China's 'self-destructive nuclear option' in trade war: Selling US Treasury bonds

U.S. stocks extend rebound from trade-driven rout

Asia stocks set to climb after US stocks rebound as trade comments ease concerns

"Many Chinese scholars are discussing the possibility of dumping US Treasuries and how to do it specifically".

Because they're a paper dragon.

"A weak yuan partly offset the impact of punitive tariff imposed by the USA on China previous year", said Wang Youxin, Bank of China researcher. Have a quick read about that here from the South China Post. Firmer Treasury yields, a slightly better U.S. Dollar and increased demand for higher risk assets is helping to limit gains.

"We believe the trade talk headlines will continue swinging sentiment in the coming weeks, given the Fed's patience on interest rates".

And right now, there are plenty of those.

Stocks Mixed as Trade Angst Lingers; Yuan Steadies: Markets Wrap More (Bloomberg) - Asian stocks were mixed Wednesday as a rebound in US equities failed to lift sentiment that remains fragile after the trade war escalated. That has increased fear in markets that any further escalation could seriously jeopardise the global economic recovery before numerous world's central banks have had a chance to normalise monetary policy.

The dollar index, which measures the greenback against a basket of currencies, fell 0.06%, with the euro up 0.01% to $1.1234. Beijing on Monday said it will increase levies on some American goods in retaliation for the latest US tariff hikes.

Similar spikes in USDCNH implied volatility have historically seen sizable swings in spot prices follow - generally with fundamental factors such as the US China trade war serving as catalysts for big market moves.

"Supply-side disruptions along with simmering US-Iran tensions have supported oil prices however as market fundamentals remain tight for the current term", said Benjamin Lu, commodities analyst at Phillip Futures in Singapore.

Here, China has an additional advantage in this regard with its ability to set the fixed exchange rate. The last thing it wants is wild swings in the Yuan.

It's quite ingenious and is one of the reasons why China and other exporters have such large sums of treasuries to date.

On Monday, all three major USA benchmarks dropped more than 2% - only the second time this year that's happened - after China targeted some of the biggest US exporters in response to American tariffs.

On Monday, China's finance ministry said it planned to set import tariffs ranging from 5 per cent to 25 per cent on 5,140 USA products on a target list worth about $60 billion.

After all, China needs to keep buying treasuries to exert its trade advantage. The offshore yuan held at 6.9079 per dollar.

If Treasury yields continue to recover, the dollar continues to firm and demand for risky assets increases then gold is likely to retreat back into a short-term retracement zone at $1296.80 to $1291.30. But that is extremely unlikely to occur, even if the initial aftermath was painful.

China industrial production and retail sales are slated for Wednesday, same day as USA retail sales and industrial production. What China would lose in the process would be its manufacturing market share to other countries that could use the new available stockpile of treasuries on the market to devalue their own currencies, and compete with China for goods shipments to the U.S. It's not leverage, it's suicide. Certainly a point to keep in mind if we need to make sense of any United States debt sales.

Latest News