You can enable subtitles (captions) in the video player
The big question today, do we have another China crisis? Now, on this chart, this scale shows you the number of Chinese yuan per dollar. It's an exchange rate and as this red line rises, so the yuan weakens against the dollar. Meanwhile, on this scale we have the MSCI World Index, which is the main index that covers all the world's developed markets, not just the US.
Now what's very interesting is that you can see that the last big scare for world stock markets was triggered by the China currency. You can see here in August 2015, there's a very sharp - very sharp devaluation of the Chinese currency that people hadn't expected. And you see a very sharp fall in world stocks. And then there's another incident when you see another big decline for the Chinese currency in early 2016.
Now after that it became clear that the Chinese economy wasn't in as much trouble as people had feared. And then come November of 2016, of course, we get the election of Donald Trump as president in the US. A very major international event. And that leads to the very impressive Trump rally of - which lasted pretty much all of last year. So you can see world stocks rose in an almost perfectly straight line.
Now obviously, a big part of the Trump agenda when he was elected was about trade fairness. He complained bitterly about Chinese manipulation of their currency, ie keeping it weaker than it should be. And perhaps in response to that you do see this very significant, re-appreciation of the yuan during Trump's first year in office. In fact, by the spring of 2018, it's virtually back to where it was before the scare of the summer of 2015.
Now what is interesting is what is happening now. As you can see, we suddenly have a very, very sharp depreciation once again in the Chinese yuan. It's much weaker than it was during the scare moments of 2015, 2016.
There are good, domestic reasons for that. China has to deal with the overhang of credit. That means it's through a form of QE making it easier for banks to buy out bad loans, and so on. But there could also be an international policy dimension to this.
Obviously, the US is threatening a trade war. It's threatening to levy tariffs on China. If you respond by weakening your currency, then you make yourself more competitive. You counteract the effect of the tariffs. Is China doing that? It's not clear yet. But we do know that the president wants a weaker dollar and that the dollar is now, against a range of currencies, it's strongest in a year, largely due to China.
Now despite all this, things like metals, which are very affected by China, have moved a lot on this. But as you can see, world stocks are really not moving very much at all. They're below the peak of January. But that's about all you can say.
So, I think this could be the critical question for the next few months. The world stock market does not seem to think we have another China crisis. Why not?