Two Ways to Play: Yuan Undergoing Stress Tests
Strengthen your portfolio in good times and bad.
China is conducting yuan rise "stress tests" to see how much the local labor-intensive businesses can withstand, according to China's 21st Century Business Herald.
In a story by Reuters, the tests were jointly conducted by the Ministry of Commerce and the Ministry of Industry and Information Technology, and the results are likely to play an important role in China's future yuan policy.
The tests focused on textile, garment, shoe, and toy exporters. Some estimate that any percentage point in yuan appreciation would erode one percentage point in profits, which would be a major blow because these businesses have net profit margins of only 3% to 5%.
From the Bull Pen: Hard assets would likely surge in the event of a yuan appreciation. Short-term charts appear to be bullish as well. Consider the coal ETF (KOL); a sell stop can be set below yesterday's low ($33.50).
From the Bear Cave: US retailers might have a hard time as well if China did revalue the yuan. But in the short term, stocks appear to be resuming the uptrend. See the retail ETF (RTH). Bears can look to the laggards. Best Buy (BBY) is approaching its overhead 200-DMA ($38). One strategy is to fade (read: sell) the strength into that level with a tight buy stop above.
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A Quick Check Around the World
Asian trading closed with the Nikkei 0.24%, India 1.08%, Hang Seng 1.03%, Shanghai -0.28%, and Taiwan 0.12%.
Across the pond, we see the FTSE 0.70%, CAC 0.90%, DAX 0.75%
As of 8:30 AM EST, S&P Futures are trading +0.500 to 1102.50. Nasdaq futures are +0.250 to 1813.75.
A Look at Commodities
Over in commodities, crude oil is -0.09 to 78.08 while gold is -1.100 to 1107.40 this morning. Silver is -0.022 to 16.115 and copper -0.0005 to 3.2100.
The dollar Index is -0.0550 to 80.8050.
On the Radar
Q4 GDP +5.9% vs +5.7% consensus, prelim +5.7%
Q4 GDP Price Index +0.4% vs +0.6% consensus, prelim +0.6%
Q4 Personal Consumption +1.7% vs +2.0% consensus, prelim +2.0%
Q4 Core PCE +1.6% vs +1.4% consensus, prelim +1.4%
9:45 Chicago PMI 59.0 cons.
9:55 U Michigan Consumer Sentiment - Final 73.9 cons.
10:00 Existing Home Sales 5.5 mln cons.
Happy Fat Friday Snow Day! Good luck and have a great weekend!
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