CNH: USD/CNH Stabilizes, CNY Basket Weaker, Industrial Profits Today
USD/CNH rebounded modestly late in Monday Asia Pac trade, pushing back above 7.1800, before finding some selling resistance. We track near 7.1780 in early Tuesday dealings. CNH lost a little ground for Monday's session versus the USD, while spot USD/CNY finished up at 7.1864. Broader USD sentiment stabilized as Monday's session unfolded, the BBDXY index recouping earlier Asia Pac losses to finish close to unchanged (albeit with UK and US markets out). The CNY CFETS basket tracker fell 0.32% to 95.885, not too far off April cycle lows at 95.70 for this index.
- For USD/CNH, we may see some resistance around current levels as this coincides with lows from back in May 13 for the pair. Further north we have the 20-day EMA near 7.2155, while the simple 200-day MA is near 7.2250. Yesterday's fresh YTD lows were at 7.1616.
- News flows was light on Monday, given UK and US holidays. Focus remains on US-China trade discussions, although little fresh detail has emerged in recent sessions, with focus on US-EU talks/tariff hike threats.
- Yesterday BBG noted that the "PBoC increased the floor ratio for yuan-denominated trade transactions to 40% from 25% as part of its recent adjustment to the so-called Macro Prudential Assessment" (see this link). This move is aimed at boosting the use of the yuan in global trade transactions.
- On the data front today we have April industrial profits on tap. The prior outcome was +2.6%y/y (there is no consensus estimate).
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US TSYS: Extraordinary Measures And Cash Look Sufficient To Head Off X-Date
Treasury has about $164B in "extraordinary measures" available as of April 23 to avoid hitting the debt limit, per its regular report out Friday. That's out of a maximum total of $375B (they have used $211B).
- With Treasury cash looking healthy (around $600B), that's a fair amount of dry powder to get through the summer months to wait out the debt limit impasse. Tax receipts have looked strong with tariff revenues also starting to boost cash flows, further reducing the near-term urgency to adjust bond issuance.
- This has also helped push back analyst “x-date” expectations to later in the summer/September. We expect to hear from Treasury about its own x-date assumptions next week.
US TSYS: Treasury Market Trading Stayed Orderly In April: Fed Report
Liquidity across financial markets including the Treasury market deteriorated after President Trump's April 2 reciprocal tariffs announcement but market functioning was generally orderly, according to the Federal Reserve's semiannual report on financial stability, released Friday. (PDF link is here)
- Treasury market liquidity has been poor for years and yields were particularly volatile in early April, contributing to a deterioration in market liquidity, the Fed said.
- Nevertheless "trading remained orderly, and markets continued to function without serious disruption," according to the report, which looked at information available as of April 11.
FED: Ex-Gov Warsh: Fed Has Failed To Satisfy Price Stability Remit
From our Washington Policy Team - Some fairly sharp words today from ex-Fed Governor Warsh on the central bank (who for what it's worth is seen by betting markets as by far the frontrunner for the next Fed Chair):
- The best way for the Federal Reserve to safeguard its independence is for policymakers to avoid expanding the institution's role over time, including wading into policy areas that are outside its core mission, former Fed Governor Kevin Warsh, a leading contender to replace Jerome Powell as chair next year, said Friday.
- "I strongly believe in the operational independence of monetary policy as a wise political economy decision. And I believe that Fed independence is chiefly up to the Fed," Warsh said in a speech at a Group of Thirty event on the sidelines of the IMF meetings. "Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability. It has also contributed to an explosion of federal spending." His speech made no mention of Trump's tariffs or the appropriate monetary policy to deal with them.
- He said the ideas of data dependence and forward guidance widely adopted by Fed officials are not especially useful and might even be counterproductive.
"We should care little about two numbers to the right of the decimal point in the latest government release. Breathlessly awaiting trailing data from stale national accounts -- subject to significant, subsequent revision -- is evidence of false precision and analytic complacency," he said.
"Near-term forecasting is another distracting Fed preoccupation. Economists are not immune to the frailties of human nature. Once policymakers reveal their economic forecast, they can become prisoners of their own words. Fed leaders would be well-served to skip opportunities to share their latest musings."
