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    Asia stays calm, but yuan is down again

    Asian markets have been relatively calm today, at least compared to the FX where we’ve already seen a bloodbath on the pound. While the Japanese Nikkei is down by nearly 2%, these losses have been trimmed towards the end of the session. China sees only modest declines.

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    Source: Bloomberg 

    Actually, the Chinese domestic market is even up. It’s a meager 0,1% but still a gain despite worries that are clearly mounting in China. The yuan is down again today with the offshore USDCNH rate already above 6.70. There is a talk on the markets that the Beijing uses Brexit as a "cover" for a much needed devaluation to help stabilize growth. Interestingly officials at the PBOC gave calls for more "research" on corporate debt  while the SOEs have been allowed to sell assets in order to repay some debts. This suggests that while the officials are aware of the problem, they are not in the control of this situation. And that may herald problems...

    For now, however, markets are not paying attention. Those markets that are reacting heavily are doing it in response to Brexit not China. US equities remain robust and Antipodean currencies remain relatively strong. 

    It’s worth paying attention to the data on FX reserves for June that might reveal if there was already some bleeding (although more may occur in July). The data is normally released at the 7th day of the month so it may come out as soon as tomorrow. 

     

    Any person acting on this information does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it.


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