Connect with us

Spread & Containment

Whispers Of Yuan Devaluation After Biggest Weekly Plunge Since 2015

Whispers Of Yuan Devaluation After Biggest Weekly Plunge Since 2015

Three weeks ago, when we predicted that the Yen was about to suffer a…

Published

on

Whispers Of Yuan Devaluation After Biggest Weekly Plunge Since 2015

Three weeks ago, when we predicted that the Yen was about to suffer a "downward spiral" (which it did, and prompted the BOJ to beg Yellen for coordinated currency intervention, only to be denied by the Treasury Secretary who is terrified of what importing even more inflation would mean for Biden's catastrophic approval rating), we quoted SocGen's Albert Edwards who said that the collapse in the Yen"beggars the question how will China react? Maybe just like they did in August 2015 when the PBoC devalued? Back then persistent yen weakness had dragged down other competing regional currencies and left the renminbi overvalued."

Once again we didn't have long to wait for this prediction to come true, and one look at the chart below shows what happens when one is hoping to quietly devalue one's currency from under the dragon's nose: after weeks of perplexing gains that stumped everyone (and may have been the direct result of Russians buying up Chinese assets), the yuan has collapsed (said otherwise, the USDCNH has soared).

As shown below, the offshore yuan just suffered its biggest weekly loss since the surprise devaluation in August 2015, tumbling 2.1%; the onshore yuan is down 1.9% this week to 6.4899 per dollar. Bloomberg has called the move a "spurring investor concern on whether it’s reaching an inflection point after two straight years of gains."

Well, of course it is - after all China's economy is in freefall and the last thing it can afford is more currency gains... just as we warned at the end of March. And now that our forecast has been validated, options traders are pricing in much more weakness for the onshore yuan after it breached a key technical support level on Wednesday for the first time since September.

The sharp moves - as we predicted weeks ago - were triggered by the relentless surge in U.S. yields as they threaten to exacerbate outflows from China’s bond market and to put the yuan at a disadvantage with the yen. The People’s Bank of China’s decision on Wednesday to set a weaker-than-expected currency fixing also dissuaded yuan bulls, while President Xi Jinping defending the lockdown-dependent approach to fighting the pandemic added to economic growth concerns.

“It does seem that options markets have been surprised,” said Alvin Tan, head of Asia FX strategy at Royal Bank of Canada Plc. “Risk reversals racing higher is a confirmation of the changed market sentiment on dollar-offshore yuan," Tan said, adding that he doesn’t rule out the offshore yuan falling below 6.60 per dollar by the end of the year if economic risks grow.

And while few are willing to admit that a sharp devaluation like the one in 2015 is possible - or inevitable - the realty is that the CNHJPY is right where it was when China devalued seven years ago.

Looking ahead JPMorgan also expects more weakness, and sees the yuan falling to 6.5 per dollar this quarter, weaker than its previous estimate of 6.35. BNP see the currency falling to 6.6 per dollar, down from earlier forecast of 6.4. Below, courtesy of Bloomberg, are the charts illustrating the changing sentiment on the yuan:

Surging Activity

Dollar-yuan was the most traded currency pair in the options market for a second day on Thursday taking the week’s total transaction volume to $49 billion. An upward breach through the 6.40 per dollar level and breach of its 200-day moving average support confirms the termination of months of consolidation for the currency, China International Capital Corp. said; this could prompt a new wave of speculation on yuan entering a new trading range, it said.

“The PBOC has been signaling to corporates to be risk neutral on FX exposures, which should imply a reduction of their dollar longs,” said Arindam Sandilya, head of emerging Asia local markets strategy and FX derivatives strategy at JPMorgan Chase & Co. in Singapore. “This is a bulwark against dollar-onshore yuan depreciation.” Sandilya estimates banks and corporates accumulated about $640 billion of dollars over the last two years.

Turbulent Markets

Offshore yuan implied vol shot higher across all tenors after the currency pair broke out of the range it had been in since Oct. 20. One-month dollar-offshore yuan volatility surged to the highest since February 2021 before stabilizing Thursday.  A spokeswoman at China's State Administration of Foreign Exchange reiterated the regulator’s stance on keeping the yuan “stable on a reasonable and equilibrium level.” The exchange rate has been more flexible this year and its two-way movements will continue, she said.

The central bank is less concerned about defending a “magic level”, according to Zhennan Li, chief China economist at AllianceBernstein. It wants to avoid accumulation of speculative or “herding factors” in the market, he said, adding that “If depreciation expectation keep persistently accumulating, and the pace of depreciation becomes too fast, the PBOC may come out to guide expectation.”

Shorts Piling In

The PBOC set the Thursday reference rate for the Yuan 498 pips higher than the previous day, the largest single-day jump this year. That’s after the central bank’s move to set the reference rate 101 pips weaker than forecast on Wednesday was seen by some traders as a sign of its discomfort with the currency’s strength.

The offshore yuan forwards curve flattened in response to the PBOC’s move Wednesday, allowing for cheaper entry into yuan shorts. The one-year points are close to the lowest in two years as expectations of further policy easing persist even as the loan prime rates were kept steady this week.

Dollar Bets

According to Bloomberg, traders are unwinding structural bets on yuan strength and positioning for a stronger dollar. The one-month risk reversal, a measure of hedging cost, jumped to 1.34% on Wednesday -- a level last seen in November 2020. The risk reversal skew has shifted toward a stronger dollar as traders price aggressive rate hikes by the Federal Reserve.

Momentum is for the yuan to weaken in the near term given the backdrop of broad dollar strength, according to Citigroup Global Markets Inc. strategists. But, it’s too soon to call it a trend reversal. China’s trade surplus, which underpins the currency’s strength is expected to remain large and authorities are likely to leave the yuan to market forces unless volatility gets “unpalatable.”

“President Xi can’t afford to accelerate the weakening of yuan ahead of the plenum in October and midterms in the U.S.,” said Lin Jing Leong senior emerging market Asia sovereign analyst at Columbia Threadneedle. “It’s all about portraying an image of strength even if it means using the foreign reserves to do so.”

Tyler Durden Fri, 04/22/2022 - 13:00

Read More

Continue Reading

Spread & Containment

Why Is The VIX So Low? A Surprising Answer Emerges In The Market’s Microstructure

Why Is The VIX So Low? A Surprising Answer Emerges In The Market’s Microstructure

One of the most frequent questions tossed around Wall Street…

Published

on

Why Is The VIX So Low? A Surprising Answer Emerges In The Market's Microstructure

One of the most frequent questions tossed around Wall Street trading desks (and strip clubs), and which was duly covered by Bloomberg recently in "Fear Has Gone Missing in Wall Street’s Slow-Motion Bear Market", is why despite the crushing bear market and the coming recession, does the VIX refuse to rise sustainably above 30, or in other words, why is the VIX so low?

As Goldman's Rocky Fishman wrote in a recent note "Option Markets Take the SPX Bear Market in Stride" (available to professional subs), "one of the most popular questions we have received is why the VIX hasn't surpassed its March peak (36) despite the SPX being lower than it was in March and realized vol being higher than it was in March."

Here, Fishman notes that implied volatility was unusually high in March, and the current VIX level (29) is only slightly low for the current level of realized vol. Furthermore, a VIX around 30 typically happens with the 5Y CDX HY spread above 600, and although it has risen steadily it's currently in the mid 500's.

Meanwhile, even as the VIX has fallen moderately since late April, both vol risk premium and skew have both fallen dramatically.

Picking up on this quandary, overnight JMorgan also joined the discussion with its analyst Peng Cheng laying out his own thoughts on why the VIX remains so low (note is also available to professional subs), and similar to Goldman notes that the current bear market, despite being deeper in magnitude, has produced VIX levels well below the peak observed during previous market sell-offs:

However, unlike Goldman which mostly analyzes the VIX in the context of a macro framework, JPM's Cheng offers observations based on his analysis of market microstructure in both equity and options markets.

Cheng starts with the previously noted low realized volatility: as the JPM strategist writes, YTD, the SPX realized vol, measured on a close to close basis, is only 25.5, which means that delta-hedged put options would have lost money in the gamma component. From a technical perspective, JPM believes that return volatility is dampened by a lack of intraday price momentum and increasingly frequent occurrences of intraday price reversal. As seen in the next chart, intraday reversal has only started to become noticeable in the last two years. Prior to that, intraday momentum was the dominant market behavior.

This diminishing intraday price momentum has had a non-trivial impact on realized volatility, according to JPM which estimates that if the intraday return correlation remained the same as pre-pandemic, YTD volatility would be close to 28.8, or 3.3 vol points higher than realized.

As an aside, those asking for the reason behind this change in intraday patterns in the last couple of years, Cheng notes that "this is a complex topic" but in short, his view is that it is a result of 1) crowding in intraday momentum trading strategies and 2) a potential shift in option gamma dynamics as discussed below.

Supply/demand of S&P 500 options: Although the estimation of market level option gamma profile is highly dependent on many factors, including assumptions on open interest, OTC options, and leveraged ETFs, etc., in a report published earlier this year, JPM's quants presented a more dynamic estimation of the gamma profile by using tick level data. Specifically, they assigned directions to SPX and SPY option trades based on their distance to the best bid/offer at the tick level, rather than the constant assumption of investors being outright long puts and short calls. The updated results are shown below.

Tha chart shows that starting in 2020, the put gamma imbalance has fallen meaningfully. This is the result of investors’ changing preference from buying outright puts to put spreads for protection, in JPM's view. And year to date, the decline in gamma demand has not improved. Moreover, and echoing what we have said on several recent occasions, JPM notes that judging from the outright negative put gamma imbalance in early 2022, it appears that investors have been monetizing hedges that had been held since 2021 - note the consistently positive and relatively elevated put gamma imbalance throughout 2021, which suggests that protections were put on during this period.

More in the full note available to pro subs

Tyler Durden Wed, 06/29/2022 - 15:05

Read More

Continue Reading

Spread & Containment

Dr. Stephen Kingsmore receives prestigious Precision Medicine World Conference 2022 Luminary Award

SAN DIEGO, Calif. – June 29, 2022 – Rady Children’s Institute for Genomic Medicine® (RCIGM) today announced that Stephen Kingsmore, MD, DSc, President…

Published

on

SAN DIEGO, Calif. – June 29, 2022 – Rady Children’s Institute for Genomic Medicine® (RCIGM) today announced that Stephen Kingsmore, MD, DSc, President and CEO, was presented with the Precision Medicine World Conference (PMWC) 2022 Luminary Award at this year’s conference in the Silicon Valley region of California for his innovation in rapid neonatal molecular diagnoses using whole-genome sequencing.

Credit: Rady Children’s Institute for Genomic Medicine

SAN DIEGO, Calif. – June 29, 2022 – Rady Children’s Institute for Genomic Medicine® (RCIGM) today announced that Stephen Kingsmore, MD, DSc, President and CEO, was presented with the Precision Medicine World Conference (PMWC) 2022 Luminary Award at this year’s conference in the Silicon Valley region of California for his innovation in rapid neonatal molecular diagnoses using whole-genome sequencing.

The Luminary Award recognizes the recent contributions of prominent figures who have accelerated precision medicine into the clinic. Additional PMWC 2022 honorees included Dr. Albert Bourla, Pfizer, for his extraordinary achievement in leading the record-time development of a vaccine and antiviral drug against the coronavirus and Dr. Stephen Hoge, Moderna, for overseeing R&D of the first antiviral synthetic mRNA vaccines ever created, including the one against COVID-19.

“I am honored to receive this award and be among this extraordinary group of past and present recipients focused on the clinical adoption of precision medicine,” said Dr. Kingsmore. “At RCIGM, we are transforming pediatric healthcare through the power of Rapid Precision Medicine™ by offering the fastest delivery of rapid Whole Genome Sequencing™ to enable prompt diagnosis and targeted treatment of critically ill newborns and children in intensive care. We know that time matters – a fast, molecular diagnosis can make the difference between improved outcomes and a lifetime of disability, or even life itself.”

Dr. Kingsmore leads a multi-disciplinary team of scientists, physicians, genetic counselors, software engineers and bioinformaticians who are pioneering the use of rWGS® to enable precise diagnoses for critically ill newborns. In 2021, he led the RCIGM team to set a new record of 13.5 hours for achieving the fastest molecular diagnosis using rWGS, breaking his previous 2018 world record of 19.5 hours. 

PMWC is the largest and original annual conference dedicated to precision medicine. PMWC’s mission is to bring together recognized leaders, top global researchers and medical professionals, and innovators across healthcare and biotechnology sectors to showcase practical content that helps close the knowledge gap between different sectors, thereby catalyzing cross-functional fertilization and collaboration in an effort to accelerate the development and spread of precision medicine.

Rady Children’s Institute for Genomic Medicine

Rady Children’s Institute for Genomic Medicine is transforming neonatal and pediatric health care by harnessing the power of Rapid Precision Medicine™ to improve the lives of children and families facing rare genetic disease. Founded by Rady Children’s Hospital and Health Center, the Institute offers the fastest delivery of rapid Whole Genome Sequencing™ to enable prompt diagnosis and targeted treatment of critically ill newborns and children in intensive care. The Institute now provides clinical genomic diagnostic services for a growing network of more than 70 children’s hospitals. The vision is for this life-changing technology to become standard of care and enable clinicians nationwide to provide rapid, personalized care. Learn more about the non-profit Institute at RadyGenomics.org. Follow us on Twitter and LinkedIn.

Media Contact:

Ben Metcalf
bmetcalf@rchsd.org
+1 (619) 822-8593
 


Read More

Continue Reading

Government

Fauci Suffers “Much Worse” COVID Symptoms After ‘Paxlovid Rebound’

Fauci Suffers "Much Worse" COVID Symptoms After ‘Paxlovid Rebound’

Fully-vaxx’d and double-boosted mask-admirer Anthony Fauci is suffering.

Two…

Published

on

Fauci Suffers "Much Worse" COVID Symptoms After 'Paxlovid Rebound'

Fully-vaxx'd and double-boosted mask-admirer Anthony Fauci is suffering.

Two weeks ago, we reported that President Biden's chief medical adviser had COVID.

The 81-year-old reportedly had 'mild symptoms' and of course he 'said the words'...

Of course, Fauci followed the CDC guidelines and ingested the government-blessed treatment - Paxlovid - due to his age and possible risks from the virus.

So, that should have been it right?

But no. During an event at Foreign Policy’s Global Health Forum, Fauci admitted he had not had a good experience:

“After I finished the five days of Paxlovid, I reverted to negative on an antigen test for three days in a row,” Fauci said Tuesday .

“And then on the fourth day, just to be absolutely certain, I tested myself again. I reverted back to positive.”

Interestingly, Fauci admitted:

"...this is becoming more and more typical based on more clinical studies..."

As Bloomberg reports, large numbers of patients have reported the phenomenon, often called Covid rebound or Paxlovid rebound, of returning symptoms after taking a full course of Pfizer’s drug.

While Pfizer Chief Executive Officer Albert Bourlasaid in May that doctors could prescribe a second course of treatment to such patients, US drug regulators have said there’s no evidence that a repeat will help.

However, Fauci said he started taking a second course of Paxlovid after experiencing symptoms “much worse than in the first go around.”

Now near completion of the five-day oral treatment, he said he was still enduring symptoms but felt “reasonably good.”

Finally, as we reported less than two weeks ago, Pfizer stopped enrolling in a clinical trial for Paxlovid for standard-risk COVID-19 patients after the latest results suggested the drug did not reduce symptoms or hospitalizations and deaths to a statistically significant degree.

Watch the full interview below: (forward to around 5:26:00):

Not exactly encouraging news...

Tyler Durden Wed, 06/29/2022 - 11:45

Read More

Continue Reading

Trending