Yuan & Shanghai Composite Mirror Deteriorating China/US Relations; Watch Late-2018 for Shift.
Yuan & Shanghai Composite Mirror Deteriorating China/US Relations; Watch Late-2018 for Shift.
06/26/18 The Bridge – “(Dragon) Tail Wagging the Dog”
Though the primary focus of Bridge publications is not on China, there is enough to ‘unpack’ there that several issues are directed East – toward that consequential nation.
First and foremost is the revealing interplay between geopolitical events and economic ones. One of those involves the 40-Year Cycle of Currency Wars that had been forecast – for most of the past decade – to come back to the life in 2013 – 2021 and take center stage in 2017 – 2021.
Currency Wars are a very real, and serious, form of conflict. Like many other economic battles, they can easily escalate into military battles if even one simple miscalculation is made.
For now, that is not believed to be the case. That type of escalation, cyclically speaking, is far more likely in 2019 – 2021.
As discussed in the preceding two Bridges (Yuan Rising in the East – I & II), the Chinese currency – the renminbi or yuan – plays a critical role in international trade, particularly with/against the US Dollar. And, according to many sources, it has been manipulated for over a decade to obtain a serious advantage.
The complaint for years, at least since the renminbi was devalued when it dislodged from its Dollar peg in 2005, was that it was undervalued and adversely impacting trade (working to China’s advantage).
Enter the Trump Administration and the initial détente between the US & China. The Chinese Yuan* surged – particularly in Dollar terms – from Jan. 2017 into Jan. 2018, coinciding with the Dollar Index’s initial sell-off. In that time, the Yuan recouped 80% of its 2014 – 2017 losses – reversing several years of declines and temporarily assuaging currency manipulation concerns.
[*Yuan is the unit of the renminbi, which is the currency. They are usually used interchangeably.]
Then the tensions began to mount. And, as those tensions ratcheted up, the Yuan’s value ratcheted down. (That coincided with a sharp sell-off in China’s equity markets, discussed later in this Bridge.) It initially declined into mid-May and showed multiple signs of setting a multi-month bottom. That was subsequently proven wrong, indicating that it was only a multi-week low and that more downside was in store….
Taking Stock
In early-2018, the Shanghai Composite Index signaled a 6 – 12 month peak and reversed lower. That fulfilled a ~360-degree (both a ~1-year & ~2-year) Cycle Progression and forecast another sharp drop. In a matter of weeks, China’s stocks gave back a years’ worth of gains. And that was after struggling to regain about a third of what had been lost since mid-2015.
Since its early-2016 low, the Shanghai Comp. was only able to recoup about 1/3 of what was lost in mid-2015 – early-2016. And then, in a mere two weeks’ time, it plummeted back to its Jan. 2017 low. Put another way, the Shanghai Composite took an entire year (52 weeks) to gain ~600 points and only 2 weeks to lose all those gains.
In early-2018, the Shanghai Comp completed a 2-year advance of ~1,000 points – broken down into a precise, 360-degree low (Jan. ‘16) – low (Jan. ‘17) – high (Jan. ’18) Cycle Progression that also includes preceding lows in Jan. ’15 & Jan. ’14. It then corrected ~60% of that 2-year, 105-week advance… in ONLY 2 weeks!
It has since triggered another decline – taking it to its lowest level since May 2016. If/when that level is broken, there would remain only one more point of 2 – 3 year support – the Jan./Feb. 2016 low of ~2760.
There is a combination of multi-year cycles that could usher in a bottom in [reserved for subscribers]…
The way in which that potential bottom is formed is the most important variable. An accelerated spike down – in equities, the currency, or both – could be enough to trigger a reactive sell-off in US equities, a type of ‘tail wagging the dog’ scenario.
Flash Crash? … Or Just Flashing??
First, there were reports of a mysterious ultra-sonic weapon used against American & Canadian personnel in Cuba. That has been questioned based on multiple factors, including the human ear’s inability to hear ultrasonic (some of the victims reported hearing high-pitched sounds or squeals).
One less-nefarious explanation has to do with the interplay or interference between two (normal) ultrasonic signals. That is still being debated.
Then, in the last month, a similar occurrence with American personnel at the consulate in Guangzhou, China. Suddenly, the repeat offense cast greater suspicion of a sonic ‘assault’. But there remains a lot of doubt and inconsistency with the descriptions of the ‘attacks’ and the results that have come of them.
However, it is less doubtful that Chinese maritime vessels (fishing boats) – as well as ‘land’-based sources – have been temporarily blinding US pilots, over the South China Sea, with lasers. This has also been occurring on the coast of East Africa – where China just completed a naval facility in Djibouti, a few miles from an existing US facility. China is becoming more aggressive with her tactics as time goes on.
Major wars rarely begin out of nowhere. And rarely without a steady, often extended, escalation of tensions before reaching a breaking point. And they often surround some form of territorial dispute.
China, the US & the South China Sea all fit into these criteria – with War Cycles continuing to focus on 2021 for the ultimate ‘flashpoint’. Apparently, there have already been dozens of precursor flash points – in Africa and the South China Sea – in 2018.
Every Dog Has Its Day
There is another canine-related parallel at work here. It has to do with backing a dog into a corner. The aggressor might have multiple advantages and feel emboldened as the canine backs away. The entire interaction looks decidedly one-sided.
However, there comes that point when the aggressee has nowhere left to retreat and is forced to pursue the only remaining option – a full-frontal assault with whatever resources are at its disposal. Often that turns the tables in the blink of an eye.
Even if all the heated rhetoric is only that – rhetoric – and is all part of a grand, deal-making negotiating tactic… there is still LOTS of room for miscalculation.
Late-2018/early-2019 completes a major 40-Year Cycle from the start of China’s economic & geopolitical rise to power. Late-2018 – 2021 times a repeated 40-Year Cycle of China-involved wars. Late-2018 also ushers in a potentially momentous time in East vs. West competition.”
Late-2018 remains in focus as a decisive time for Chinese equities, the Chinese currency (Yuan) and China/US relations. Cycles portend important shifts at that time. China cycles continue to focus on a larger-magnitude dramatic paradigm shift projected to take hold in 2018 – 2021. That follows the culmination (and transition) of longer-term cycles that reached a crescendo in 2013 – 2017. As stressed before, it portends intensifying economic and trade battles (and possibly military ones as we approach 2021) as this cycle plays out. Watch mid-2019 – mid-2020!
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.