This Morning’s Log Entry

8/6/19 Tuesday

In classic technical fashion — after yesterday’s drubbing — U.S. equity futures are rebounding in the premarket this morning. European equities are catching a nice bid as well.

The headlines read that the PBOC’s fixing a stronger overnight yuan eases the latest trade tensions, and, thus, has traders buying yesterday’s dip.

Unfortunately, any narrative that suggests that the PBOC’s action is meant to appease the U.S. or to provide some near-term assurance to global markets is erroneous: It is entirely in China’s best interest to keep the currency relatively buoyant; as a true devaluation would spark huge capital outflow from China; not to mention the number it would do on Chinese consumers and importers. Hence my comment yesterday that the notion that China is aggressively manipulating its currency lower couldn’t be any further from the truth – quite the opposite in fact: It’s taking great effort on the part of the PBOC, at this point, to keep it from devaluing.

Unfortunately – while anything’s possible – anything short of a tweet or announcement that Trump and Xi have agreed to an emergency meeting to mend the latest broken fences makes the odds of a near-term rebound morphing into something sustainable markedly low.


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