¥ Devaluation - Is this the Beginning of the End

[JohnyMac]

Well now. With China devaluing their yuan how will that affect the EU, USA and other global markets. Simply, there will be devaluation of prices on Chinese goods, e.g. you will be able to buy more Chinese goods for the same out lay of your currency. Plus your countries manufacture's will export less products to China. This will of course drive unemployment (Unless .gov "cooks the books") up. 

Now what can your government do to counter this major development in the financial global community. Print more money of course. Doing this makes your $, €, £, ₱, etc. worth less & less. That means Central Bank (s) will induce inflation.

Do you feel it?

HOW WILL CHINA'S TRADING PARTNERS BE AFFECTED?

...Investors fear the worst. U.S. stocks sank Tuesday, dragged down by falling shares in such big exporters. In theory, a weaker yuan could reduce exports of U.S. goods to China, already down nearly 5 percent this year through June. American politicians, who have long charged that China keeps its currency artificially low to give its exporters an edge, denounced the devaluation. But economists doubt that a one-day 2 percent drop in the yuan, which is a move China has called a one-time event, will do much damage to exports from the United States or other countries.

"Two percent is no big deal," said Mark Zandi, chief economist at Moody's Analytics. "Ten percent over the next few months would be a big deal." Economists didn't see Beijing's move as an effort to reduce the yuan to an artificially low level. Rather, they perceived an attempt by China to catch up to an economic reality that dictates a cheaper yuan. And the plan to let market forces play a bigger role is something the U.S. government itself has called for...

[Nemo]

And they did it again this morning, for second day in a row.

Nemo

http://www.foxbusiness.com/markets/2015/08/12/us-stock-futures-slump-as-china-devalues-yuan-again

Yuan's Second Devaluation Sends Wall Street Tumbling
Victoria Craig

August 12, 2015, FOXBusiness,

Wall Street experienced another session of heavy losses after China devalued its currency for a second-straight day.

As of 9:30 a.m. ET, Dow Jones Industrial Average futures were 124 points lower, or 0.73% to 17278. S&P 500 futures slid 13 points, or 0.63% to 2070, while Nasdaq 100 futures lost 41 points, or 0.82% to 4995.

All 10 S&P 500 sectors were in negative territory, with telecommunications leading the way lower, dropping 1.49%.

Today's Markets

In a surprise, “one off” move Monday, China's central bank cut the yuan's value by 1.9%, and Tuesday brought a second devaluation, this time of 1.6%. That’s a four-year low for the currency, and its biggest two-day drop since 1994.

The move is largely seen as a way for the nation to help prop up its struggling economy after a string of weak data. On Monday, data showed China’s industrial output rose 6% last month, but came in short of expectations. Retail sales for the same month also grew at the slowest pace in 15 years.

Chris Beauchamp, senior market analyst at IG said in his view, it appears China has discovered a “love” for foreign exchange intervention.

“Once is an experiment, but twice makes it a trend. The specter of currency wars was worrying enough yesterday, but today it looks real enough to touch. A single move might have passed without reaction from China’s trading partners, but now it looks like a tit-for-tat move by others in the region is certain,” he forecasted in a note.

The move from the People's Bank of China ricocheted across global markets, sending equity prices sharply lower across the board.

Asia markets ended the session lower. The Shanghai Composite index was down 1.06%, while Hong Kong’s Hang Seng dropped 2.38%, and Japan’s Nikkei slid 1.58%.

Meanwhile, action in Europe followed suit. The Euro Stoxx 50, which tracks large-cap companies in the eurozone plunged 2.31%. The German Dax dropped 2.24%, while the French CAC 40 tumbled 2.39%, and UK’s the FTSE 100 fell 1.12%.

The U.S. dollar again rose against some major world currencies. Against the yuan, the greenback climbed 0.96% to 6.33. Meanwhile, the yield on the benchmark 10-year U.S. Treasury fell 0.030 of a percentage point to 2.111%

“The logical reaction from investors is to seek shelter in bonds, which is exactly what is happening now,” Beauchamp said. “What is also taking place is a rapid unwinding of the long dollar play that seemed to be the one sure thing for August.”

Global crude oil prices rose steadily on Tuesday after the International Energy Agency said global demand for the commodity thanks in part to lower prices and better economic growth. The agency added, though, that it sees the glut in supply persisting through next year. After settling out at the lowest level in more than six years on Monday, on Tuesday U.S. crude rose 1% to $43.52, while Brent, the international benchmark climbed 0.08% to $49.22.

Gold, largely seen as a safe-haven asset also saw gains, rising 0.90% to $1,115 a troy ounce. Copper also traded higher, up 0.62% to $2.35 a pound.

In corporate news, department-store chain Macy’s (M) delivered a 2.6% drop in second-quarter sales from a year ago, while earnings per share of 64 cents came in well below forecasts for 76 cents. The company also announced a joint venture with Alibaba to launch an online flagship store for Chinese shoppers in “late 2015.”

AT&T (T) released updated full-year guidance. The telecom company said it expects adjusted earnings per share in the range of $2.62 to $2.68 cents, with “double-digit” revenue growth thanks to its acquisition of DirecTV. The company also said it is now the largest pay-TV provider both in the U.S. and world with more than 26 million U.S. subscribers.

Alibaba (BABA) results were also out before the start of trading in the U.S. The Chinese e-commerce giant posted a 28% increase in revenue to $3.27 billion, but it came in under expectations for $3.39 billion. The company also unveiled a $4 billion share repurchase program.

Traders will get quarterly earnings score cards from News Corporation (NWSA) and Cisco Systems (CSCO) after the closing bell.

[JohnyMac]

Yupper Nemo.

The DJIA is down at this writing 200 points or 1.1% (1225 hrs ET). I think this makes the market down 9 days out of the past 10. Down 3.5% YTD.

I predicted in an earlier post on a similar subject that we would see a 20% correction (DJIA will hit ~14,500). My financial adviser thinks a 15% correction is in order. Some  hat folks think a 40% correction is eminent. 

[Nemo]

With nothing supporting the DJIA gains in the past 6 years other than quantitative easing, 40% is alot more reasonable than most think.

Nemo

[Nemo]

And

http://www.theblaze.com/stories/2015/08/13/why-some-economists-think-chinas-currency-devaluation-could-be-the-start-of-something-big-something-ugly/

Why Some Economists Think China’s Currency Devaluation Could Be the ‘Start of Something Big, Something Ugly’
Aug. 13, 2015 8:35am Liz Klimas   

BEIJING (TheBlaze/AP) – For the third day in a row, China’s currency continued to fall, but as its decline at least slowed, world stocks started to rebound. Still, that hasn’t necessarily quelled fears of it sparking a “currency war.”

China tried to ease fears of more big declines for the yuan as it on Thursday only fell 0.2 percent compared with drops of up to 1.9 percent on the previous days. It has dropped a total of 2.9 percent since Tuesday.

There is “no basis for persistent and substantial devaluation,” said a deputy central bank governor, Zhang Xiaohui, at a news conference. Zhang said the yuan is close to “market levels” after two days of sharp declines.
Chinese 100 Yuan notes are counted at a bank in Shanghai on April 11, 2008. China's central bank set the yuan at 6.992 against the USD, the first time the currency has broken through 7.000 since a peg with the US unit was scrapped nearly three years ago. This means the yuan has now risen about 18 percent against the USD since July 2005, when it was cut loose from a peg to the greenback. (MARK RALSTON/AFP/Getty Images)

Chinese 100 Yuan notes are counted at a bank in Shanghai on April 11, 2008. China’s central bank set the yuan at 6.992 against the USD, the first time the currency has broken through 7.000 since a peg with the US unit was scrapped nearly three years ago. This means the yuan has now risen about 18 percent against the USD since July 2005, when it was cut loose from a peg to the greenback. (MARK RALSTON/AFP/Getty Images)

The official reason for letting the tightly controlled yuan fall is to make it more responsive to market forces, but a weaker yuan also gives a competitive boost to exports from China, where the economy is slowing. Beijing said the yuan’s decline was a one-time event and part of changes aimed at making the currency more market-oriented.

Many economists said the decline was too small to help Chinese exports due to weak global demand. But the change fueled concern the yuan might fall further, giving Chinese traders a price advantage over foreign rivals and possibly igniting a “currency war” if other governments fight back by depressing their own exchange rates.

Economist Albert Edwards with the French bank Societe Generale had strong words along these lines.

“Make no mistake, this is the start of something big, something ugly,” Edwards told the Guardian, adding that he believes the devaluation could result in a “a tidal wave of deflation” across the world.

Here’s more from the Guardian on what this could mean:

    But today, with inflation already close to zero – indeed at zero in the UK – China’s decision to devalue could bring a fresh wave of price weakness to the west.

    Cheap goods are great news when economic demand is relatively strong; but economists fret about falling prices because entrenched deflation can prompt businesses and consumers to postpone spending – hoping prices have farther to fall – and blunt policymakers’ standard tool of interest rate cuts.

    Erik Britton, of City consultancy Fathom, said: “We’re all going to feel it: we’ll feel it through commodities; we’ll feel it through manufactured goods exports, not just from China but from everywhere that has to compete with it; and we’ll feel it through wages.”

Edwards added to the Guardian that he thinks the deflation could lead to an “outright recession.”

In the U.S., lawmakers condemned the devaluation as damaging for American businesses and workers, reviving an issue that was once one of the biggest sources of tension between the two world powers.

“When China doesn’t play by the rules it costs Pennsylvania jobs,” said Democratic Sen. Bob Casey, referring to the traditionally industrial state he represents.

Sen. Chuck Schumer (D-New York) chimed in as well, saying for years “China has rigged the rules and played games with its currency,” according to the Associated Press.

Nicholas Lardy, an expert on China’s economy at the Peterson Institute, countered that it was “preposterous” to suggest that China has suddenly taken the move to stoke growth in an economy that has been weakening for three years. He told the AP it would take at least a double-digit depreciation in currency value for it to have an impact on growth, and it would take six months or so to be felt, even if it dropped by that margin.

He said China’s move was primarily motivated by its desire to entering the basket of currencies used to set the value of the International Monetary Fund in-house currency, called Special Drawing Rights. The other currencies are the dollar, the euro, the yen and the British pound.

Lardy characterized the U.S. Treasury’s reaction to China’s depreciation as “modestly positive” as it waits to see how things evolve and make a definitive judgment. He said congressional criticism was inevitable.

“Some will continue to rail at China whatever happens. That’s been the history," he said.

[JohnyMac]

Here's a possibility (Not prediction) that may lead Trump to becoming President of the USofA in 2017.

Due to a whole host of things but China receiving most of the blame, the USofA goes into a deep recession (not that we ever really emerged from the 2008 one). The electorate will vote in a businessman who claims he is the best negotiator to turn the economy around - Right now that is Trump.

Take a minute to understand how Hitler became Chancellor of Germany in 1933. Especially focus on what he accomplished before his invasion of Poland in 1939. In short, he brought his nation out of the depression that faced the world in the early 30's before any other nation did.

Today do I try to draw a comparison between Trump and Hitler - No. Tomorrow maybe.

The trick to predicting the future is the past.