RMB Plunges 400 Points; US Stocks Shorted Over $1 Trillion
For domestic investors, the most worrisome aspect is the long holidays, as while we are resting, foreign markets continue to trade, which can easily lead to unexpected events.
During this long holiday, we have a three-day break, with two of those days seeing continued trading in overseas markets. Within these two days, the Chinese yuan has cumulatively depreciated by 400 basis points.
Are overseas funds shorting Chinese yuan assets?
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In fact, the depreciation of the Chinese yuan exchange rate began in May when the US debt ceiling crisis reached a critical juncture, with the US Treasury's cash almost completely depleted.
Affected by this crisis, exchange rates of various countries underwent significant changes. Not only did China's exchange rate depreciate, but the Japanese yen's exchange rate fell even more severely.
However, many people find it puzzling as to why the yuan exchange rate continued to depreciate after June, when the US debt ceiling bill had already been passed.
Although the risk of default on US Treasury bonds has been temporarily resolved, a new series of issues has emerged, and thus the impact on the global financial market, especially on exchange rates, has not yet passed.
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Multiple interest rate hikes will lead to an increase in the interest rates of US Treasury bonds, and the US government will have to bear a huge payment of interest in the future.
Furthermore, due to the Federal Reserve's unbridled interest rate hike policy, many local banks in the United States have gone bankrupt, and the American public is no longer willing to deposit their wealth in banks but prefer to buy money market funds. In essence, this means buying various US bonds through money market funds.Therefore, the high interest rates on U.S. Treasury bonds will further reduce the liquidity in the market, and the U.S. economy will fall into a prolonged period of depression.
However, the greatest impact of this method on exchange rates lies in the reduction of the supply of U.S. dollars. The imbalance between supply and demand has caused the U.S. dollar to rise and non-U.S. currencies to fall. It is under this general environment that the exchange rate of the renminbi has shown a significant decline. Of course, as mentioned earlier, other non-U.S. currencies such as the yen have also fallen.
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Correspondingly, we need to pay attention to the fact that the United States, including U.S. stocks and U.S. Treasury bonds, is being shorted.
Data provided by a U.S. short-selling research institution shows that the short position in U.S. stocks alone in June this year has exceeded 1 trillion U.S. dollars, which is the highest short position since April last year.
The short position at the beginning of the year once reached 86.3 billion U.S. dollars, and then U.S. stocks fell significantly in March this year due to a wave of bank bankruptcies.
However, after that, the S&P 500 index rebounded significantly, from the lowest of 3,800 points in mid-March to nearly 4,500 points before.
After this round of sharp increases, short-selling institutions have taken action again, and in just one week, the S&P 500 index has fallen back to the 4,300 point threshold.
Morgan Stanley's famous short-selling strategist has warned the public that it is time to be vigilant. However, he also pointed out that most investors may not suddenly wake up until the second half of the year.
At the same time, with the rebound of U.S. Treasury bonds in the previous period, the short selling of U.S. Treasury bonds on Wall Street has also increased significantly.Contrary to this, the Ministry of Finance recently issued 12 billion yuan worth of government bonds in Hong Kong, with interest rates significantly lower than those of U.S. Treasury bonds, yet they received an oversubscribed response.
From various signs, it appears that the Chinese yuan will continue to experience fluctuations in the near future, but the overall trend will gradually rise.
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