Cracking Seven

Seven
That's the time we leave
At seven
--Doris Day

Interesting developments late yesterday and overnight demonstrate the bipolar nature of this tape. In response to the Trump administration's pronouncements of additional tariffs on Chinese goods, China began intervening in currency markets to significantly weaken the yuan vs the dollar. Yesterday the yuan/USD cross rate significantly exceeded the psychologically important 7.0 level for the first time in years.

China also announced that it would stop buying US agricultural goods and that additional bans would be pending.

Consequently, Treasury Secretary Steve Mnuchin declared that China was a currency manipulator. Big deal, you might say. Just more political name calling. Not only have members of previous administrations muttered similar allegations, but the fact is that all countries seek to manipulate the values of their currencies in their sovereign interests.

Well, the big deal is the degree of formality this time around. It turns out that countries can be brought up on currency manipulation charges before the international community--a prospect that I find laughable given the monetary policy activism in motion worldwide.

Nevertheless, the specter of massive Chinese blowback in response to these charges sent US futes reeling last night. Following yesterday's 3% down day, Dow futures quickly lost 500 more pts overnight post the Treasury secretary's comments.

Subsequently, however, representatives of the People's Bank of China put a soothing spin on its currency intervention, suggesting that what has become known as 'Cracking Seven' should not be viewed as a political statement and is unlikely to mark the start of a larger depreciation campaign.

That's all US markets needed to hear. Quickly ditching their fears, futes quickly reversed and this morning's open ushered in a 1% upside pop.

Not sure this gap higher is what the bulls really needed. But for now, Cracking Seven has been deemed less daunting.