The last time this happened there was a wave of financial turmoil.
January 6 (King World News) – The Other Bomb In Asia – Headlines around the globe are crammed with allusions to North Korea’s claim to have tested a thermo-nuclear bomb. While no one doubts that a device was tested, most believe it was an atomic bomb rather than a hydrogen bomb. Many cite the North Korean claim as the trigger for the overnight plunge in equity markets and futures.
I think another event in Asia might have been more important to the selloff. That event is China’s purposeful weakening of its currency. Here a bit from Bloomberg:
Stocks fell around the world and commodities slid after China’s central bank set the yuan’s reference rate at an unexpectedly weak level, a reminder of the shock depreciation in August that sparked a wave of financial-market turmoil.
Emerging-market stocks dropped to a six-year low and developing-nation currencies declined versus the dollar, while shares in Europe resumed losses after closing higher on Tuesday. South Korea’s won fell after North Korea said it conducted its fourth nuclear test, while Brent crude reached its lowest level since 2004 before weekly U.S. government data forecast to show stockpiles rose. The yen reached its strongest level since October and Treasuries rose for a fifth session on demand for haven assets.
“China is for sure back in focus,” said Didier Duret, chief investment officer at ABN Amro NV’s wealth- management unit. “I’d say this is an echo of what happened in August maybe more than a replay. It’s making people nervous.”
A little later in the article:
The People’s Bank of China lowered its daily fixing by 0.22 percent to the weakest level since April 2011, raising the risk other nations will need to lower their exchange rates to remain competitive and pushing a gauge of emerging-market currencies to a record low.
We’ll need to see how other Asian nations respond.
Overnight And Overseas – Shanghai closed up, thanks, many believe, to government buying. Hong Kong was down as was Tokyo. South Korea shrugged off the bomb reports.
Gold, the yen and U.S. Treasuries are all stronger on a flight to safety play. Crude is lower and could possibly threaten $34.
U.S. futures are sharply lower and look for the Dow to open down, well over 200 points.
Consensus – If they open sharply lower, traders will look to see if we take out Monday’s lows (S&P 1989). Crude again will be critical. Fed Minutes will be pored over to sense internal dissent. Stay wary, alert and very, very nimble. ***To hear legendary Art Cashin’s take on the gold market and his stunning 2016 predictions CLICK HERE OR ON THE IMAGE BELOW.
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