It’s a problem that has been talked about before — inside China it’s what the yuan does against the dollar that seems to matter. Which is awkward because China is quite keen on people concentrating on what it does versus a basket of currencies.
The potential consequence of that USD fixation is that if the $/CNY rate goes higher then there is a risk that capital flight picks back up again in tandem with expectations of further depreciation, no matter what the RMB is doing against that currency basket.
In the words of Goldman’s Robin Brooks and team:
China is pursuing a shift in its currency management, towards a trade-weighted exchange rate and away from the bilateral exchange rate versus the Dollar. That shift makes sense conceptually, given that monetary policy normalization in the US is likely to push the Dollar up, so that some weakening of the RMB versus the greenback can certainly be justified given China’s cyclical position. But the shift to a trade-weighted exchange rate has a weak link, which is that the main signal for households and businesses within China remains the bilateral exchange rate versus the Dollar.
Goldman’s updated activity indicator sees Chinese growth at roughly 5 per cent, way off the official figure of 6.9 per cent. Awkward.
Estimates of how much cash China has flung at its stock market, in the hope that some sticks, vary.
As the FT says, the “government has not disclosed either the amount of rescue funds it has allocated to the coalition of state financial institutions — known as the “national team” — or how much of this total has already been invested.”
But all estimates tend to settle, roughly, on different quantities of “lots”.
First up then, a Goldman note out on Wednesday which estimates that said ‘national team’ “has potentially spent Rmb860-900bn [some $144bn] to support the stock market in June-July 2015… equivalent to 1.6%/2.2% of total market cap/free float market cap”:
$80 oil, $70 oil, $60 oil, $50 oil and counting… If you suspect the structure of the oil market has fundamentally changed, you may be on to something.
There was a time when all you needed to balance oversupply in the oil market was the ability, and the will, to store oil when no-one else wanted to.
That ability, undoubtedly, was linked to capital access. For a bank, it meant being able to pass the cost of storing surplus stock over to commodity-oriented passive investors and institutions happy to fund the exposure. For a trading intermediary, that generally meant having good relations with a bank which could provide the capital and financing to store oil, something the bank would do (for a fee) because of its ability to access institutional capital markets and its reluctance to physically store oil itself. Read more
Q. How do you tell the $65bn sovereign wealth fund of a notoriously erratic government that it might lose all its money on trades you arranged for them?
A. Very carefully.
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Earlier this month Goldman Sachs put out a note arguing that whilst their overall view was still bearish, the oil price sell-off thus far had been too much too soon.
The spot market fundamentals, they noted, were in balance — meaning that if anything was driving a “change” in demand it was curve repositioning, mostly by overly anxious speculators who had decided an exit was warranted despite the balanced fundamentals.
This, however, is no longer Goldman’s view. Read more
Jim O’Neill, chairman of Goldman Sachs Asset Management, Red Knight, and all-round Mr Bric, will retire later this year, the bank announced on Tuesday.
The full statement follows… Read more
Well, it’s a revolution! Apparently.
This is Goldman’s first report on its money market funds to disclose daily net asset values (h/t Tracy): Read more