- Currency Wars Heating Up As Taiwan, Korea And China Fire Warning Shots!
by Tyler Durden, http://www.zerohedge.com/
While the overnight session has been relatively quiet, the overarching theme has been a simple one: currency warfare, as more of the world wakes up to what the BOJ is doing and doesn’t like it. The latest entrants in global warfare: Taiwan, whose central bank overnight said it would step in the FX market if needed, then Thailand, whose currency was weakened on market adjustment according to Prasarn, and of course South Korea, where the BOK said that global currency war spreads protectionism. Last but not least was China which brought out the big guns after the PBOC deputy governor Yi Gang “warned on currency wars.” To wit: “Quantitative easing for developed economies is generating some uncertainties in financial markets in terms of capital flows,” Yi, who is also head of China’s foreign-exchange regulator, told reporters. “Competitive devaluation is one aspect of it. If everyone is doing super QE, which currency will depreciate?” “A currency war, a series of tit-for-tat competitive devaluations, would trigger trade protection measures that would damage global trade and therefore growth globally,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong, who previously worked for the World Bank. “That would not be good for any country with a stake in the global economy.” Which brings us to the fundamental question – if everyone eases, has anyone eased? And is there such a thing as a free lunch when central banks simply finance global deficits while eating their soaring stock market cake too? The answer, of course, is no, but we will cross that bridge soon enough.
European news overnight was as usual bad. As SocGen reports, Euro area M3 growth slowed sharply in December, with M3 deposits declining by €42bn on the month. This almost certainly reflects a reversal of the flows seen in October when national subscriptions to the paid-in capital of the ESM temporarily boosted overnight deposits. As this capital progressively get re-invested, overnight deposits fell back by €32bn in December. This is an effect that we were expecting to a certain extent, although the timing of the flows was difficult to gauge. As a result annual euro area M3 growth fell back to 3.3% y/y, down from 3.8% in November. Lending growth however remains very muted with loans for house purchase growing by a measly €3bn on the month (up 1.3% y/y) while lending to non-financial corporations dropped by €51bn. That’s the biggest ever one month net repayment of M3 lending and takes the annual growth in lending to non-financial corporations down to -2.3%.