China's yuan could weaken past 7.5 per dollar if Trump hikes tariffs further, strategist warns - CNBC

U.S. banknotes and Chinese yuan notes.

Paul Yeung | Bloomberg | Getty Images

The yuan may weaken beyond 7.5 against the U.S. dollar if President Donald Trump kicks tariffs up to 25% on the recently threatened $300 billion of Chinese goods, says Bank of America Merrill Lynch.

China's currency has gotten greater attention in recent days after Beijing allowed the yuan to weaken past the important psychological level of 7 per dollar for the first time since the global financial crisis.

That depreciation came after Trump threatened to slap 10% tariff on $300 billion of Chinese goods starting Sept. 1. If that goes ahead, the U.S. dollar-Chinese yuan exchange rate may touch 7.3 by the end of 2019, weaker than an earlier forecast of 6.63, the BofAML predicted.

If that tariff rate increases to 25%, "you'll be looking at CNY beyond 7.5 levels" assuming existing economic and financial conditions don't change, Rohit Garg, a currency and rates strategist at the bank, said Wednesday.

China's move tells you that the U.S. doesn't have all the balls in this game, the Chinese can mess up this dollar weakening desire of Donald Trump very easily.

Taimur Baig

chief economist, DBS

Many analysts have said they expect Trump to hike tariffs on all Chinese goods to 25% after the recent escalation in the U.S.-China fight. Such an elevated tariff rate would hurt sentiment further and the U.S. Federal Reserve would likely step in to stem some negativity, Garg told CNBC's "Squawk Box."

The Fed "would sound more dovish, it would actually go ahead and cut rates," he said. That means it may be "difficult for the dollar to actually rally as much," he added.

Washington has already applied a 25% tariff on $250 billion of Chinese goods and labeled China a currency manipulator as the two economic giants battle in areas of trade, technology and now foreign exchange. For its part, Beijing imposed elevated tariffs on billions of dollars of U.S. goods and said it will stop buying American agriculture products.

US dollar strength

The U.S. has for years accused China of keeping the yuan artificially low to gain advantage in trade — an issue Trump has been complaining about since he became president. Last month, Trump suggested the U.S. should "MATCH" the "big currency manipulation game" taken by China and Europe.

But by ratcheting up rhetoric and tariffs against China, Trump has caused the U.S. dollar to strengthen even more compared to the yuan and other currencies, said Taimur Baig, chief economist at Singaporean bank DBS.

The U.S. dollar index — which measures the greenback against a basket of six currencies — has risen by around 1.4% this year.

"That's the irony of it all: The more grenades Donald Trump throws to give the U.S. a competitive advantage, the more risk off we see and more safe haven flows go into the U.S. and Treasury rallies and the dollar remains strong," he told CNBC's "Squawk Box" on Wednesday.

The Fed lowering interest rates or Washington intervening in the currency markets could help to contain the greenback's strength, but both options "will have far less impact on the dollar than just the end of the trade war," said Baig.

"If there were some sort of resolution that the actions between the Chinese and Americans will lead to a smaller surplus between the U.S. and China, to me, that would be the most powerful driver of a weaker dollar," he said.

"But that is not at all the way the narrative is playing out right now," he added. "China's move tells you that the U.S. doesn't have all the balls in this game, the Chinese can mess up this dollar weakening desire of Donald Trump very easily."

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2019-08-07 07:03:35Z
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China's yuan could weaken past 7.5 per dollar if Trump hikes tariffs further, strategist warns - CNBC

U.S. banknotes and Chinese yuan notes.

Paul Yeung | Bloomberg | Getty Images

The yuan may weaken beyond 7.5 against the U.S. dollar if President Donald Trump kicks tariffs up to 25% on the recently threatened $300 billion of Chinese goods, says Bank of America Merrill Lynch.

China's currency has gotten greater attention in recent days after Beijing allowed the yuan to weaken past the important psychological level of 7 per dollar for the first time since the global financial crisis.

That depreciation came after Trump threatened to slap 10% tariff on $300 billion of Chinese goods starting Sept. 1. If that goes ahead, the U.S. dollar-Chinese yuan exchange rate may touch 7.3 by the end of 2019, weaker than an earlier forecast of 6.63, the BofAML predicted.

If that tariff rate increases to 25%, "you'll be looking at CNY beyond 7.5 levels" assuming existing economic and financial conditions don't change, Rohit Garg, a currency and rates strategist at the bank, said Wednesday.

China's move tells you that the U.S. doesn't have all the balls in this game, the Chinese can mess up this dollar weakening desire of Donald Trump very easily.

Taimur Baig

chief economist, DBS

Many analysts have said they expect Trump to hike tariffs on all Chinese goods to 25% after the recent escalation in the U.S.-China fight. Such an elevated tariff rate would hurt sentiment further and the U.S. Federal Reserve would likely step in to stem some negativity, Garg told CNBC's "Squawk Box."

The Fed "would sound more dovish, it would actually go ahead and cut rates," he said. That means it may be "difficult for the dollar to actually rally as much," he added.

Washington has already applied a 25% tariff on $250 billion of Chinese goods and labeled China a currency manipulator as the two economic giants battle in areas of trade, technology and now foreign exchange. For its part, Beijing imposed elevated tariffs on billions of dollars of U.S. goods and said it will stop buying American agriculture products.

US dollar strength

The U.S. has for years accused China of keeping the yuan artificially low to gain advantage in trade — an issue Trump has been complaining about since he became president. Last month, Trump suggested the U.S. should "MATCH" the "big currency manipulation game" taken by China and Europe.

But by ratcheting up rhetoric and tariffs against China, Trump has caused the U.S. dollar to strengthen even more compared to the yuan and other currencies, said Taimur Baig, chief economist at Singaporean bank DBS.

The U.S. dollar index — which measures the greenback against a basket of six currencies — has risen by around 1.4% this year.

"That's the irony of it all: The more grenades Donald Trump throws to give the U.S. a competitive advantage, the more risk off we see and more safe haven flows go into the U.S. and Treasury rallies and the dollar remains strong," he told CNBC's "Squawk Box" on Wednesday.

The Fed lowering interest rates or Washington intervening in the currency markets could help to contain the greenback's strength, but both options "will have far less impact on the dollar than just the end of the trade war," said Baig.

"If there were some sort of resolution that the actions between the Chinese and Americans will lead to a smaller surplus between the U.S. and China, to me, that would be the most powerful driver of a weaker dollar," he said.

"But that is not at all the way the narrative is playing out right now," he added. "China's move tells you that the U.S. doesn't have all the balls in this game, the Chinese can mess up this dollar weakening desire of Donald Trump very easily."

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2019-08-07 07:02:55Z
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China blinks first. Now US stocks are bouncing back - CNN

China priced the yuan's reference rate at 6.9683 to the dollar on Tuesday, a hair above the key 7:1 ratio to the US dollar. Although that was the weakest level for the yuan in 11 years, many Wall Street investors feared China would price the yuan below that psychological 7:1 barrier.

The managed yuan continued to slide Tuesday, but the pace of its decline slowed. One dollar last bought $7.0200 yuan in China, and 7.0490 yuan in the offshore market, where the currency trades more freely.

Late Monday. the United States labeled China a currency manipulator.

But the sentiment is better nonetheless.

The Dow (INDU) traded more than 200 points, or 0.8%, higher Tuesday morning, while the S&P 500 (SPX) bounced 0.9% higher. The tech-heavy Nasdaq Composite (COMP), which was hit worst in Monday's selloff, traded 1.2% higher.

Stock investors also took comfort in the Chinese central bank announcing plans to issue central bank bills worth 30 billion yuan next week. That supported China's currency, which bounced back slightly against the dollar after the announcement.

"Also supporting the markets is probably bargain hunting of companies with good fundamentals and short-covering elsewhere," wrote Forex.com technical analyst Fawad Razaqzada in a note.

Asian stocks closed lower, while European stocks are recovering somewhat Tuesday.

China devalued its currency on Monday, leading it to fall below a key threshold that had last been breached during the financial crisis. Global stocks sold off in response and the Dow, S&P 500 and Nasdaq Composite log their worst day of 2019. The Nasdaq was the worst hit, because tech stocks would be hit particularly hard by an escalation in the trade war.

But now markets are calming down.

Investors feared the label would eliminate China's incentive to keep the yuan above the 7:1 ratio to the dollar, setting off a currency war with the United States. A further devaluation of the yuan could ease the burden of America's tariffs on China. Wall Street fears a steep drop in the yuan could escalate the trade war, prompting the United States to raise its tariffs on China or intervene in the value of the US dollar.

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2019-08-06 13:45:00Z
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Barneys files for bankruptcy, will close 15 stores - New York Post

Barneys has gone bust.

The luxury retail giant filed for bankruptcy early Tuesday, announcing plans to close 15 stores across the nation.

The retailer, which filed for Chapter 11 bankruptcy in Manhattan federal court, will shutter locations in Las Vegas, Chicago and Seattle, it said in a statement.

Barneys also said it will close seven of its warehouses and five smaller concept stores.

Meanwhile, New York’s Madison Avenue and Downtown locations will remain open, as will department stores in Beverly Hills, San Francisco and Boston’s Copley Place.

“For more than 90 years, Barneys New York has been an iconic luxury specialty retailer, renowned for its edit, strong point of view, creativity and representation of the world’s best designers and brands,” Barneys CEO and president Daniella Vitale said in a statement. “Like many in our industry, Barneys New York’s financial position has been dramatically impacted by the challenging retail environment and rent structures that are excessively high relative to market demand.”

The statement said the company had $75 million in new capital to facilitate “a going concern sale process” and “voluntarily filed for reorganization under Chapter 11.”

The company’s websites, Barneys.com and BarneysWarehouse.com, will remain operational.

The news comes after The Post reported Vitale had been scrambling to find a potential buyer for the iconic chain but fell short.

Barneys had been struggling to pay its expenses thanks in part to sky-high rent at its Madison Avenue flagship, which tripled this year to about $46 million including taxes.

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2019-08-06 13:00:00Z
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China blinks first. Now US stocks are bouncing back - CNN

China priced the yuan's reference rate at 6.9683 to the dollar, a hair above the target 7:1 ratio to the US dollar. Although that was the weakest level for the yuan in 11 years, many Wall Street investors feared China would price the yuan below that psychological 7:1 barrier.

The yuan, which trades more freely outside China, continued to fall below the barrier on the open market (to 7.07 to the dollar), but investors were still encouraged that the damage wasn't considerably worse.

Stock futures also got a boost after the Chinese central bank announced plans to issue central bank bills worth 30 billion yuan next week. That supported China's currency, which bounced back slightly against the dollar after the announcement.

Futures erased an earlier 600-point plunge. Stock futures initially tumbled Monday evening after the United States labeled China a currency manipulator.

Investors feared the label would eliminate China's incentive to keep the yuan above the 7:1 ratio to the dollar, setting off a currency war with the United States. A further devaluation of the yuan could ease the burden of America's tariffs on China. Wall Street fears a steep drop in the yuan could escalate the trade war, prompting the United States to raise its tariffs on China.

Dow (INDU) futures implied the market would open slightly higher. The S&P 500 (SPX) futures rose 0.8% and Nasdaq (COMP) futures were up 0.9%.

US stocks posted their worst day of 2019 on Monday, with the Dow plunging 767 points. The Nasdaq was the worst hit, because tech stocks would be hit particularly hard by an escalation in the trade war.

European stocks recovered somewhat Tuesday, and Asian stocks closed a bit lower.

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2019-08-06 12:24:00Z
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China responds to US after Treasury designates Beijing as a currency manipulator - CNBC

A woman walks past the headquarters of the People's Bank of China in Beijing, China.

Jason Lee | Reuters

China's central bank has firmly rejected the U.S. Treasury's designation of Beijing as a currency manipulator, saying the accusation has "seriously" undermined the international financial order and risked further market turmoil.

The response from the People's Bank of China (PBOC) comes at a time of rapidly intensifying tensions between the world's two largest economies.

On Monday, the U.S. Treasury accused Beijing of deliberately influencing the exchange rate between the yuan and the U.S. dollar to gain an "unfair competitive advantage in international trade."

The move fulfills President Donald Trump's promise to recognize China as a currency manipulator for the first time since 1994.

The announcement followed a sharp drop in the yuan against the dollar, with the Chinese currency breaching the 7-per-dollar level for the first time since 2008.

China's central bank set the yuan's official reference point at stronger than the key 7 yuan-to-the-dollar point on Tuesday.

The move appeared to calm financial markets, initially rocked by fears the U.S.-China trade war was devolving into a currency war.

Late last week, China promised to fight back after Trump vowed to impose 10% tariffs on $300 billion worth of Chinese imports.

"The United States disregards the facts and unreasonably affixes China with the label of 'currency manipulators,' which is a behavior that harms others and oneself," the PBOC said in a statement on Tuesday, before adding: "The Chinese side firmly opposes this."

The PBOC said it would not only "seriously undermine the international financial order, but also trigger financial market turmoil. It will also greatly hinder international trade and the global economic recovery, and ultimately will suffer from it."

Unfair advantage

Even before the formal designation, Trump took to Twitter to voice his opinion, accusing Beijing of manipulating its currency and saying it would "greatly weaken China over time!"

The next step is for the U.S. to make its case to the International Monetary Fund (IMF), but it's not likely to lead to formal penalties.

The manipulator label is mostly symbolic and matters more as a slight to one of the United States' biggest creditors and an escalation in the trade war.

The Treasury Department's announcement hinged upon a 1988 portion of federal law that permits the U.S. Treasury Secretary to work with the IMF to "eliminate the unfair advantage" associated with currency manipulation.

'Return to the correct track of rationality'

"This unilateral act of the United States also undermines the global multilateral consensus on exchange rate issues and has a serious negative impact on the stable operation of the international monetary system," the PBOC said

"The Chinese side advises the U.S. to leap over the cliffs and return to the correct track of rationality."

Since the trade war started last year, Washington has imposed 25% tariffs on $250 billion worth of U.S. imports from China. Beijing retaliated by slapping elevated levies on billions of dollars of American products that it buys.

In recent months, however, tensions between the two countries have extended beyond trade and into areas such as technology and security. In particular, the U.S. placed Huawei on a blacklist which made it more difficult for the Chinese tech giant to do business with American companies.

— CNBC's Thomas Franck and Yen Nee Lee contributed to this report.

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2019-08-06 11:43:17Z
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China responds to US after Treasury designates Beijing as a currency manipulator - CNBC

A woman walks past the headquarters of the People's Bank of China in Beijing, China.

Jason Lee | Reuters

China's central bank has firmly rejected the U.S. Treasury's designation of Beijing as a currency manipulator, saying the accusation has "seriously" undermined the international financial order and risked further market turmoil.

The response from the People's Bank of China (PBOC) comes at a time of rapidly intensifying tensions between the world's two largest economies.

On Monday, the U.S. Treasury accused Beijing of deliberately influencing the exchange rate between the yuan and the U.S. dollar to gain an "unfair competitive advantage in international trade."

The move fulfills President Donald Trump's promise to recognize China as a currency manipulator for the first time since 1994.

The announcement followed a sharp drop in the yuan against the dollar, with the Chinese currency breaching the 7-per-dollar level for the first time since 2008.

China's central bank set the yuan's official reference point at stronger than the key 7 yuan-to-the-dollar point on Tuesday.

The move appeared to calm financial markets, initially rocked by fears the U.S.-China trade war was devolving into a currency war.

Late last week, China promised to fight back after Trump vowed to impose 10% tariffs on $300 billion worth of Chinese imports.

"The United States disregards the facts and unreasonably affixes China with the label of 'currency manipulators,' which is a behavior that harms others and oneself," the PBOC said in a statement on Tuesday, before adding: "The Chinese side firmly opposes this."

The PBOC said it would not only "seriously undermine the international financial order, but also trigger financial market turmoil. It will also greatly hinder international trade and the global economic recovery, and ultimately will suffer from it."

Unfair advantage

Even before the formal designation, Trump took to Twitter to voice his opinion, accusing Beijing of manipulating its currency and saying it would "greatly weaken China over time!"

The next step is for the U.S. to make its case to the International Monetary Fund (IMF), but it's not likely to lead to formal penalties.

The manipulator label is mostly symbolic and matters more as a slight to one of the United States' biggest creditors and an escalation in the trade war.

The Treasury Department's announcement hinged upon a 1988 portion of federal law that permits the U.S. Treasury Secretary to work with the IMF to "eliminate the unfair advantage" associated with currency manipulation.

'Return to the correct track of rationality'

"This unilateral act of the United States also undermines the global multilateral consensus on exchange rate issues and has a serious negative impact on the stable operation of the international monetary system," the PBOC said

"The Chinese side advises the U.S. to leap over the cliffs and return to the correct track of rationality."

Since the trade war started last year, Washington has imposed 25% tariffs on $250 billion worth of U.S. imports from China. Beijing retaliated by slapping elevated levies on billions of dollars of American products that it buys.

In recent months, however, tensions between the two countries have extended beyond trade and into areas such as technology and security. In particular, the U.S. placed Huawei on a blacklist which made it more difficult for the Chinese tech giant to do business with American companies.

— CNBC's Thomas Franck and Yen Nee Lee contributed to this report.

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2019-08-06 10:40:56Z
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