Home / Business / Before the bell: The Yuan has fallen near the crisis. What China is doing about it will shape the trade war

Before the bell: The Yuan has fallen near the crisis. What China is doing about it will shape the trade war

One dollar bought 6.92 yuan on Friday. The Chinese currency has fallen by nearly 2.7% this month and is now uncomfortably close to the symbolic level of 7 against the dollar, which was last broken during the 2008 financial crisis.

What happens next is important. China has a strong interest in stabilizing the currency, as does the United States. President Donald Trump has long argued that China devalues ​​its currency to make the country more competitive.

However, Beijing is in a difficult position.

The currency devaluation could help China by lifting the impact of new US tariffs and keeping its exports in America affordable. However, a sharp decline in the yuan could trigger a cash outflow from China and affect economic stability.

At the same time, the Chinese government may be reluctant to support its currency, as this could open Beijing up to further criticism from Washington.

"China is trapped between a rock and a hard place," said Miguel Chanco, senior Asia economist at Pantheon Macroeconomics.

China may be tempted to use its currency as a weapon against the United States, said Bank of America analysts Merrill Lynch Athanasios Vamvakidis and Claudio Piron in a note customers on Friday.

Degrading the yuan would be a "gentler" option than targeting US companies or investing in China, they said. Experienced hedge fund manager Mark Yusko believes China can do so without putting too much of a problem on its own economy.

Typically, China should worry about a withdrawal of money from the country given the yuan's weakening as investors lose confidence and swap [1

9659008] yuan for assets in dollars and other currencies. Yusko argues that this is not a problem for Beijing, which could force capital controls.

That does not mean that such a strategy is without risks.

The drop in the yuan to the US dollar below 7 could trigger further sell-offs and push it further down, Chanco said. That would probably be unattractive for Beijing, he added.

The weakening of the yuan could also spur Chinese inflation. This is a risk at a time when the economy is already showing signs of weakness and retail sales are slowing noticeably.

Another big question is whether China chooses to sell US Treasuries more quickly, which in turn buys yuan and builds its value.

China reduced US debt to US $ 1.12 trillion in US Treasury bonds in March, its lowest level in nearly two years.

Chanco views dumping of US sovereign debt as nuclear option, while Yusko China considers this to be absolute Speed ​​up the sale of Treasuries if a solution is not reached soon.

"I think it's very likely," he said.

2nd Annual General Meetings: The annual general meeting of Amazon will be held on Wednesday. This year's power of attorney includes 12 shareholder suggestions on all topics, from facial recognition technology to food waste.

A resolution supported by thousands of company employees would require a report on the company's actions to combat and prepare for climate change.

Amazon's investors were famous for managing the company, but with increasing institutional support for environmental and social decisions this time around, it could be something else. BP ( BP ) has its annual meeting on Tuesday and is also facing resolutions on climate change.
Also on the program is the annual meeting of the Deutsche Bank, which will take place on Thursday in Frankfurt. Deutsche Bank ( DB ) which has been struggling since the financial crisis, is under considerable pressure to point the way forward as revenues fall faster than they cut costs can. Merger talks with supranational competitors Commerzbank ( CRZBF ) were aborted last month.
3. Retail Income: Retail revenue in full swing this week. Wall Street will monitor the results of Target ( TGT ) Best Buy ( BBY ) . Nordstrom ( JWN ) JCPenney ( JCP ) and Kohl's ( KSS ) .
Walmart ( WMT ) set a high bar last week. America's largest retailer announced that store sales, which have been open for at least a year, rose 3.4% in the last quarter compared to the same period last year. Online revenue growth was 37% in the last quarter.
Walmart, however, warned against raising prices for some products due to Trump's customs duties on Chinese goods. "Higher tariffs will, in our opinion, lead to higher prices for our customers," said Walmart's CFO.

Expect analysts to inform retailers about their plans to handle tariffs and their involvement in China.

4th Meeting in the Desert: Armed drone attacks. A deepening trade war. Devastating sanctions against Iran and Venezuela. There is no shortage of hotspots that OPEC and its allies can discuss on Sunday in Jeddah, Saudi Arabia.

The Summit's compliance committee could provide clues as to whether manufacturers will bow to Trump's pressure to boost output at next month's meeting in Vienna.

5. Next week:

Monday – Japanese GDP; Twitter ( TWTR ) Annual Meeting; Xiaomi Revenues
Tuesday – BP Annual Meeting; Kohl's, Home Depot ( HD ) Nordstrom, JCPenney, Urban Outfitters ( URBN ) and TJX ( TJX ) Result
Wednesday – Fed minutes; Amazon annual meeting; Target, Lowe's LOW ) and L Brands [ LB ) Result
Thursday – Indian election results; Annual Meeting of Deutsche Bank; US New Home Sales; Best Buy ( BBY ) Ross Stores [ ROST ) and HP Earnings
Friday – Orders from US durable goods; Foot Locker [ FL ) Result

Nathaniel Meyersohn, Matt Egan and Lydia DePillis contributed to this report.

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