U.S Debt Downgraded By Chinese

Finally we get a solid move on the fundamentals, as last nights downgrade of U.S debt from Chinese ratings agency “Dagong” sent the U.S Dollar spiralling down.

Now Dagong is no “Moody’s or Fitch” ( currently rating on “negative watch” ) but this in itself brings about a very interesting point.

A Chinese ratings agency having such a significant impact on the dollar? Wow.

You might expect this kind of move given that a “reputable” agency in the U.S gave the “thumbs down” on the debt ceiling debacle sure…but a Chinese ratings agency?

As the largest holder of U.S Debt / Treasury Securities on the planet it is now painfully clear how much influence China truly has.┬áThe agency suggested that, while a default has been averted by a last-minute agreement in Congress, the fundamental situation of debt growth outpacing fiscal income and GDP remains unchanged. “Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future”.

Kicking the can a couple of months further down the road makes little difference when the U.S will just be back in the news then…..still unable to pay its bills.

The short USD trades obviously made big moves here overnight, but not exactly as expected. Great gains in EUR, GBP as well CHF but oddly the “commodity currencies” have shot higher. An interesting dynamic and certainly one to keep an eye on as NZD as well AUD approach overbought levels.

Gold up a wopping 34 bucks here this morning, so perhaps we’ve got the “risk off” flows on the move.

19 Responses

  1. Jworthy October 17, 2013 / 7:56 am

    Wowza! Thanks for the heads up!

  2. JSkogs October 17, 2013 / 9:15 am

    Good post thanks Kong. Yen longs are doing well. Just about to enter an ES short. Half tempted to buy the dollar tomorrow or Monday but ya probably a short lived trade all things considered….but could be ripper nonetheless.

    • Pot Stock Watch October 17, 2013 / 9:44 am

      This thing is a total gong show man, with several “cross currents” moving here.

      I am stunned as to the complacency of investors here. Perhaps a “real downgrade” over the weekend might do it.

      Otherwise…Im still keeping as safe as possible and jumping on profits when ever I see em.

      • JSkogs October 17, 2013 / 10:17 am

        I know hey! What on earth does it take for people to sell stocks? I haven’t entered my es short yet. I am stunned myself….stunned

  3. JSkogs October 17, 2013 / 10:38 am

    entering es short yahoo

  4. robert October 17, 2013 / 10:58 am

    Why would they sell any stocks… unvle ben n soon auntie yellen will have their backs against any fall…

    • JSkogs October 17, 2013 / 11:44 am

      Robert yup for sure I agree but even supported markets go through major corrections and there is plenty of data to support some profit taking. I know markets can stay overbought however long they want but they always correct and this one should be good one. Blah blah everybody knows that. Timing it is the hard part. I do think this afternoon is it though.

  5. JSkogs October 17, 2013 / 12:18 pm

    Going to enter some light USD long positions today. I think this low is trade-able

    • Pot Stock Watch October 17, 2013 / 6:48 pm

      Lets start chippin away at that pesky NZD/USD – what say you Jskogs??

      • JSkogs October 17, 2013 / 8:07 pm

        Yup I got into nzdusd today. Already in the money bro! Took my es short today as well. May or may not have to ride a bit of pain on the index but I doubt it.

  6. Deano October 17, 2013 / 5:34 pm

    Hi Kong,

    I half suspect that the Chinese ratings downgrade was just an excuse to sell the USD rather than the driver. The moves in London had started before this announcement so this was more a kicker than a cause. It sure didn’t help.

    Agree completely that it looks like risk off for a while. Good GBP data and reasonable China data supporting the AUD & NZD, although both are approaching my medium term targets at 0.9700 & 0.8600. Mild safe haven flows into the CHF & JPY with the JPY looking like a new lower top may be in place around 0.9900 and a descending daily channel developing.

    Hate to think what the S&P is going to do, but with no taper 1800 comes into the picture I think. Thoughts?

    Cheers,
    Dean.

    • Pot Stock Watch October 17, 2013 / 6:27 pm

      For sure Deano – you know me….I love to get the ol “east vs west” up and under people’s skin. China “isn’t thrilled” from what I understand, but who is really.

      GBP data good yup, and a great trade – as well I’m eyeing the “never ending rise” of NZD to trail off here very soon, AUD as well.

      Damn stocks to the moon I guess….with a new “never ending ceiling” and Yellen at the wheel? I seriously can’t watch it anymore.

      The divergence in both strength and volume vs price – again.I just can’t watch any longer.

      • Deano October 17, 2013 / 6:35 pm

        Kong, I hear ya. Just can’t make myself go long S&P, and know that the next reversal is close so staying out. Otherwise the fundamentals will drive price action for the next while. The technicals did a good job last week and earlier this week while we were in stasis waiting to exhale on the shutdown/debt ceiling, but now the nfp is coming up with other delayed data, I think I’ll cash out my long AUD, NZD, AUDCHF and go play golf. Cheers.

        • Pot Stock Watch October 17, 2013 / 6:46 pm

          I can’t / won’t do it either…..this is past PAST ridiculous so…..

          Instead of fighting it – you’ve got it man! Get out and enjoy!

  7. JSkogs October 17, 2013 / 8:18 pm

    It looks likely that the spx is producing some sort of ending diagonal or bearish rising wedge. Not that you can live your life by geometry but often that shit plays out. In this case it makes some sense given the overall market context.

    • Pot Stock Watch October 17, 2013 / 8:22 pm

      Yes the “eternal bearish wedge / ending diagonal” as I’m now calling it.

      When will this son of a B end?????

      • JSkogs October 17, 2013 / 8:29 pm

        6 effin months this stupid piece of shite pattern has been playing out! Haha. It’s enough to make a guy insane!

        • Pot Stock Watch October 17, 2013 / 8:44 pm

          Past insane yup – we’re past insane!!!

  8. JSkogs October 18, 2013 / 10:16 am

    Really? Another boring day? Well I’ve got my positions. I’m peace-ing out for the weekend. Thanks Kong for all your good posts. Have a great weekend!

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