https://www.scmp.com/rss/319833/feed UK-based Neal Kimberley has been active in the financial markets since 1985. Having worked in sales and trading in the dealing rooms of major banks in London for many years, he moved to ThomsonReuters in 2009 to provide market analysis. He has been contributing to the Post since 2015 and writes about macroeconomics from a market perspective, with a particular emphasis on currencies and interest rates. en https://assets.i-scmp.com/static/img/icons/scmp-meta-1200x630.png https://www.scmp.com It’s taken a while but after a succession of interest rate hikes in 2022 by the Federal Reserve, there are finally signs that US consumer price inflation (CPI) pressures are cooling. But what’s behind this? Tighter US monetary policy conditions have contributed but it would be going too far to say the Fed has played a blinder. China has played a role and there’s a persuasive argument that an easing in global supply chain disruption last year, as China’s economy started to regain some traction,... https://www.scmp.com/comment/opinion/article/3207003/how-chinas-economic-rebound-played-role-cooling-us-inflation?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3207003/how-chinas-economic-rebound-played-role-cooling-us-inflation?utm_source=rss_feed Tue, 17 Jan 2023 17:30:09 +0000 The Year of the Rabbit may also be the year of the yuan. China’s economy is reopening and investors will not wish to miss the boat. As capital flows into China in pursuit of good returns, it should buoy the value of the yuan on foreign exchanges, and in particular, versus the US dollar. With the government clearly pushing economic growth in China, the desire of investors not to miss out is likely to trump coronavirus fears. Investors have to be in to win and the fear of missing out can be a... https://www.scmp.com/comment/opinion/article/3206171/reopening-china-chases-foreign-capital-may-be-year-yuan?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3206171/reopening-china-chases-foreign-capital-may-be-year-yuan?utm_source=rss_feed Tue, 10 Jan 2023 16:30:18 +0000 There’s no going back. China may be facing a surge in coronavirus cases and hospitalisations after Beijing abandoned its zero-Covid policy, but that decision is irreversible. Markets have to price that in because China is on the move again. Even allowing for the thin trading conditions between Christmas and New Year’s Day, it was notable last week how the share prices of several China-facing companies, such as HSBC, rose on the London Stock Exchange as market participants positioned themselves... https://www.scmp.com/comment/opinion/article/3205337/chinas-reopening-economic-tide-will-raise-boats-across-asia?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3205337/chinas-reopening-economic-tide-will-raise-boats-across-asia?utm_source=rss_feed Tue, 03 Jan 2023 08:45:09 +0000 As 2022 draws to a close, China is beset by surging cases of Covid-19. Beijing’s decision to drop its “zero-Covid” policy was always going to lead to an upsurge in infections, but that is of no comfort to those personally affected by the turn of events. Neither does this tidal wave of infection necessarily sit well with a positive view of China’s prospects for 2023, but China will get through this. There is no denying that Beijing’s zero-tolerance policy towards Covid-19 was effective in... https://www.scmp.com/comment/opinion/article/3204665/policy-shifts-housing-and-tech-show-china-has-plan-get-through-covid-19-struggles?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3204665/policy-shifts-housing-and-tech-show-china-has-plan-get-through-covid-19-struggles?utm_source=rss_feed Tue, 27 Dec 2022 13:00:14 +0000 Hong Kong will see out the Year of the Tiger with prime rates at a 15-year high. More rate increases are on the horizon. Any Hongkongers hoping the Year of the Rabbit will bring with it some degree of respite from higher prime rates are going to be disappointed. Interest rate adjustments by the Hong Kong Monetary Authority (HKMA) mirror those of the US Federal Reserve, in line with the financial architecture that underpins Hong Kong’s linked exchange rate system. Consequently, with the Fed... https://www.scmp.com/comment/opinion/article/3203812/hong-kong-set-higher-prime-rates-us-fed-keeps-inflation-fight?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3203812/hong-kong-set-higher-prime-rates-us-fed-keeps-inflation-fight?utm_source=rss_feed Tue, 20 Dec 2022 07:45:08 +0000 “What Happens in China Does Not Stay in China”. That is the title of a discussion paper published under the auspices of the US Federal Reserve last month. It’s a concept investors should bear in mind as China enters a new phase in handling Covid-19. Put simply, China’s economy is just too big to ignore. Admittedly, investors looking at China’s economic prospects right now might be forgiven for being a trifle confused. While Beijing’s rigid adherence to its “zero-Covid” policy certainly impeded... https://www.scmp.com/comment/opinion/article/3202974/why-investors-should-be-wary-narrative-chinas-economic-doom?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3202974/why-investors-should-be-wary-narrative-chinas-economic-doom?utm_source=rss_feed Tue, 13 Dec 2022 14:00:14 +0000 China could be the economic surprise package in 2023. That suggestion will not resonate with investors who continue to have concerns both about well-publicised weaknesses in China’s property sector and how Beijing will chart a path away from zero tolerance of Covid-19 and towards pandemic management. But it is precisely the fact that China recognises the importance of addressing these issues, along with its willingness to take action, that underpins the notion that the Chinese economy could... https://www.scmp.com/comment/opinion/article/3202102/china-economy-2023-recovery-cards-beijing-starts-shift-zero-covid-policy?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3202102/china-economy-2023-recovery-cards-beijing-starts-shift-zero-covid-policy?utm_source=rss_feed Wed, 07 Dec 2022 00:15:13 +0000 “If you bet against the Hong Kong dollar, you are bound to lose,” Financial Secretary Paul Chan Mo-po said on November 3. US billionaire Bill Ackman, founder of hedge fund Pershing Square Capital Management, begs to differ. “We have a large notional short position against the Hong Kong dollar through the ownership of put options,” Ackman wrote on Twitter on November 24. “The peg no longer makes sense for Hong Kong and it is only a matter of time before it breaks.” Ackman is not the first... https://www.scmp.com/comment/opinion/article/3201281/hong-kong-dollar-pegs-strength-shines-through-ackman-hedging-short-play?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3201281/hong-kong-dollar-pegs-strength-shines-through-ackman-hedging-short-play?utm_source=rss_feed Tue, 29 Nov 2022 09:30:09 +0000 Currency market trends don’t tend to end abruptly. The US dollar may still have room to strengthen versus currencies such as the Chinese yuan. But the tide could be turning and, in 2023, renminbi bulls may come up smiling. More than 20 years ago, Stephen Li Jen and Fatih Yilmaz, both now of London-based Eurizon SLJ Capital, created the concept of the Dollar Smile framework. On one side of the Smile is US dollar strength derived from fear, in recognition that the greenback, as the global... https://www.scmp.com/comment/opinion/article/3200497/why-2023-may-be-good-year-renminbi-bulls?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3200497/why-2023-may-be-good-year-renminbi-bulls?utm_source=rss_feed Tue, 22 Nov 2022 14:00:13 +0000 Neal Kimberley Neal Kimberley Not everyone thinks much of cryptocurrencies, certainly not Nassim Nicholas Taleb, the financial mathematician and celebrated author of the bestseller, The Black Swan. On the flip side, Hong Kong’s government is determined to promote Hong Kong as an international cryptocurrency hub. But even those who feel cryptocurrencies are just all hype have to recognise that there are a lot of investors, and a lot of capital, that think the opposite. Consequently, with cryptocurrencies as an asset class not... https://www.scmp.com/comment/opinion/article/3199552/hong-kongs-cryptocurrency-hub-ambition-makes-good-sense-against-ftxs-crash?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3199552/hong-kongs-cryptocurrency-hub-ambition-makes-good-sense-against-ftxs-crash?utm_source=rss_feed Tue, 15 Nov 2022 14:00:13 +0000 Last week saw the Federal Reserve hike US interest rates by another 0.75 per cent. Under the requirements of the linked exchange rate system, the Hong Kong Monetary Authority (HKMA) followed suit. There has been some market speculation that Fed monetary policy might be about to pivot, but this is just pie in the sky. At this point, it is quite safe to say there are plenty of pivots by dancers in the Hong Kong Ballet, but no signs of any by American central bankers. Eddie Yue Wai-man, chief... https://www.scmp.com/comment/opinion/article/3198740/why-fed-pivot-interest-rates-just-wishful-thinking?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3198740/why-fed-pivot-interest-rates-just-wishful-thinking?utm_source=rss_feed Tue, 08 Nov 2022 14:00:16 +0000 PCE. YCC. T20. These three acronyms, two financial and one sporting, might seem an odd grouping but as Beijing calibrates exchange rate policy in China’s best interests, this troika of terms has some relevance. Faced with a situation where policymakers might well feel the renminbi is too weak versus the US dollar but rather too strong against the Japanese yen, Beijing’s options are limited. Seeking to address the first issue could exacerbate the second, and vice versa. If Chinese policymakers do... https://www.scmp.com/comment/opinion/article/3197839/strong-dollar-and-weak-yen-china-faces-dilemma-over-where-place-yuan?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3197839/strong-dollar-and-weak-yen-china-faces-dilemma-over-where-place-yuan?utm_source=rss_feed Tue, 01 Nov 2022 19:30:11 +0000 “It’s not personal, Sonny. It’s strictly business,” Michael Corleone said in Francis Ford Coppola’s 1972 cinematic masterpiece The Godfather. The same sentiment applies in 2022 to the US dollar as its continued appreciation on the foreign exchanges causes unease in capitals around the world while Washington is unmoved. It’s nothing personal, it just suits US interests for the US dollar to stay strong for now. While that might not play well in many places outside the United States, it is what it... https://www.scmp.com/comment/opinion/article/3197071/its-not-personal-us-dollar-strength-offer-washington-cant-refuse?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3197071/its-not-personal-us-dollar-strength-offer-washington-cant-refuse?utm_source=rss_feed Tue, 25 Oct 2022 08:30:25 +0000 US dollar strength is not playing well in many countries, but it doesn’t seem to be an issue for US President Joe Biden’s administration. “A market-determined value of the [US] dollar is in America’s interests,” US Treasury Secretary Janet Yellen said on October 11, adding that the current strength of the US currency is the “logical outcome” of different monetary policy stances globally. In Hong Kong, the linked exchange rate system and the efforts of the Hong Kong Monetary Authority keep the... https://www.scmp.com/comment/opinion/article/3196214/dollar-peg-and-economic-heft-keep-hong-kong-and-china-safe-us-driven-volatility?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3196214/dollar-peg-and-economic-heft-keep-hong-kong-and-china-safe-us-driven-volatility?utm_source=rss_feed Tue, 18 Oct 2022 08:30:10 +0000 “Ain’t no stopping us now, we’re on the move,” sang McFadden & Whitehead back in 1979, a time when, coincidentally, the Federal Reserve was moving fast to crush US inflation. In 2022, with high inflation back, there’s again no stopping the Fed as it moves to tighten monetary policy. This is not a particularly comfortable situation for policymakers outside the United States, even in Hong Kong. But at least Hong Kong has a long-established framework that ascribes specific roles to monetary and... https://www.scmp.com/comment/opinion/article/3195426/aggressive-us-interest-rate-hikes-expose-japans-policy-dilemma?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3195426/aggressive-us-interest-rate-hikes-expose-japans-policy-dilemma?utm_source=rss_feed Tue, 11 Oct 2022 14:00:13 +0000 The Chinese yuan has fallen against the US dollar this year and the move derives in large part from the strength of the US currency. But this doesn’t mean that further weakening is inevitable. Indeed, the tide may be turning in the yuan’s favour as the narrative shifts. This year has seen the dollar broadly strengthening, and this is largely traceable to the US Federal Reserve tightening monetary policy at a faster pace than other major central banks, in its attempts to tackle elevated US... https://www.scmp.com/comment/opinion/article/3194667/chinas-central-bank-brings-out-big-guns-tide-turning-favour-yuan?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3194667/chinas-central-bank-brings-out-big-guns-tide-turning-favour-yuan?utm_source=rss_feed Tue, 04 Oct 2022 08:45:11 +0000 Broad US dollar strength on foreign exchanges continues to pose a challenge for the People’s Bank of China as it seeks to exercise some influence over the pace at which the yuan weakens against the greenback. But the real challenge will occur if market sentiment, currently primarily driven by US dollar bullishness, starts to incorporate a specifically bearish view on the yuan. Japan’s currency experience this year illustrates the point. The yen has depreciated materially faster against the US... https://www.scmp.com/comment/opinion/article/3192966/japans-experience-points-challenges-chinese-yuan?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3192966/japans-experience-points-challenges-chinese-yuan?utm_source=rss_feed Tue, 20 Sep 2022 19:30:11 +0000 The mooncakes have been eaten and the lanterns in Victoria Park admired. But even as Hongkongers have enjoyed the Mid-Autumn Festival, the currency markets have rolled on. Right now, trends on the foreign exchanges offer great opportunities for cash-rich Hong Kong investors looking for international portfolio diversification, and it’s all down to the linked exchange rate system. When the US currency is surging on the foreign exchanges, as it is now, the Hong Kong dollar also gains in value... https://www.scmp.com/comment/opinion/article/3192217/us-dollar-strength-lets-hong-kong-investors-go-back-future?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3192217/us-dollar-strength-lets-hong-kong-investors-go-back-future?utm_source=rss_feed Tue, 13 Sep 2022 08:00:20 +0000 The year 1972 saw the legendary chess duel in Reykjavik between the Soviet Union’s Boris Spassky and Bobby Fischer of the United States. Half a century on, Asian central banks find themselves locked in a monetary policy chess match with the US Federal Reserve that is being played out on the foreign exchanges. Asian central banks seeking to address local currency weakness in the face of Fed-related US dollar strength are essentially in zugzwang, a chess term applied when a player has nothing but... https://www.scmp.com/comment/opinion/article/3191363/asian-central-banks-are-locked-losing-chess-match-us-federal?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3191363/asian-central-banks-are-locked-losing-chess-match-us-federal?utm_source=rss_feed Tue, 06 Sep 2022 19:30:29 +0000 Think of a major economy facing big challenges, an economy that is globally significant and regionally critical, with a historically strong export sector. One that is heavily reliant on imported energy and is currently stricken by drought. You guessed it: Germany. The euro, the currency of the zone in which Germany is the dominant economy, has been on a weakening trajectory against the US dollar for much of 2022 and was trading around parity with it last week. In fairness, and this is also... https://www.scmp.com/comment/opinion/article/3190556/why-germanys-energy-crisis-and-euro-weakness-spell-trouble-euro?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3190556/why-germanys-energy-crisis-and-euro-weakness-spell-trouble-euro?utm_source=rss_feed Tue, 30 Aug 2022 17:30:29 +0000 “It absolutely will not stop” may have been a descriptor for “the Terminator” in the 1984 movie, but it could equally be applied to the Federal Reserve as it raises US interest rates in 2022. That complicates matters for the People’s Bank of China (PBOC) as it seeks to navigate between the immediate needs of China’s economy and the bigger picture. Looser PBOC monetary policy may make logical sense given the nature of the challenges currently facing the Chinese economy, but easing when the Fed is... https://www.scmp.com/comment/opinion/article/3189750/china-cant-ignore-us-rising-interest-rates-it-not-japan?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3189750/china-cant-ignore-us-rising-interest-rates-it-not-japan?utm_source=rss_feed Tue, 23 Aug 2022 03:50:48 +0000 There was a glimmer of hope last week that US consumer price inflation (CPI) might be peaking. But anyone thinking that such a prospect opens up the possibility that the US Federal Reserve will stop raising and even pivot towards lower interest rates is sadly mistaken. Outside the United States, this matters in Hong Kong in particular. The architecture of the linked exchange rate system means the Hong Kong Monetary Authority (HKMA) moves in lock step with a Fed that has been raising US rates at... https://www.scmp.com/comment/opinion/article/3188914/us-inflation-may-be-peaking-interest-rates-arent-coming-down-any?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3188914/us-inflation-may-be-peaking-interest-rates-arent-coming-down-any?utm_source=rss_feed Tue, 16 Aug 2022 19:30:13 +0000 Oil prices may have edged lower last week on market fears about slowing global economic growth but winter is coming to the northern hemisphere. Homes will need to be heated and even slowing economies do not run on fresh air. As a massive energy importer, China needs to make sure its requirements will be met even if the choices it makes don’t necessarily go down that well in Western capitals. There is every possibility that energy production constraints amid increased winter demand will result in... https://www.scmp.com/comment/opinion/article/3188077/ukraine-war-puts-strain-energy-supplies-china-must-ensure-its-slice?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3188077/ukraine-war-puts-strain-energy-supplies-china-must-ensure-its-slice?utm_source=rss_feed Tue, 09 Aug 2022 08:15:16 +0000 “The world may soon be teetering on the edge of a global recession,” wrote Pierre-Olivier Gourinchas, chief economist of the International Monetary Fund, last week. Alarming words that resonate with a lot of current thinking in financial markets – but markets may be mispricing recession risks. The IMF has slashed its global economic growth projections for this year and next. In the July update of its World Economic Outlook, the Washington-based institution trimmed its forecast for China’s gross... https://www.scmp.com/comment/opinion/article/3187308/markets-think-they-know-how-us-china-central-banks-will-respond?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3187308/markets-think-they-know-how-us-china-central-banks-will-respond?utm_source=rss_feed Tue, 02 Aug 2022 17:30:17 +0000 Problems are stacking up in China. Given that the art of investing always lies in judging what the crowd will do, and acting before the crowd does, investors may wish to reassess their exposure to the yuan and to Chinese assets in general, and make adjustments accordingly. After all, when it comes to addressing exposure to trades that don’t look quite as attractive as before, “the first cut is the cheapest”, as they say. Admittedly, China’s State Administration of Foreign Exchange (SAFE) sounds... https://www.scmp.com/comment/opinion/article/3186464/chinas-economic-challenges-grow-will-investors-lose-confidence?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3186464/chinas-economic-challenges-grow-will-investors-lose-confidence?utm_source=rss_feed Tue, 26 Jul 2022 04:15:11 +0000 Working for a stable yuan on currency markets has been a policy cornerstone for the People’s Bank of China (PBOC) of late, the central bank’s success being reflected in the stability of the renminbi against a basket of currencies even as the values of those currencies fluctuate dramatically on foreign exchanges. The PBOC will need to double down on this policy. A constant yuan remains in China’s best interests but a dark cloud over Henan province needs to be dispersed lest the issue of renminbi... https://www.scmp.com/comment/opinion/article/3185633/henan-bank-crisis-threatens-derail-chinas-efforts-maintain-stable?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3185633/henan-bank-crisis-threatens-derail-chinas-efforts-maintain-stable?utm_source=rss_feed Tue, 19 Jul 2022 04:30:21 +0000 The US Federal Reserve is definitely going to continue to tighten its monetary policy. Beijing is definitely going to do everything it can to keep the Chinese economy on track. If markets accept those two propositions, there are profound implications across asset classes that are not yet properly reflected in pricing. First, recent comments from Fed policymakers have only underpinned the notion that, in the US central bank’s attempts to curb elevated consumer price inflation, it will continue to... https://www.scmp.com/comment/opinion/article/3184870/why-us-economic-strength-and-china-commodity-demand-bode-ill?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3184870/why-us-economic-strength-and-china-commodity-demand-bode-ill?utm_source=rss_feed Tue, 12 Jul 2022 17:30:26 +0000 The sight of some green shoots of economic recovery in China may well prove to be the catalyst for renewed foreign investor enthusiasm for Chinese assets. But increased demand for yuan-denominated assets may not necessarily run alongside material rises in the value of the yuan on foreign exchanges. All foreign exchange trades are comparative judgments. Market participants weigh up the prospects of one currency against another. In the current context, as the second half of the calendar year... https://www.scmp.com/comment/opinion/article/3184013/what-strong-dollar-means-foreign-investors-china?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3184013/what-strong-dollar-means-foreign-investors-china?utm_source=rss_feed Tue, 05 Jul 2022 19:30:19 +0000 There is a real risk that both the Chinese and US economies could be moving into a period of underperformance. This would clearly be bad news for global economic activity but it would also require a sea-change in market pricing. In the United States, perhaps belatedly, the Federal Reserve has woken up to the threat posed by rising consumer prices and has begun to raise US interest rates at pace. Further US rate hikes are coming with Fed chief Jerome Powell reiterating last week that it is... https://www.scmp.com/comment/opinion/article/3183169/what-does-gloomy-us-and-china-economic-outlook-mean-stock-prices?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3183169/what-does-gloomy-us-and-china-economic-outlook-mean-stock-prices?utm_source=rss_feed Tue, 28 Jun 2022 04:30:20 +0000 The US Federal Reserve is off the bench and back in the game – finally. Last week’s decision to raise US interest rates by 0.75 percentage points was a major step towards restoring the Fed’s credibility as an inflation fighter. This will have global ramifications, not least in Asia. The Fed prepared the ground well for its biggest single rate hike since 1994. Until just days before the announcement on June 15, markets had anticipated a rise of 50 basis points, but after some deft communication... https://www.scmp.com/comment/opinion/article/3182324/us-federal-reserves-attempt-turn-inflation-tide-leaves-asian?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3182324/us-federal-reserves-attempt-turn-inflation-tide-leaves-asian?utm_source=rss_feed Tue, 21 Jun 2022 04:30:20 +0000 “The risk is when China is back,” said Suhail al-Mazrouei, energy minister of the United Arab Emirates, last week. Al-Mazrouei was alluding to the likelihood of further pressure on already high oil prices, driven by increased demand from a resurgent Chinese economy emerging from strict coronavirus-related lockdowns. Still-higher energy prices can only exacerbate broader inflationary pressures, which policymakers in many parts of the world are already grappling with. But, if a further short-term... https://www.scmp.com/comment/opinion/article/3181490/chinas-economy-revs-brace-even-higher-global-energy-prices-and?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3181490/chinas-economy-revs-brace-even-higher-global-energy-prices-and?utm_source=rss_feed Tue, 14 Jun 2022 04:30:18 +0000 With higher prices dominating the economic and monetary debate in Washington, the reopening of Shanghai might have come just in time for US President Joe Biden. The emergence of China’s commercial hub from strict pandemic-related lockdown measures could also be an inflection point for the commodity and currency markets. Pandemic-related supply-chain disruptions have been a driver of global inflation, with the economic side effects of Russia’s invasion of Ukraine exacerbating the situation. But... https://www.scmp.com/comment/opinion/article/3180566/why-shanghai-reopening-good-biden-and-global-economy?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3180566/why-shanghai-reopening-good-biden-and-global-economy?utm_source=rss_feed Tue, 07 Jun 2022 04:15:17 +0000 “Trust your instincts,” Tom Cruise’s character Maverick tells his fellow naval aviators in the new Top Gun film. That sound advice is equally applicable in foreign exchange trading generally and, right now, specifically regarding prospects for the Chinese yuan. The yuan has broadly traded weaker versus the US dollar this year. That has occurred against a backdrop of a general rise in the value of the dollar, but the US currency has begun to give back ground recently against some other major... https://www.scmp.com/comment/opinion/article/3179686/soaring-us-dollar-may-be-levelling-yuan-rally-isnt-cards?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3179686/soaring-us-dollar-may-be-levelling-yuan-rally-isnt-cards?utm_source=rss_feed Tue, 31 May 2022 19:30:19 +0000 Thucydides wrote that “the strong do what they can and the weak suffer what they must,” in his fifth century BCE account of the Peloponnesian War. In 2022, from a monetary policy standpoint, nothing much has changed. Except now it is the Federal Reserve that is calling the shots, not the ancient Athenians. With US consumer price inflation currently above 8 per cent, way above its 2 per cent target, the Federal Reserve is going to do whatever it has to do to remedy that situation and, let’s not... https://www.scmp.com/comment/opinion/article/3178808/fed-policy-could-create-belt-and-road-debt-default-headache-china?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3178808/fed-policy-could-create-belt-and-road-debt-default-headache-china?utm_source=rss_feed Tue, 24 May 2022 08:30:24 +0000 The pace of yuan depreciation may have been rapid in recent months but that does not mean the slide is over. Spoiler alert: renminbi bulls of a nervous disposition might wish to look away now – there’s every possibility that the yuan will weaken further against the US dollar. No one in Hong Kong needs reminding that the US dollar is strong. Under the linked exchange rate system, the Hong Kong Monetary Authority (HKMA) acts to ensure the US dollar/Hong Kong dollar exchange rate stays within a... https://www.scmp.com/comment/opinion/article/3177932/can-renminbi-bulls-expect-reprieve-any-time-soon?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3177932/can-renminbi-bulls-expect-reprieve-any-time-soon?utm_source=rss_feed Tue, 17 May 2022 17:30:25 +0000 Changing times require open minds, even among monetary policymakers who have long followed certain policy paths, and Hong Kong is no exception. The rigidities encased within its linked exchange rate system have served Hong Kong well for decades, but that doesn’t mean they should be regarded as sacrosanct. It is time for a fresh debate on these issues. Hong Kong’s economy contracted in the first quarter of 2022. Yet, once the US Federal Reserve raised interest rates by half a percentage point on... https://www.scmp.com/comment/opinion/article/3177043/dollar-peg-still-hong-kong-economys-best-interest?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3177043/dollar-peg-still-hong-kong-economys-best-interest?utm_source=rss_feed Tue, 10 May 2022 05:15:19 +0000 China’s economic heft means that any economy-boosting measures that Beijing rolls out will have ramifications for US dollar-denominated commodity prices. But never more so than when, as now, commodity prices are already high, driven by a global post-pandemic economic rebound and, more recently, by supply reorientations occasioned by Western reactions to Russia’s invasion of Ukraine. Add in tighter US monetary policy, which ordinarily enhances the dollar’s allure to investors, and alarm bells... https://www.scmp.com/comment/opinion/article/3176277/what-chinas-new-infrastructure-plan-fed-interest-rate-rises-and-yen?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3176277/what-chinas-new-infrastructure-plan-fed-interest-rate-rises-and-yen?utm_source=rss_feed Tue, 03 May 2022 08:00:22 +0000 British poet T.S. Eliot once wrote that “April is the cruellest month”. This April has certainly been cruel to those currency traders who were positioned for a further strengthening of the yuan against the US dollar. And May might not prove to be any better. Foreign exchanges seem to have concluded that there are not only good reasons to buy the US dollar but also specific reasons to sell the renminbi. The attractiveness of rising US Treasury yields accounts for much of the current allure of the... https://www.scmp.com/comment/opinion/article/3175426/how-chinas-neutrality-ukraine-war-fuels-narrative-weakening-yuan?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3175426/how-chinas-neutrality-ukraine-war-fuels-narrative-weakening-yuan?utm_source=rss_feed Tue, 26 Apr 2022 04:30:14 +0000 Just because Hong Kong’s Linked Exchange Rate System is deemed appropriate today doesn’t mean it will be tomorrow. Such an assertion usually implies revisiting arguments about whether the economic mainlandisation of Hong Kong makes it appropriate to retain a link between the Hong Kong dollar and the US dollar. But perhaps the real issue is whether the 2022 greenback has the same characteristics as it did in 1983 when the peg was adopted. Back on October 17, 1983, the Hong Kong dollar was pegged... https://www.scmp.com/comment/opinion/article/3174636/should-ukraine-war-fallout-prompt-hong-kong-rethink-its-currency?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3174636/should-ukraine-war-fallout-prompt-hong-kong-rethink-its-currency?utm_source=rss_feed Wed, 20 Apr 2022 00:15:19 +0000 Imagine the Asia-Pacific region as a Venn diagram of two overlapping circles, one circle representing China and one the United States. Where the two circles overlap are the other countries in the region, economically exposed to both China and the US and left facing monetary policy dilemmas when the Chinese and US central banks are following divergent trajectories. From a currency market perspective, this scenario spells opportunity. The foreign exchanges are adept at reflecting changing... https://www.scmp.com/comment/opinion/article/3173836/why-us-china-monetary-policy-split-could-be-good-news-currency?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3173836/why-us-china-monetary-policy-split-could-be-good-news-currency?utm_source=rss_feed Tue, 12 Apr 2022 14:00:15 +0000 Renminbi bulls often focus on the US dollar-Chinese yuan exchange rate, but in the current circumstances, they would do well to look further afield. Greener pastures may perhaps be found in other yuan pairings such as against the euro or the Japanese yen. Stephen Jen, chief executive of London-based Eurizon SLJ Capital, made the point last week that at present, China, the euro zone and the United States, three economic giants, each face a different economic predicament. Japan, too, is confronted... https://www.scmp.com/comment/opinion/article/3173036/global-economic-flux-means-yuan-bulls-would-do-well-change-focus-us?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3173036/global-economic-flux-means-yuan-bulls-would-do-well-change-focus-us?utm_source=rss_feed Tue, 05 Apr 2022 05:30:23 +0000 Policymakers in Beijing will be well aware that, in recent weeks, the Japanese yen has nosedived on foreign exchanges. The Chinese yuan has materially appreciated against Japan’s currency, driving the yuan-yen exchange rate to levels not seen since 2015 and giving Japan’s exporters a competitive edge over their Chinese peers. Back in 2015, the rise in the yuan – driven predominantly by the weakness of the yen – was one of the factors in Beijing’s decision to devalue its currency. But this is not... https://www.scmp.com/comment/opinion/article/3172154/no-reason-china-repeat-2015-currency-devaluation-even-japanese-yen?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3172154/no-reason-china-repeat-2015-currency-devaluation-even-japanese-yen?utm_source=rss_feed Tue, 29 Mar 2022 05:30:17 +0000 The US Federal Reserve has finally rediscovered its inner hawk and kicked off what will be a succession of interest rate increases. Quantitative tightening will surely join the policy mix. There could be spillover effects that affect the Chinese economy, but Beijing has mitigating fiscal and monetary policy options at its disposal. China is at a completely different stage in the economic cycle to the United States. The Fed is focused on inflation while Beijing’s priority is supporting the pace... https://www.scmp.com/comment/opinion/article/3171288/why-feds-hawkish-inflation-turn-isnt-necessarily-bad-news-chinas?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3171288/why-feds-hawkish-inflation-turn-isnt-necessarily-bad-news-chinas?utm_source=rss_feed Tue, 22 Mar 2022 19:30:19 +0000 All wars are human tragedies but some also have far-reaching global economic and financial impacts. Russia’s invasion of Ukraine is one of these. There will be long-lasting consequences for the hierarchy of reserve currencies, and there are big implications for commodities. China and its yuan will be key players in all these changes. With regard to reserve currencies, it’s necessary to look at how things stood before Russia’s invasion of Ukraine. Data from the International Monetary Fund’s... https://www.scmp.com/comment/opinion/article/3170414/how-sanctions-russia-could-push-countries-diversify-foreign?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3170414/how-sanctions-russia-could-push-countries-diversify-foreign?utm_source=rss_feed Tue, 15 Mar 2022 22:45:16 +0000 “There are decades when nothing happens, and there are weeks when decades happen,” Vladimir Lenin is credited with writing of the Russian Revolution. Fast forward to today and those words again resonate. Russia’s invasion of Ukraine is a humanitarian crisis that will also have lasting, and consequential, economic and financial repercussions. China is an economic titan, but it will not be insulated from these consequences. Soaring commodity prices are a case in point. China imports vast amounts... https://www.scmp.com/comment/opinion/article/3169550/ukraine-invasion-chinas-economy-not-immune-effects-western?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3169550/ukraine-invasion-chinas-economy-not-immune-effects-western?utm_source=rss_feed Wed, 09 Mar 2022 01:15:23 +0000 The resilience of the Chinese yuan last week was noteworthy as the foreign exchanges reacted to unfolding events in Ukraine. While sensitive to the tragedy and human cost of war, forex markets necessarily reacted by adopting a risk-averse approach, seeking out currencies that are held to have safe-haven characteristics. The renminbi would now appear to be one of a select group of safe haven currencies, and in present circumstances that is no bad thing for China. News of Russia’s invasion of... https://www.scmp.com/comment/opinion/article/3168696/ukraine-crisis-yuans-emergence-safe-haven-win-chinas-economy?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3168696/ukraine-crisis-yuans-emergence-safe-haven-win-chinas-economy?utm_source=rss_feed Tue, 01 Mar 2022 14:15:13 +0000 The Federal Reserve will raise interest rates, the only question being how far it will go as it seeks to curb US consumer price inflation. Higher nominal US interest rates will entice many investors but, from an overall investment perspective, China may still prove the more attractive proposition. First, with US interest rates at the zero bound now but the consumer price index at 7.5 per cent year on year in January, whatever the Fed does in the coming months, the reality is that investors in US... https://www.scmp.com/comment/opinion/article/3167855/why-china-better-bet-investors-even-us-fed-raises-interest-rates?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3167855/why-china-better-bet-investors-even-us-fed-raises-interest-rates?utm_source=rss_feed Tue, 22 Feb 2022 06:30:23 +0000 As the Federal Reserve agonises about how far and how fast to raise interest rates to combat spiking US inflation, the People’s Bank of China is more likely to ease policy as it seeks to support Chinese economic growth. The contrast in priorities is obvious, the implications for markets less so. In the United States, the pressure is on the Fed to act in the face of rising prices. The US consumer price index hit 7.5 per cent year on year in January, its highest annualised increase since February... https://www.scmp.com/comment/opinion/article/3166973/us-inflation-and-interest-rates-why-fed-needs-help-china?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3166973/us-inflation-and-interest-rates-why-fed-needs-help-china?utm_source=rss_feed Tue, 15 Feb 2022 08:30:22 +0000 Oil traded at a seven-year high last Friday, with Brent crude reaching US$93.70 a barrel, driven by increased demand and constrained supply. This might not be the end of it as China is not firing on all economic cylinders. When – not if – the Chinese economy picks up pace, this will only fuel even more demand for oil. Size matters. China accounts for a tenth of the global crude trade and is by far the world’s largest oil importer – it imported a record volume of 10.85 million barrels per day in... https://www.scmp.com/comment/opinion/article/3166132/oil-prices-will-remain-high-chinas-economy-starts-fire-all?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3166132/oil-prices-will-remain-high-chinas-economy-starts-fire-all?utm_source=rss_feed Tue, 08 Feb 2022 06:30:12 +0000 With China and the United States going in opposite directions on monetary policy, investors will need to identify how best to benefit from this. In the currency space, this will mean not only focusing on interest rate differentials but also factoring in the impact of commodity price moves. First, the US Federal Reserve has received the green light from President Joe Biden to tighten monetary policy (not that it needs White House approval). “Given the strength of our economy and pace of recent... https://www.scmp.com/comment/opinion/article/3164503/forex-investors-are-well-placed-profit-divergent-us-and-chinese?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3164503/forex-investors-are-well-placed-profit-divergent-us-and-chinese?utm_source=rss_feed Tue, 25 Jan 2022 22:45:15 +0000