Tags: china | yuan devaluation | economy

Markets 'Shocked, Shocked' by China's Devaluation

Markets 'Shocked, Shocked' by China's Devaluation
(AP photo)

By    |   Wednesday, 12 August 2015 08:27 AM

Stocks gave up Monday’s gains on what was billed as a “surprise” 2% devaluation of the yuan by the Chinese, who are participating in the competitive devaluations that have been going on around the world.

Josh Brown is to be commended for identifying Monday’s move as the low-quality squiggle that it was.

It the first two CNBC clips commentators present their interpretations of the Chinese move.

Christoffer Moltke-Leth, of Saxo Capital Markets, called the devaluation “at least on paper, a huge reform. They’re actually changing the whole fixing process. So from now on, we’re moving to a more market-based approach, where market forces will gain a lot more control. It’s going to be pegged with a reference to yesterday’s close and supply and demand forces in the market.”

Yet he added that he expects the yuan to depreciate gradually in coming months for the benefit of the exports of “China, Inc.”

Moltke-Leth concluded that the Chinese action could have the effect of postponing a Federal Reserve action to increase interest rates in September.

Economist Jerry Webman agreed that the Chinese were “moving toward a more market-determined currency level, and while it wasn’t fun today, it makes sense over the long term.”

The interviewer noted that the stocks that suffered were the obvious ones – Apple (AAPL). Caterpillar (CAT), and Yum Brands (YUM), and he also thinks it has a tightening effect without any Fed action.

Brian Stutland, of Equity Armor Investments, identified another important effect of China’s move, which is an increase in volatility, as Melissa Lee noted the VIX spiked more than 12%.

Stutland called the VIX “hot” and found that one trader stepped in to bet that it will go to 20, standing to make a 19-to-1 gain if it does.

He warned “look out below” if the S&P falls below 2070.

Oppenheimer technician Ari Wald displayed a chart he says shows the long-term bullish cycle “still intact,” because lower commodity prices have been good for stocks back to 1954.

He then showed a chart of volume that indicates short-term weakness and a pullback to 1970.

Gordon Charlop, of Rosenblatt Securities, thinks “patient buyers” are being rewarded.

Kelly Evans thinks a “death cross” is forming, but this writer would suggest that a very close look shows that it is premature to conclude this, because the 200-day MA hasn’t rolled over yet.

This was a great day for Peter Schiff, CEO of Euro Pacific Capital, to emphasize that the Chinese move that surprised so many is a small move that responds to weakness in other currencies that have responded to the drop in the price of oil.

Still, he thinks “the dollar is in a bubble, and when this bubble bursts, you’re going to see a substantial upward revaluation of the yuan against the U.S. dollar ultimately.”

Schiff quips that China’s action doesn’t affect the likelihood of a Fed action in September, because the Fed has been bluffing all along, that it will not raise rates but instead will roll out more QEs and blow up its balance sheet from $4 trillion to $10 trillion to head off a recession he thinks will happen anyway.

This writer has always referred to QE as “QE-n” and would add that the Fed cannot allow a recession in this election year.

Finally, trader Paul Richards says the Chinese are intervening in quest of 7% growth, which he thinks will be good for the global economy, and Terrence Duffy, chairman of the CME Group, has predicted that the OPEC cartel would drive the oil price down.

In a remark that didn’t make this clip, Duffy predicted that the Fed will not raise interest rates at all this year.

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Stocks gave up Monday's gains on what was billed as a "surprise" 2% devaluation of the yuan by the Chinese, who are participating in the competitive devaluations that have been going on around the world.
china, yuan devaluation, economy
Wednesday, 12 August 2015 08:27 AM
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