Never Let a Good Currency Crisis Go to Waste

The 2-10 Treasury curve finally inverts. The Fed is simply too tight. Among several bearish narratives, China’s incipient currency crisis and increasing instability in Hong Kong are the most immediately salient. Yesterday’s US tariff relief marginally backs RMB away from the cliff, but new tariffs still require it to weaken by another 4.5%, and it may be difficult to keep that orderly. On the surface Trump appears to have chickened out by deferring some tariffs, and gotten nothing in return for it. It is possible, though, that China really made “solemn representations” to the US in a call Tuesday, resulting in the relief, and that Trump’s underplaying it is to allow the Chinese to save face despite capitulation under pressure.