weekly option strategy

Recap Of The Week’s Top Stories…

US Senate Bill Seeks To Spark Currency War

In response to the rather unfulfilling meeting between US and Chinese policy officials last week, the Senate is now considering legislation that would end the long standingUS policy of non-intervention in the currency markets.  Expected to be introduced in mid summer the legislation would allow the US Treasury to intervene in FX markets, should currencies become fundamentally unsupported.  The idea is in clear response to the currency manipulation that is taking place in other markets around the world, notably in China and Japan, and one that US officials have opposed since 2000.  Nonetheless, should the legislation pass, it may mean a full blown out trade war as a depreciated dollar would widely make Chinese made goods uncompetitive compared to domestic products.  The resultant scenario would escalate already nascent trade tensions between the two economies as industrialized leaders and US Congressmen continue to clamor for a revaluation in the Chinese yuan.  However, officials are attempting to mitigate such speculation, noting that clauses and addendums are surely to be place should any decision come to fruition.

Shanghai Markets Lose More Than 6 Percent On Tripled Stamp Tax

China’s stocks took a turn for the worse in the overnight following the announcement that the government will increase the stamp tax by triple the rate.  Investors, a little skittish, following the lead of the tumble back on February 27^th, pared back on positioning as it became apparent that Chinese policy makers are clawing at any and every potential method of tightening speculative liquidity in the market.  The CSI 300 index dropped 6.8 percent in Shanghai, with regional markets following suit.  However, interestingly enough, there is some resilience that can be seen as the fall was never really comparable to the 9 percent February decline.  It seems that this time around investors are seeing continued interest in the market, overall.  The notion helped to minimize the fall as plenty of cash is likely to funnel its way through the system, with or without tightening measures.  Subsequently, the yuan continued to advance on speculation that further tightening measures will be forthcoming in the short term.  The Chinese yuan advanced to 7.6471 in the overnight.

China Growth Forecast Rises, Moody Looks To Raise Debt Rating

Although focus has been heightened on a speculative bubble in the world’s fastest growing economy, it seems that a popular rating agency is seeing plenty of value in China.  Today, it was announced that Moody’s rating agency is heavily considering upgrading both Hong Kong and China issued debt.  Incidentally, the decision was announced following the World Bank’s upgraded growth forecast for the country.  Citing a well supported export market and solid financials, the investor rating agency is looking to upgrade the current A2 long term foreign currency rating.  The decision, should it come to fruition, would likely exacerbate the current level of foreign investment, and subsequently demand for the yuan.  As a result, government officials are likely to turn to further alternative tools, as in the stamp tax, in tightening monetary controls in the short term.

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