New worries for the USD - China provide massive selling of U.S. Treasuries.
China has cut its reserves of U.S. Treasuries this month. The information was initially implicit and based only on analytical calculations. But Bloomberg confirms these operations , according to people familiar with the matter. Channels for such transactions include China selling directly, as well as through agents in Belgium and Switzerland, said one of the people, who declined to be identified by Bloomberg as the information isn’t public.
The PBоC has sold at least $106 billion of reserve assets in the last two weeks. The latest available Treasury data and estimates by strategists suggest that China controls $1.48 trillion of U.S. government debt, according to data compiled by Bloomberg. That includes about $200 billion held through Belgium, which Nomura Holdings Inc. says is home to Chinese custodial accounts.
Beijing's massive release of US government debt could put the Fed in an extremely unfavorable position. Citi estimates that the decline in reserves of countries holding U.S. Treasuries, with a total of 1% of US GDP (ie to $ 180 billion) the yield on 10-year Treasuries will jump by 15-35 bp. Emerging economies hold approximately $ 5.491 trillion and if they cut them by 10% within a year, the same 10-year Treasuries will rise by at least 108 basis points (or 1.08 percent), which would be the worst scenario. On the other side, these central banks remain another possibility to support their own currencies, except versus reserves, and their situation is not likely to improve in the coming months. PBoC clearly showed that this approach did not bother her. Meanwhile, Goldman Sachs lowered its forecast for the growth of the Chinese economy, Christine Laggard said that the slowdown of the Chinese economy was predictable and inevitable, but according to "Financial Times" Chinese government intensively investigates for suspect’s deliberate "destabilization of the Chinese markets."
While the Fed has discussed plans to raise interest rates this year as early as September, Euro Pacific Capital Inc. CEO Peter David Schiff believes that the Fed will instead implement another round of quantitative easing. "They are going to do QE4, they're going to do QE5, they're going to do QE's indefinitely until a currency crisis ends the party and they can't do it anymore. And that crisis is going to come," Schiff said. "That is what the drug addicts on Wall Street want. They want another fix, and I think the pushers are going to provide it, unfortunately."
By Schiff's reasoning, the U.S. economy is doomed. "This economy will be in recession if the Fed raises rates, and it'll be in recession even if they don't raise rates." "You have all these currency speculators that have been fooled by the Fed's monetary magic," Schiff said, "They are betting the wrong way, and when they figure it out I think the bottom is going to drop out of the dollar.
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