Yuan

Steep losses in the dollar, stocks and commodities, for sure, but does it really signal a systemic crisis? 

Shockwaves from China’s devaluation have conspired with sluggish global demand and an attendant commodities slump to wreak havoc on developing market currencies the world over. On the heels of Kazakhstan's dramatic move to float the tenge, here's which currencies are next in line to tumble.

One of the big problems with China's FX move is that although they've "only" seen a 3% currency fall (in the onshore Yuan) since their announcement last week, as Deutsche's Jim Reid explains... others have subsequently followed suit either deliberately or via market pressure. Emerging Market FX has been falling for 9 straight weeks but the last 2 have seen a dramatic escalation in the carnage...

"YTD investor performance has been plagued by “non-stop pain trades” as liquidity expectations weaken and investment horizons shorten. For example, July/August saw the S&P 500 media sector lose $100bn of market cap in 15 trading days, as well as significant losses in Asian and Emerging Market currencies following the Chinese yuan devaluation."

• No End in Sight for Oil Glut (WSJ)
• Dozens of Clinton emails were classified from the start, U.S. rules suggest (Reuters)
• China August Manufacturing Activity Hits Lowest Level Since 2009 (WSJ)
• German Manufacturing Strengthens as Economy Shifts Up a Gear (BBG)
• Israel responds to rocket attack with protest and air strikes (FT)
• ASX carnage: 2015 fast becoming a year to forget  (Canberra Times)
• Hong Kong Stocks Enter Bear Market After Falling From April Peak (BBG)

Perhaps the biggest surprise about the overnight Chinese stock rout is which followed the lowest manufacturing PMI since March 2009, is that it happened despite repeat sellside pleas for a PBOC RRR cut as soon as this weekend: usually that alone would have been sufficient to push the market back into the green, and it almost worked when in the afternoon session stocks rebounded after dropping as much as 4.7% below the "hard" floor of 3500, but then a second bout of selling just before the close took Chinese stocks right back to the lows with the Shanghai Composite closing at 3,507, down 4.3% on the day, having wiped out the entire 18% rebound from July 8 when the PBOC first threatened both sellers and shorters with arrest.

Hong Kong's Hang Seng index is now down over 21% from the highs, having fallen over 9% in the last week, and Taiwan's TAIEX is down over 20% from April highs, joining Chinese stocks, both joining Chinese stocks in official bear markets. Japanese markets are down over 6% in the last few days (which Amari simply brushes off, blaming the global selloff stemming from China), a JGB trading volumes slump to a record low. Tensions in Korea are not helping. With all eyes on China's flash PMI (though why we are not sure since PBOC is already full liquidity-tard with CNY350bn this week alone), The PBOC fixed Yuan at 6.3864, up from yesterday's biggest strengthening in 3 months to 6.3915 (the biggest 2 day strengthening since April), and margin debt fell for the 3rd day. Gold is surging in the Asia session, near $1160.

News That Matters...

If there’s anything Brazil certainly does not need, it’s more bad news. The country is, in many ways, a symbol of the great EM unwind and the situation is made immeasurably worse by political instability. The economic outlook - which was already bad enough between a harrowing bout of staglflaton and dual deficits on the fiscal and current accounts - just got a lot worse as unemployment spiked to 7.5%, well ahead of consensus and the worst in five years. How bad is it you ask? Bad enough that BofAML now says the "key" stat to focus on is the number of participants in recurring street protests. 

Amid the tightest range in stock market history, bearish sentiment toward stocks is rapidly worsening according to the options market. As Bloomberg reports, based on the number of puts trading compared with calls on single stocks, pessimism is higher now than any time since 2012 as "upside speculation has really fallen off a cliff." Contrarians may be rejoicing but without a QE-backing and central bank omnipotence in question, as one strategist noted, "perhaps these traders fear a greater correction coming down the pike."

Update: GREEK PM TO HAND IN RESIGNATION TO PRESIDENT LATER ON THURSDAY -GOVT OFFICIALS 

"Greek state broadcaster ERT is reporting that the embattled prime minister will announce the vote later today. The PM has been meeting with government officials this afternoon and could resign from office having called the vote. September 13 and 20 have been touted as possible dates."

Just one day after allowing the tenge to fall sharply in the interbank market and no longer able to take the pain from plunging crude prices, Kazakhstan moved to a free float for its currency overnight, causing the tenge to plunge by a quarter.

• Crude prices fall towards $40 on global glut (Reuters)
• China Central Bank Injects Most Funds Since February as Money Rates Increase (BBG)
• Divided Fed Puts Yellen on Hot Seat (Hilsenrath)
• So Long September: Bond Traders Defer Their Date With the Fed (BBG)
• More Foods Boast Non-GMO Labels—Even Those Without GMO Varieties (WSJ)
• UN to let Iran inspect alleged nuke work site (AP)
• IAEA says access to Iran's Parchin military site meets demands (Reuters)
• Time to End Quarterly Reports, Law Firm Says (WSJ)

Gold’s reaction to China’s devaluation was impressive. Sure, it came at a time when gold was oversold and due a bounce, but, even so, a rise from $1,080 an ounce to $1,125 is not to be sniffed at – particularly as it went in the face of what other metals were doing.