{"id":77074,"date":"2015-08-19T04:01:22","date_gmt":"2015-08-19T08:01:22","guid":{"rendered":"http:\/\/countingpips.com\/?p=77074"},"modified":"2015-08-19T07:24:14","modified_gmt":"2015-08-19T11:24:14","slug":"yuan-devaluation-adds-to-commodities-gloom","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2015\/08\/yuan-devaluation-adds-to-commodities-gloom\/","title":{"rendered":"Yuan Devaluation Adds to Commodities Gloom"},"content":{"rendered":"
August 19, 2015<\/div>
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By WallStreetDaily.com<\/u><\/a> \"Yuan<\/p>\n

By Tim Maverick<\/a>, Senior Correspondent<\/em><\/p>\n

Another great game is certainly afoot in global financial markets, and China has announced its presence with authority. The bout, of course, is the currency war.<\/p>\n

On August 11, China devalued its currency<\/a> by the largest amount in one day since 1993. By doing so, it joined a phalanx of countries around the world that have actively depreciated their currencies against the U.S. dollar.<\/p>\n

Markets have been roiling ever since. This is especially true for commodities, which are already in a weakened position.<\/p>\n

But all the drama seems to be a bit of an overreaction.<\/p>

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It\u2019s a Small Move, Really<\/h2>\n

Politicians who like to blame China for our country\u2019s ills immediately got fired up after the devaluation. New York Senator Charles Schumer began the old song and dance about China artificially keeping the value of its currency too low.<\/p>\n

But he seems to have missed the fact that the yuan has been on an upward path for the better part of a decade.<\/p>\n

The Bank for International Settlements says that, since the start of 2014, the yuan appreciated 10.3% on average versus all currencies.<\/p>\n

Over the course of three days, China pushed down the value of its currency by only<\/em> about 3.5%. That\u2019s a minor adjustment compared to the vast appreciation of its currency \u2013 which has been pegged loosely to the dollar.<\/p>\n

\"The<\/p>\n

Compared to the Japanese yen, the yuan has made much bigger strides \u2013 it appreciated by about 80% compared to the yen over the past two years. No one is talking about the other emerging markets, either. Brazil\u2019s currency, the real, fell about 60% against the dollar since 2011.<\/p>\n

If China was truly interested in devaluing its currency to boost exports, it would have taken a much more dramatic step, like a 20% to 30% immediate devaluation.<\/p>\n

That\u2019s quite unlikely to happen.<\/p>\n

Many of China\u2019s companies have lots of dollar-denominated debt. A sharply lower yuan would only add to these firms\u2019 burdens.<\/p>\n\n\n\n
\nChina\u2019s decision to devalue the yuan reverberated across financial markets. Indeed, the first shots in what could devolve into a global currency war have now been fired.Commodities markets suffered as a result, but this is just a short-term reaction. The longer-term \u2013 and more significant \u2013 concern is two-fold. First, demand for oil and other natural resources is in peril. Global growth is slowing, and that has profound implications for asset values across the board.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Second, the escalating global currency war has us spiraling toward \u201crancor and conflict,\u201d as one Business Insider <\/em>author put it.<\/p>\n

Here\u2019s the bottom line: If you\u2019re at all concerned about the state of the global economy, America\u2019s position within it, and the potential vulnerability of your portfolio, you must listen<\/a> to what Alan Gula has to say about the next major crisis, its root causes, and a strategy to protect your assets.<\/p>\n

Commodities Crumble<\/h2>\n

The markets\u2019 reaction to China\u2019s move says more about the state of the markets than it does about the magnitude of China\u2019s action. Especially the commodities sector.<\/p>\n

In the commodities world, the mood was already sour, and China\u2019s devaluation only added to that.<\/p>\n

You see, a weaker Chinese currency makes commodities, which are priced in dollars, more expensive to buy.<\/p>\n

Take oil, for instance. China was expected to account for 23% of the growth in global oil consumption this year. But with the devaluation, oil stakeholders are wondering if China will continue to stockpile oil or pull back from the higher prices. Worries like these sent WTI crude oil down to $42 per barrel, the lowest since 2009.<\/p>\n

China also accounts for about 45% of global copper demand. Unsurprisingly, copper fell to a six-year low ($2.27 per pound) after China\u2019s announcement.<\/p>\n

China is also a big commodities producer and, because of the devaluation, their costs have just dropped.<\/p>\n

That\u2019s bad news for the big miners \u2013 BHP Billiton PLC <\/strong>(BBL<\/a>), Rio Tinto PLC <\/strong>(RIO<\/a>), Anglo American PLC <\/strong>(AAUKY<\/a>), and Glencore PLC<\/strong> (GLNCY<\/a>) \u2013 which sold off steeply.<\/p>\n

Concern that China\u2019s resources demand will weaken has also affected other commodities\u2019 currencies, like the Australian dollar.<\/p>\n

That fact lowers the costs of production (which is priced in U.S. dollars) for commodity producers in those affected countries, meaning weak players will stay in business longer than expected. This, in turn, will add to the glut in commodities, particularly in the metals and energy space, and keep prices low.<\/p>\n

Barring a full-fledged currency war involving China, the long-term view holds a bottom and good buying opportunity in these commodities and the commodity producers.<\/p>\n

Unfortunately, we\u2019re not there yet.<\/p>\n

Good investing,<\/p>\n

Tim Maverick<\/p>\n

The post Yuan Devaluation Adds to Commodities Gloom<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

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 <\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com By Tim Maverick, Senior Correspondent Another great game is certainly afoot in global financial markets, and China has announced its presence with authority. The bout, of course, is the currency war. On August 11, China devalued its currency by the largest amount in one day since 1993. By doing so, it joined a […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-77074","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/77074","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=77074"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/77074\/revisions"}],"predecessor-version":[{"id":77095,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/77074\/revisions\/77095"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=77074"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=77074"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=77074"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}