The big issue of the week is the RMB, which is under huge pressure to fall towards and beyond 7 to the USD. It’s at 6.92 as we type on Friday afternoon. Our view, dear readers, has been throughout that Those In Command want this to happen, but at a pace and in a way which keeps the markets guessing, and doesn’t overly fuel capital flight. The last week has not helped.
What is pushing the RMB down right now, of course, is not China economic weakness, but the strength of the USD in the wake of the election of what the markets are clearly assuming will be a pro-business administration operating out of Trump Tower on Fifth Avenue. The Dow closed above 19,000 before the Thanksgiving black hole opened and swallowed the US into its maw (don’t bother trying to talk to anyone there until next Tuesday) and the US money biz guys are obviously feeling pretty copacetic.
For the Chinese leadership, we believe a gentle slide down to and past 7 would be fine because it helps export competitiveness, but if 7 is passed too fast, there is a potential psychological impact on the broad masses that will be reflected in all sorts of ways that will be problematic for Those in Command. Who could have guessed this scenario? Markets are all very well, but it must be so tedious for them when they don’t do what they are supposed to do. Keep warm this weekend and in the weeks ahead. It is said this winter will be particularly cold in the Middle Kingdom and this year’s flu virus is even more infectious than Bruno Mars’ latest album. Enjoy!