Though Donald Trump was a strong presidential candidate, people, businesses, wall-street and a lot of people around the world wanted Hillary to be the 45th president of United States.
It was a great win for Trump, as we have expected that he would be the winner at the end. Trump policies are having been very much authoritative and expect to create employment and bring back outsourced business back to United States. Therefore, he has proposed a series of tax benefit to manufacturing and employment creating in US businesses and planning to impose tariff on businesses which import goods and services to US- like BMW and Mercedes, where Trump government is planning to impose a whopping 35% tax on import. Not just businesses but even governments around the world- China, Turkey, Saudi Arabia, Israel etc are on high alert to fight back at every level-economic or political for various reasons.
Trump is going to swear as the 45th president of United States on 20th January 2017 and the world is distracted from the most important forthcoming event currency devaluation by China. China is planning to wage a Currency Wars with United States and the world by devaluating the Chinese Yuan.
China has played this card quite a few times in the past, last 2 times being December 2015 and January 2016 by 2%. Prior to that in August of 2015 during the holiday season by 4%. This 4% of Chinese Yuan devaluation (see picture below) has made Dow plunge by 500% in a session, which made into 8th place in the worst single day crash in the Dow history.
China had a war chest of USD 4 trillion dollars in forex reserves in the beginning of 2015. Due to slow down in GDP numbers and fear in the market Chinese are looking for every opportunity to get Yuan to a foreign currency by purchasing real estate and businesses overseas mainly in United States, Canada, United Kingdom, Australia, New Zealand etc. This flight of capital in truck loads is creating more weakness making the recent forex reserves around USD 3.01 trillion. Capital controls have been enacted to stop people and businesses to let the Chinese Yuan move out of the country.
China has dumped enough dollars to keep the Yuan stable. But this way China is losing in precious forex reserves just to keep the Yuan stable, which can turn to be a horrendous irrecoverable mistake. Recently IMF has degraded the China’s ratings and slowing GDP numbers. While the global economy is also slowing at dangerous pace. And Chinese’s are no different, their domestic economy, employment, government deficit spending, real estate bubble have accelerated the slowing down of the economy.
Today’s Trump comments has made dollar fall against major and emerging currencies by about 0.5% and 1%. And Trump specifically said the dollar was too strong in the context of China’s Yuan saying “Our companies can’t compete with them [China] now because our currency is too strong. And it is killing us.” He said the Yuan was “dropping like a rock” and the central bank supported it simply “because they don’t want us to get angry.”
The only way China can save itself from the coming collapse is to devalue its currency by waging currency wars. Right now China has been devaluing currency in smaller steps (check the exchange rate for last 2 years above picture). And this time, I predict a maxi-devaluation of 10% – 25% anytime in the coming 2-3 months, beginning this 20th January- a welcome gift to the new president Trump.
Markets will plunge by 1000 plus points (not correction, as said by analysts).
Major financial institutions will take big and sudden losses.
Emerging markets will take a toll on growth.
World countries may engage in beggar-thy neighbor strategy to support their slowing growth.