Equites were relatively quiet yesterday. Treasury yields, however, increased across the spectrum.
Bloomberg reported yesterday that China sold a record amount of Treasuries during the first quarter. According to the US Treasury Department, Beijing sold a total of $53.3 billion of Treasuries and agency bonds, perhaps an indicator of a larger trade war lurking just below the surface.
China however increased its holdings of gold. The share of the precious metal in reserves climbed to 4.9% in April, the highest according to central bank data going back to 2015.
The narrative is beginning to rise that the BRIC plus nations are attempting to compete with the US for domination of foreign reserves. Since the Administration forced Russia to default, the percentage and absolute decline of foreign reserves held in the dollar is a record.
Conversely, the trend that commenced around 2015 and accelerated in 2022, China and countries with close ties to it have considerably increased their holdings of gold in foreign exchange reserves, while countries aligned with the US bloc has kept their reserves largely stable.
If this trend continues, the odds rise considerably that the US may experience higher Treasury yields. Major buyers of the UST are now becoming major sellers.
The outcomes of war are infinite. The US can ill afford to lose its status as the primary reserve currency, a direct result of the a fore mentioned forced Russian default.
Perhaps even more disconcerting, the Administration has proposed using frozen Russian dollar reserves to pay for the war against itself.
It is believed these two actions have done more to destroy trade than any existing or proposed tariff.
As written several times, the West has weaponized the flow of funds while the East has weaponized the production of goods.
For what it is worth department, according to a dated WSJ journal article, China has 25 million subsidized and unsold EVs that the West is concerned that they will soon flood the markets. The President has proposed a 100% tariff on Chinese EVs.
Several legendary hedge fund managers have adamantly stated the next 15 years will be unlike the last 15 years given the collapse of trade, the weaponization of currencies, and a rising interest rate environment that may hinder the western democracies given their huge sovereign debt levels and massive interest expenses.
What will happen today?
Last night the foreign markets were down. London was down 0.39%, Paris down 0.38% and Frankfurt down 0.31% . China was up 1.01%, Japan down 0.34% and Hang Seng up 0.91%.
Futures are flat. 10-year is off 4/32 to yield 4.40%.
