China: FX reserves being diversified, U.S. bond report may be fake

13 January, 2018, 00:57 | Author: Leticia Riley
  • For representational purposes

President Donald Trump's administration is reportedly planning new tariffs, aimed at countering China's allegedly unfair trade practices.

The benchmark 2-year U.S. Treasury yield rose to its highest level since 2008 on Wednesday, after Bloomberg News reported that officials in Beijing had recommended that China's government lower - or even potentially cease - its buying of U.S. sovereign debt.

While reports like the ones out of China aren't particularly anything new, it's been a while since they were last let out for air so to speak.

All told, the three central banks are sitting on $14 trillion in securities they have bought since 2009: a $4.4 trillion mix of Treasuries and mortgage securities held by the Federal Reserve; the European Central Bank's $5 trillion in corporate and government bonds; and $4.5 trillion worth of bonds and exchange traded funds accumulated by the Bank of Japan.

In a statement posted on its website, SAFE said the report's sources might be wrong or that the story could be "fake news".

The dollar then rallied and was up 0.4 percent against the yen, although the USA currency is still down more than 1 percent against the yen this week after markets bet the Bank of Japan (BoJ) could start to tighten monetary policy faster than expected.

Crude oil prices jumped on Wednesday and settled near three-year highs after USA government data showed a drop in crude inventories and production, though the fall in the latter could be the result of extreme cold temperatures across the United States. In November, the United States formally opposed granting China market economy status under the World Trade Organization, a move that makes it more hard for other countries to impose anti-dumping measures on cheap Chinese imports.

The yield curve between two-year notes and 10-year notes US2US10=TWEB was last flatter at 58.6 basis points, after steepening to 62.4 basis points earlier Wednesday.

Spot gold was up 0.1 percent at $1,317.76 an ounce after spiking to almost four-month highs in the previous session, in line with the dollar's plunge.

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Fears are that if China were to make one giant exit from the American bond market then it would result in a sharp fall in the Dollar and a steep rise in government borrowing costs.

EURUSD - has found support near the 1.1920 area in the past day or so squeezing back to the 1.2020 area in the process.

Among other metals, palladium dropped 1.5 per cent at $US1,083.97 an ounce, after hitting a record high on Tuesday at $US1,111.40. Above 1.2100 argues for a move towards 1.2170 which is 50% retracement of the 1.3995/1.0340 down move.

The World Bank sees growth in the advanced economies as a whole slowing from 2.3% in 2017 to 2.2% next year, 1.9% in 2019 and 1.7% in 2020.

US West Texas Intermediate (WTI) crude traded at $US63.42 ($A88.79) a barrel, up 0.7 per cent for the day, after having risen as high as $US63.57 earlier.

The closed lower at 25,369.

USDJPY - yesterday's decline through the 112.00 area opens up the prospect of a move towards the 110.80 level and November lows.

Get up to 5% more foreign exchange by using a specialist provider by getting closer to the real market rate and avoid the gaping spreads charged by your bank for worldwide payments. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives.

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