There was, one could say, a highly speculative story from the New York Post that Treasury Secretary Janet Yellen may have consumed hallucinogenic mushrooms during her trip to China. CNN offered a bit more detail, pointing out the mushrooms are not hallucinogenic when cooked, which the restaurant where she dined insists they were.
But that’s not the only mystery coming out of Yellen’s trip to Beijing. Yellen’s official recollection of her meetings was that, basically, they were meetings. “We were able to learn more about each other’s economies and policy choices, which I believe is vital as the world’s two largest economies,” Yellen said at her press conference.
But, as the chart shows, the dollar dropped precipitously after she left. The question is why, and what it means.
Kevin Muir, a former institutional trader that blogs at The Macro Tourist, said China didn’t like what they heard from Yellen so the country decided to send a message. “China has $3.2 trillion in FX reserves. Their biggest position will be the U.S. dollar and don’t think they will be shy about using it,” he says.
“America and China have a strange symbiotic relationship. America buys Chinese goods, China accepts U.S. dollars and reinvests them in American financial markets. Be careful about conclusions regarding the consequences if this relationship breaks down,” he adds.
He concluded what deteriorating relations mean for markets. “My guess is that over the short to medium run, decaying American/Chinese relationship means lower USD and higher rates,” said Muir.
Taking the opposite view was the blogger at Blind Squirrel Macro. “My argument is simple but is as follows: Mrs. Yellen has a lot of Treasury issuance ahead of her that needs to find buyers,” says the likely human. “Mrs. Yellen needs to ensure that the world’s largest creditor nation continues to be [the biggest foreign] buyer of her treasuries (or at the very least not be a seller). What does China need? Well, a firmer currency (weaker dollar) would certainly be helpful when it comes to all those commodities that the country imports. It would also put China in a (much needed) position of strength in the event that they need to launch a domestic economic stimulus package later this year.”
The blogger notes that two prevailing trends, a weak yuan and weak Treasurys, both reversed after the trip. It’s not as if an accord would be unprecedented, and there was speculation that in 2016 the two sides agreed to a covert deal.
As to the implication for markets, “the commodity complex has certainly sat up and taken notice.” The blogger said a weaker dollar may be supportive of U.S. equities generally and the large-cap tech earnings specifically. “Going forward, it may make sense to focus the short leg of the pair on the ‘ponzi’ end of the tech spectrum,” says the blogger.
The markets
U.S. stock futures
ES00,
NQ00,
edged higher after the Microsoft-fueled 0.7% advance for the S&P 500
SPX,
on Tuesday. The yield on the 10-year Treasury
TMUBMUSD10Y,
fell to 3.74%.
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The buzz
Goldman Sachs
GS,
reported earnings below expectations, as Netflix
NFLX,
and Tesla
TSLA,
highlight the after-hours releases.
U.S. housing starts slumped by 8% in June to a below-forecast 1.43 million, and building permits fell by 3.7%. Housing starts for May were revised lower.
U.K. inflation surprised to the downside, sending the British pound and U.K. bond yields lower.
Oddity Tech’s IPO was set at $35, above the proposed price range.
Carvana stock
CVNA,
rallied after the car retailer reported sales ahead of forecasts and restructured its debt.
VMWare shares
VMW,
climbed as the U.K. government gave provisional approval to its acquisition by Broadcom
AVGO,
Chip-equipment maker ASML
ASML,
lifted its sales guidance for the year.
Best of the web
Tech stocks, meme stocks, crypto: the market is looking like it did in 2021.
OpenAI won’t let the public get access to a ChatGPT with facial recognition.
Biden shares video of Marjorie Taylor Greene speech to promote his agenda.
Top tickers
Here were the most active stock market tickers as of 6 a.m. Eastern.
| Ticker | Security name |
|
TSLA, |
Tesla |
|
NVDA, |
Nvidia |
|
GME, |
GameStop |
|
AAPL, |
Apple |
|
AMC, |
AMC Entertainment |
|
NKLA, |
Nikola |
|
CVNA, |
Carvana |
|
MULN, |
Mullen Automotive |
|
NIO, |
Nio |
|
PLTR, |
Palantir Technologies |
The chart
Banks have been saying they are raising lending standards. Here’s some evidence for it. Jack Farley of the Forward Guidance podcast tweeted out this chart, using New York Fed data, on a spike in the auto loan rejection rate.
Random reads
Britain’s spy chief isn’t worried that AI will replace human spooks.
Like my brothers as teenagers, a fossil shows a mammal and dinosaur locked in mortal combat.
A woman in France drinking coffee on her porch was struck by a suspected meteorite.
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