Finance Minister, spoke to reporters on Saturday and said that he told the Group of 20 to keep a close eye on the future direction of the yuan, along with the Chinese economy as a whole.

Privately other Western officials mentioned that they had offered advice to China, cautioning them against weakening the yuan broadly.

Both of these remarks illustrate that the exchange rates in China are continuing to be a great source of doubt and uncertainty for both investors and global policy makers.

The yuan has gone through two rounds of devaluations in the past year alone, which has triggered a swell of panic selling in markets all over the world.

This devaluation has also exacerbated the money flow being sent out of China.

The central bank in China has also improved its communication in regards to the mechanism that controls yuan-pricing.

This improvement has helped to ease the doubts and nervousness surrounding the most recent instance of yuan depreciation, which began in late May of this year.

Many of the economists within China have suggested that the yuan should be watched but allowed to continue to weaken while the country sees a slowing economy.

However, the People’s Bank of China has reported that they have had to be careful to monitor this weakening.

By keeping it gradual, they prevent the possibility of it leading to speeding up capital outflows.

The United Kingdom’s decision to leave the European Union on June 23, 2016, has assisted in speeding up the yuan’s descent due to the central bank benefitting from the expanding dollar to devalue the yuan.

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This led to the yuan weakening 1.6% against the dollar, as well as 1% against the other 13 currencies in the first two weeks after the decision for Britain to exit the EU, a move termed as Brexit.

When the United Kingdom made the choice to secede after a harrowing vote on whether or not to remain in the European Union, it led to many consequences on economies all over the world.

China and the yuan are just one of the many markets and currencies affected.

Last week, the central bank made the decision to keep the yuan mainly stable against the currency basket and guide it higher against the greenback.

This decision came right before the weekend G-20 meeting in Chengdu.

The exchange rate maneuvering in Beijing has been mainly driven by the dollar.

The PBOC focused on anchoring the yuan to the dollar while the greenback was weak, letting the yuan collapse against the basket.

On the opposite end of the spectrum, the PBOC allowed the yuan to weaken when the dollar advanced, leading to the yuan being kept mostly stable against the basket.

In 2016, the dollar has strengthened less than it has reduced, leading to a weaker yuan against the basket than against the dollar.

The graph below shows the China Exchange Rate Pressure from 2000 to 2016.

As one can see, it plummets near the end of 2015:

yuan 2

Chi Lo works as a China economist for BNP Paribas Investment Partners, which is the asset-management arm of the bank based in Paris.

Lo said that he continues to believe that the Chinese central bank only desires stability for the yuan because a continued weakening of the yuan could end up renewing capital outflows.

Analysts from Goldman Sachs Group Inc.  say that there was an estimated jump to $49 billion in outflows last month from the $25 billion that occurred in May.

This increase is seen as a result of the decreasing yuan.

Lo also said that the thing they do not know is whether the PBOC desires a stable trade-weighted exchange rate or if they want a stable yuan-dollar rate, which would be measured and determined by the yuan’s value against the basket of currencies, which includes the euro, dollar, and yen.

Larry Hu, a China economist at Macquarie Group LTD., which is an investment bank based in Sydney, said that the combination of the rising depreciation of the yuan and the monthly trade surplus of around $50 billion in 2016 would most likely raise one or more concerns among the trading partners of China.

Due to pressure mounting from the rest of the world, as well as the declines and devaluations that the yuan has experienced and suffered from this year, Mr. Hu says that there is a very limited amount of room for any more yuan depreciation against the currency basket for the remainder of 2016.

As you can see below, China hit an unusually high trade surplus at the beginning of 2016 and the end of 2015, though the economy has been slowing for the majority of this year.

yuan 3

After the Group of 20 meeting that concluded on Sunday, which was led by China, the group reaffirmed its pledge to refrain from engaging in beggar-thy-neighbor devaluations.

A public statement by PBOC Governor Zhou Xiaochuan stated that the exchange rate of the yuan against the currency basket is stable and being kept that way.

This, he said, has led to an increased strengthening of the market confidence around the Chinese currency.

Another notable event occurred when a senior United States Treasury official made note of the fact that Beijing has recently intervened to prevent the yuan from seeing any further falls or decreases.

The United States welcomed this action and described it as not being the type of intervention that the U.S. would interpret as being designed to obtain an unfair or unwelcome advantage.

However, it is not to say that Washington has concluded in its attempts to push Beijing into continuing its exchange-rate reform.

The Treasury official remarked that because Beijing does not have full transparency on their intervention, it is challenging and difficult to have 100% confidence in them.

The graph below shows the consequences that Brexit, Britain’s exit from the EU, has caused within currencies around the globe, in particular, the yuan.

This could lead to exporting risks with the overseas sales, as well as a concern regarding the capital outflows.

yuan 4

Conclusion

 –    Since the start of 2016, currency in China has seen a fall when compared to both the dollar and a basket of around thirteen other currencies.

–    Brexit has created an uproar in global markets and currencies everywhere. With a falling euro and economic upheaval all over Europe, it’s no wonder that Asia is suffering too due to the surging dollar.

–    China has elected to attempt to control the yuan’s depreciation by keeping a close eye on the value to ease uncertainty from trade investors, as well as renewing capital outflows.

–    After meeting over the past weekend in Chengdu, the G-20 came to the decision to refrain from any behavior that could fall under beggar-thy-neighbor devaluations.

–    The United States Treasury seems to approve of China’s decision regarding their economy and actions following the depreciation of the yuan, though they warn that there is still not complete confidence in Beijing’s exchange rate program due to the lack of transparency.

–    Some have cautioned China against trying to control the yuan and instead advise them to maintain stability while paying attention to the concerns coming from across the world.

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Economy

STUDY: Number of Billionaires Doubles in Last Decade

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Number of Billionaires Doubles in Last Decade
Image via Shutterstock

The number of billionaires has doubled in the past decade and the world’s wealthiest 2,153 people controlled more money than the poorest 4.6 billion combined last year, the charity Oxfam said Monday.

Meanwhile, unpaid or underpaid work by women and girls adds three times more to the world’s economy each year at least $10.8 trillion than the technology industry, the Nairobi-based charity said in its “Time to Care” report.

Women around the world work 12.5 billion hours combined each day without any pay or recognition, while the world’s 22 richest men have more wealth than all the women in Africa.

“It is important for us to underscore that the hidden engine of the economy that we see is really the unpaid care work of women. And that needs to change,” Amitabh Behar, CEO of Oxfam India, told Reuters.

“Our broken economies are lining the pockets of billionaires and big business at the expense of ordinary men and women. No wonder people are starting to question whether billionaires should even exist,” Behar said ahead of the annual World Economic Forum in Davos, where he will represent Oxfam beginning Tuesday.

“Women and girls are among those who benefit least from today’s economic system,” he added.

There will be at least 119 billionaires worth about $500 billion attending Davos this year, according to Bloomberg, with the highest contingents coming from the US, India and Russia.

“The very top of the economic pyramid sees trillions of dollars of wealth in the hands of a very small group of people, predominantly men,” the Oxfam report said.

“Their wealth is already extreme, and our broken economy concentrates more and more wealth into these few hands,” it said.

To highlight the inequality, Behar cited the case of a woman called Buchu Devi in India who spends up to 17 hours a day walking almost two miles to fetch water, cooking, preparing her kids for school and working in a poorly paid job.

“And on the one hand you see the billionaires who are all assembling at Davos with their personal planes, personal jets, super rich lifestyles,” he said.

“This Buchu Devi is not one person. I in India encounter these women on a daily basis, and this is the story across the world. We need to change this, and certainly end this billionaire boom.”

Behar said that to remedy the problem, governments should make sure above all that the rich pay their taxes, which should be used to pay for amenities such as clean water, health care and better schools.

“If you just look around the world, more than 30 countries are seeing protests. People are on the street and what are they saying? That they are not to accept this inequality, they are not going to live with these kind of conditions,” he said.

Source: New York Post
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(c) 2020 2019 Vanguard Media Limited, Nigeria Provided by SyndiGate Media Inc. (Syndigate.info).

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Automobiles

Pump Prices to Edge up After Attack on Iranian General, but Long-Term Effect Unclear

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By Jeff Ostrowski, The Palm Beach Post, Fla.

Motorists soon will see the effects of President Donald Trump’s decision to kill a prominent Iranian general. Whether pump prices rise a little or a lot depends on how quickly international tensions intensify.

Florida gas prices climbed an average of 7 cents a gallon in the past three days and could increase an additional 5 cents, AAA – The Auto Club Group said Monday.

The 7-cent increase was coming even before the U.S. air strike Thursday that killed Iranian Maj. Gen. Qassem Soleimani. That hike was a result of a rise in the price of crude oil in December.

News of the targeted killing of Soleimani sent crude oil surging nearly $2 per barrel on Friday. An increase of that magnitude typically translates to a 5-cent hike at the pump, AAA said.

The U.S. benchmark for crude oil traded Monday just above $63 per barrel, the highest level since May 2019. The price of oil makes up about half the price of a gallon of gas.

“What happens in the Middle East can have a direct impact on Americans’ daily lives by influencing what they pay at the pump,” said AAA spokesman Mark Jenkins. “Crude prices rise when there’s a threat of war, because of concerns over how the conflict could hamper supply and demand.”

Oil analyst Tom Kloza of energy firm OPIS agreed that pump prices in Florida likely will rise about 5 cents a gallon in the coming days.

“Then I have a hunch that things are going to calm down,” Kloza said Monday. “I don’t think we’re looking at $3 gas.”

The national average pump price Sunday was $2.585, while the Florida average was $2.526, AAA said.

Kloza expects only modest increases in part because of the timing of the attack. January is always a slow month for gas consumption in the United States.

There’s also the reality that sanctions leave Iran unable to export oil. Complicating the calculus is Iraq’s response to the U.S. attack. The drone strike on Soleimani took place in Baghdad, and some Iraqi politicians considered the assault an affront to Iraqi sovereignty.

While there’s no Iranian oil supply to be disrupted by a war, Iraq is an important producer.

Trump keenly watches oil prices and realizes that a price spike might erode his support in this year’s presidential election, Kloza said.

At the same time, Kloza added, “This president has proven to be unpredictable.”

Trump’s response has been typically uneven. Delivering an official statement at the Mar-a-Lago Club in Palm Beach, Trump’s tone was measured. He said the targeted killing was designed to pre-empt Soleimani’s planned attacks on American diplomats and soldiers.

“We took action last night to stop a war,” Trump said Friday. “We did not take action to start a war.”

However, over the weekend, Trump took to Twitter to threaten attacks on Iranian cultural sites.

“The United States just spent Two Trillion Dollars on Military Equipment,” Trump wrote Sunday on Twitter. “We are the biggest and by far the BEST in the World! If Iran attacks an American Base, or any American, we will be sending some of that brand new beautiful equipment their way…and without hesitation!”

##IFRAME_1##Iran has vowed vengeance, but military experts say the nation isn’t powerful enough to wage a direct war against the U.S.

“It’s still far too early to know how much of an impact this conflict will have overall on prices at the pump,” AAA’s Jenkins said.

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Economy

Stocks Rally Despite Impeachment News

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Stocks rose on Thursday as investors looked past the news of President Donald Trump’s impeachment as well as mixed U.S. economic data.

The Dow Jones Industrials advanced 53.85 points to begin trading at 28.293.13

The S&P 500 recovered 4.93 points to 3,196.07

The NASDAQ added 19.39 points to Wednesday’s all-time record, at 8,847.12.

The S&P 500 is up nearly 7% since House Speaker Nancy Pelosi launched a formal impeachment inquiry in September.

Cisco Systems was the best-performing Dow component, rising 1.6%. The consumer staples and real estate sectors led the S&P 500 higher, gaining 0.4% each. Micron Technology shares also contributed to Thursday’s move higher. Conagra shares surged more than 14% and were on pace for their biggest one-day gain since Oct. 16, 1989.

Micron shares climbed 3.5% on the back of strong quarterly results. The chipmaker posted earnings per share and revenue that topped analyst expectations.

On the economic data front, weekly jobless claims fell to 234,000 from 252,000 the week before. However, economists expected claims to fall to 225,000.

Meanwhile, the Philadelphia Federal Reserve’s business conditions index fell to 0.3 in December from 10.4 in the previous month. Economists expected the index to slip to 8.

The Democrat-led House of Representatives voted Wednesday to impeach Trump for abuse of power and obstruction of Congress. Trump became only the third president to be charged with high crimes and misdemeanors and will now face a trial in the Republican-controlled Senate.

Prices for the 10-Year U.S. Treasury were lower, raising yields to 1.94% from Wednesday’s 1.93%. Treasury prices and yields move in opposite directions.

Oil prices gained seven cents to $61.00 U.S. a barrel.

Gold prices moved forward $1.80 at $1,480.50 U.S. an ounce. Copyright © 2019 Baystreet.ca Media Corp. All rights reserved.

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