Chinese Yuan, ready to float?
It was a quiet weekend for me but not for the PBoC Governor Zhou. He came out with a few comments which sent speculation throughout the market that Yuan will break its peg with the Dollar at some point this year. The comments were as follows,
Zhou called the current FX policy a “special measure” adopted under unusual circumstances.
He said that “this is part of our package of policies for dealing with global financial crisis”
“These kinds of policies sooner or later will be withdrawn”
“If we are to withdraw from unconventional policies and return to conventional economic policies, we need to
choose the time very carefully. This includes the exchange-rate policy of the renminbi.”
“The G20 Pittsburgh summit also particularly pointed out the need to avoid the premature withdrawal of stimulus
policies.”
“The exchange-rate mechanism and the price of the renminbi are in a dynamic process of continuous change
so they will differ in different periods.”
These comments are a far cry from previous statements coming out of China of a need for a stable currency.
Clearly there is a move coming but I think it will be later on in the year (I was looking for a move around Chinese New Year and obviously I was wrong there). On the open today there was selling pressure on the outright’s. The 6-12 month period should continue to take the majority of the selling pressure. Possible buying some short end protection in the 1-3 month bracket would be helpful in offsetting the negative carry. Also I am not looking for a big once off revaluation or a total free float. I think the most likely scenario would be of a slow and steady revaluation, possible with an increased pace to get the market prepared for the eventual managed float.
For other opportunity’s look at other Asian currency’s which are heavily correlated to the Yuan. Singapore, Thailand and Malaysia all are used as proxy’s for the Yuan.
Good Luck and Good Forex Trading
Poll of the Week
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Employment, are things getting better?
Well the country is still losing jobs but based on the numbers reported by the government yesterday things are getting better. Non Farm payrolls expected to be down close to 100k actually were reported at -36,000. This even after economist warned that the number could be worse due to weather issues throughout the country. It certainly seemed to me before the report that the risk was to a better then expected number. I went into it short Dollars against Latin America. Although the reports were better I didn’t get a lot of bang from the positions but I continue to hold them (see below) as I think it is only a matter of time before the move occurs.
One thing that economist’s are pointing to is the rate itself, 9.7%. This (the jobless rate) has not increased since Oct 2009 even as more people have entered the work force. Some may argue that is because others have just given up looking for jobs but I am trying to be more optimistic. After a much anticipated number like this I try to trade with the momentum. To me that is stronger Emerging Markets and a stronger Dollar against the majors.
Trades
Short
Euro/Usd
Usd/Mxn
Usd/Brl
Usd/Cop
As for rates, this should send U.S. rates higher with an overall steepening of the curve. I think that although the market will build in rate increases they are not on the horizon. In Mexico and Brazil rates are headed higher but currently the hikes are well built in. These markets have been extremely stable.
Don’t over think the markets and go with the flow!
Good Luck and Good Forex Trading.
Medical Billing Company’s are they worth the investment?
I am going to get away from my usual posts to bring up a topic that has gotten my interest. Medical Billing and the Medical industry in general. With the debate going on over National Health Care I am finding it interesting that no one has come up with a viable solution. I was flipping through my Daily Reads yesterday and came across Mark Cuban’s Blog. He wrote about the Health Care debate and came up with an interesting solution (I am not sure viable). His basic premise was that a large company (say, Walmart) provides insurance to the uninsured under the premise that those people would shop in Walmart stores exclusively. (Click Here to read the entire post). Interesting concept. Walmart gets a devoted customer base and the consumer now has insurance. Obviously it is easier said then done. How do you enforce the “exclusive” shopping requirement? The uninsured, quite possible, are that way do to preexisting conditions which could cause Walmart’s premiums to go way up. What type of insurance do you provide? Basic if you spend X dollar amount and more elaborate if you spend a higher dollar amount? An interesting thought. I am surprised that an entrepreneur has not figured out a way to make this work. Maybe there is no way!
But this brings me to my question about Medical Billing Company’s and training. I would assume that this is big business. With the high cost of Medical procedures it is vital for Doctors to get paid and paid promptly. Do Doctors hire individuals exclusively to process Medical claims? Do the hire office staff trained in Medical billing? Do they train their staff themselves or do they send them to the Medical billing schools. Or finally do they out source this job to an outside agency? Is there an opportunity here? I am not sure but there has to be some really smart people out there capable of coming up with a solution. Mark Cuban may be on to something. I am not sure a family of four shopping at Walmart for an entire year would justify providing insurance for them (average cost $13,000+) but there might be some other “formula” out there that would work.
Good Luck and Good Forex Trading.
U.S. Dollar under Pressure
I knew I was in trouble when I was greeted from across the room at 6.30am with
“I need a price in Usd/Brl”. Being 30 minutes before the start of the open of the BMF there were no prices but it was quite clear that based on the European and Asian markets that the customer was looking to sell Dollars. I showed 1.8050/1.8070 and the client passed. On the open he was back and sold Dollars. This was the same case for Chile, Mexico and Colombia. Sellers of Dollars across the board. Usd/Cop took out the 1900 level like we anticipated.
Rates also traded heavy today. Mexican 10 year TIIE broke below 7.9000 and Brazilian DI’s finished the day 3-5bp lower. The return to risk is alive and well. With Australia raising rates it sends a signal (to me at least) that Latin America has a green light to do the same. This is why I think we are seeing a flattening of the yield curves in Latin America.
Also these headlines just out on Reuters, again Dollar negative to me.
U.S. SETS PRELIMINARY ANTI-SUBSIDY DUTIES OF 4-13 PCT ON COATED PAPER FROM CHINA, COMMERCE DEPT SAYS
US SETS PRELIMINARY ANTI-SUBSIDY DUTIES OF 17.5 PCT ON COATED PAPER FROM INDONESIA, COMMERCE DEPT SAYS
DUTY CALCULATION FOR CHINA DOES NOT REFLECT ANY SUBSIDY COMPONENT FOR CHINA’S EXCHANGE RATE
U.S. STILL ASSESSING WHETHER TO TREAT CHINA’S CURRENCY PRACTICES AS A COUNTERVAILABLE SUBSIDY
U.S. COATED PAPER IMPORTS WERE $229 MILLION FROM CHINA, $44 MILLION FROM INDONESIA IN 2008
Positions
Long
Euro/Usd (built on this today)
Short
Usd/Mxn
Usd/Ars
Also a receiver position in Brazil and Mexico.
Good Luck and Good Forex Trading…..
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