Last month we discussed the fact that officials had approved the latest Five Year Plan for China's economy. The ultimate goal of the plan is to overtake Germany, Japan, and the United States in terms of manufacturing sophistication by 2049, the 100th anniversary of the founding of the People's Republic of China.
After a brief hiatus from the ongoing currency wars, China fired another salvo at The Fed tonight by devaluing the Yuan fix to 6.5693 - its weakest against the USD since March 2011. After eight days higher in a row for The USD Index, it seems PBOC has turned its currency liberalization plan off, stabilizing the broad Renminbi basket (which has been steadily devalued) and turning its attention to devaluing against the USD.
When the price of oil was above $100, many of the less developed oil exporting OPEC members decided to capitalize on the high price and cash out by taking loans using the precious liquid as collateral very much the same way corporate CEOs use their inflated stock (thanks to buybacks they authorize) to issue loans against said stock. And why not: even if the price of oil were to drop, they could just pump more until the principal is repaid.
Yesterday's weak dollar headfake has ended and overnight the USD rallied, while Asian stocks dropped to the lowest level in 7 weeks and crude oil fell as speculation returned that the Federal Reserve will raise interest rates as early as next month. The pound jumped and European stocks gained thanks to a weaker EUR.
If China begins to reclaim and militarize Scarborough Shoal, says Philippines President Benigno S. Aquino III, America must fight. Should we back down, says Aquino, the United States will lose “its moral ascendancy, and also the confidence of one of its allies.”
And what is Scarborough Shoal? A cluster of rocks and reefs, 123 miles west of Subic Bay, that sits astride the passageway out of the South China Sea into the Pacific, and is well within Manila’s 200-mile exclusive economic zone.