US equities are falling hard down 250 points in pre-market as European bourses follow Asia lower on further problems in the east.
China’s currency devaluation continues as Fx traders in Hong Kong take the yuan down much lower than the government peg to record lows.
This is the messy part of trying to get the renminbi accepted as a world currency, the open market is not always aligned with the sovereign on valuation. To put this in perspective 1 yuan is worth $0.15 and that’s the official value, in the one market it’s going for $0.12 or so. One Japanese yen is worth less than a tenth of a penny.
The second shoe to drop overnight was Japanese equities dropping on reports North Korea successfully tested a hydrogen bomb.
Markets are very susceptible to hard downward movements as basic economic fundamentals such as growth and liquidity are called into question as being adequate. Gun-shy investors don’t an anvil to come down on their heads to start a run toward the exit.
This afternoon the Fed releases its minutes from the infamous Dec. meeting when it announced it was raising interest rates by a quarter point. The Fed Funds rate is officially set at 0.25% – 0.5% as a result of the Fed’s actions. Yet in the market the Fed’s rate is trading at 0.15%, which says the street has little appetite for what the Fed is offering.
The disparity in the rates also suggests that while the Fed jawboned the hike it did not think it was the right time to pull the necessary liquidity out of the market to get the funds rate up to the desired level.
So the Fed pays the Wall St banks 0.5% or so on deposits, while not constricting overnight lending to the same banks and that’s why no savers are getting anything extra on their deposits.
Another example of the Wizard Yellen saying, “Do not look behind the curtain people, I am the great and powerful banker.”
Well we get more of that this afternoon.