[0620yuan01]I did not see this coming!

We have a major bump in the futures and I’m trying to decide if it’s deserved just because China says they will float the Yuan.  Asia came on like gangbusters on the news and Japan was, of course, super thrilled that one of their biggest customers was going to have more buying power (in theory) as were the other Asain countries that export to China.

The Nikkei is up 2.4%, India gained 1.7%, Taiwan jumped 1.9%, South Korea 1.6%, Singapore 1.8% and even Australia picked up 1.3%.  In China, the Shanghai and Hang Seng gained 3% as well so it’s a win, win, win over in Asia this morning!  Europe also seems thrilled with 1.5% gains in general but off about half a point from their gap up opens. 

Despite the rhetoric, there was no change in the official Yuan peg (but the currency traded higher) and, of course, the timing of making the announcement right before the G20 meeting (next weekend) is to take the issue off the table as things were really coming to a head with the US on the currency issue. 

On the whole, it’s a good thing because China needs to slow their growth anyway and this will stall demand for their goods and thus their consumption of commodites while a rising currency will make it cheaper to buy those goods so we can imply better margins at factories – the only question is:  How much will it impact sales?  Clothing sales are the most vulnerable as Chinese sweat shops must competed with sweat shops in Chinatown as well as Vietnamese, Taiwanese, Korean and even African sweat shops in a business where pennies matter a lot.

It’s hard to say how much China’s trading partners will ultimately benefit from the move.  On the whole, giving the Chinese people more spending power is kind of like raising your kid’s allowance from $5 a week to $5.50 – it’s really not likely to rock the global economy but, combined with recent wage hikes – it’s nothing to sneeze at.  Unfortunately for the foreign Capitalists who have been exploiting employing Chinese workers to make their cars and IPhones, this comes as a double whammy to their bottom line as worker strikes (and suicides) are driving wages higher and now, having to pay those workers a rising currency adds insult to already injured bottom lines. 

Also, in the big picture, China was letting the Yuan appreciate to the…
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