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Xie xie China By: Charles Payne

You guys remember that song from Styx, "Domo Arigato Mr. Roboto" which was really anti-productivity, anti-robot and anti-Japan despite the name? Well the title was sarcastic. Today, however, we can literally say and mean thank you China. They are still buying our treasuries and now they are going to play nicer with their currency, thereby making free trade a little freer. The operative word is "little" as there are limits to how much the Yuan will be allowed to increase each session. The limit of a 0.5% daily max increase shouldn't be a surprise as China knows the Yuan could skyrocket without mechanisms to control it. So, for now we say xie xie China, but they will want something in return that could make us eventually dust off those old Styx lyrics.

The two year peg saw the Yuan go nowhere versus the dollar, and while it's at least 40% undervalued look for controlled incremental moves higher...but still a move that would be welcomed by most Americans and American companies except some multinationals and those producing goods in China. Unfortunately, the initial enthusiasm for the China news is waning as investors are also interested in concrete fundamental news in America. Some believe at some point the higher Yuan means less demand for U.S. dollars and debt in China. For now, China is still buying treasuries after dumping last October (along with Japan and the U.K.) and lowering exposure for five straight months.
I think the rally will hold, although it's coming down swiftly and nobody is stepping up to buy weakness.

Disclosure: None