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Oil Prices Crash On Fears Of Currency War

refinery

Markets convulsed early this week as traders saw US/China relations take a sharp turn for the worse. The gyrations were massive with Brent crude oil moving below $59 while the S&P 500 sank more than 230 points off its recent record high and Shanghai Composite fell more than 4%. Meanwhile in a flight to ‘safety’ gold spiked above $1,470, Bitcoin rallied above $12,000 and the US 10yr yield hit a 3yr low at just 1.70%.

So why the market panic? Harsh words and tariffs between US and Chinese leadership are nothing new, but the conflict took a decidedly negative shift this week when the PBOC- in response to another round of tariffs on Chinese imports set to begin on September 1st - allowed the offshore Yuan to sink to its lowest level against the US Dollar on record. The key move in markets this week wasn’t in commodities, stocks or bonds but in currency markets where the Chinese central bank sent the offshore USD / CNY skyrocketing above 7.0. Weakness in China’s currency was greeted by harsh Tweets from Donald Trump who then labeled China a currency manipulator and implored the US Fed to lower rates. Elsewhere, Japan’s policy and banking leadership noted they would move to depreciate the Yen to avoid hiccups for their export-driven economy.

Has the trade war become a currency war? It might depend on who you ask at this point. The key occupant of the White House certainly feels that China is not playing fair in global markets and seems…




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