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Gold Futures Top $1500 After China Weakens Fix More Than Expected

Courtesy of ZeroHedge. View original post here.

Update: In what appears to be China's last warning (to push Trump to offer an olive branch before all hell breaks loose), PBOC fixed the yuan weaker than expected but just firmer than the critical 7.00 level.

The fixing was seen at 6.9977, according to the average projection of 22 traders and analysts surveyed by Bloomberg, but PBOC weakened the fixing by 0.45% to 6.9996 per dollar.

Offshore yuan slipped lower on the fix…

Gold futures topped $1500 (for the first time since 2013) – retracing 50% of the 2011 high to 2015 low plunge.

And Dow futures are leaking on the print…

*  *  *

With expectations for another weaker fix (at around 6.9994) tonight, it appears investors are seeking safe-havens (bonds and bullion bid) as equity futures slide.

Gold is bid…

Dow Futures are leaking lower…

But Treasury yields have plunged back to yesterday's lows (1.67%), dramatically decoupled from stocks…

Smashing the yield curve to new cycle lows (-36bps is the most inverted since 2008)…

So all eyes will once again be on the CNY Fix…

Is China going to unleash hell again tonight?

If you ask JPMorgan, the answer is a definite maybe as they slashed their forecast for USDCNY to 7.35 by year-end.

The risk profile of our China and global growth forecast has shifted to the downside alongside the global inflation forecast – as indirect demand depressing channels are likely to prove more  powerful than the direct effect of cost increases from trade restrictions. We have already added fiscal policy and monetary policy easing in China and there is likely to be more monetary policy easing than forecast elsewhere in the world.

Pressure on the USD is likely to be upward in this environment, particularly against the EM. While USD/CNY will not likely move in a straight line, we have revised downward the CNY forecast profile.  We are now forecasting USD/CNY to reach 7.35 by end 2019 and 7.40 by the middle of 2020.

In terms of the CFETS CNY basket, we are now expecting an 88.70 level move by year end, which would bring the basket change to 4.6% versus end 2018 levels.

As a reminder, the last time China devalued on that scale, VIX exploded to 40, and we all know what happened last Q3/Q4…

Deja vu all over again?


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