As the markets were re-opening in Asia earlier today, I joined Martin Soong and Sri Jegarajah on CNBC Asia. I had returned from a business trip and visited our summer house on the Jersey shore for what I thought was going to be a weekend more than a month ago.
Oil prices had initially reacted positively to the OPEC+ agreement. Still, I was skeptical as the cuts seemed inadequate to meet the dramatic compression in demand, let along the notorious non-compliance by some of the OPEC+ group. The US distaste for cartels has a price, and that price was discovered near $20 a barrel.
We talked about the Dollar Index, which I noted was heavily weighted toward the euro and currencies that trade like the single currency. The stabilization of the capital markets, with the extensive help fo central banks and governments, has removed the extreme tail risk that led to a surge in volatility and strong dollar rally as structured trades were unwound. The easing of the tail risk saw the euro bottom the same day, and the S&P 500 did (March 23).
The Chinese yuan’s relative stability is no accident or quirk. It has been engineered by officials. China’s reserves fell by about $46 bln last month, and this seems to more a reflection of intervention than shifts in valuation. The dollar has been trading for the most part between CNY7.05 and CNY7.12, though both ends have been frayed. The Shanghai Composite has also been relatively stable, though it fell in each of the first three months of the year (by around a cumulative 9.8%) and is up about 1.2% this month so far. It’s roughly 8.75% decline year-to-date makes it among the best-performing equity markets. The MSCI Emerging Market Index is off a little more than 20% year-to-date in comparison.