Everything in dollar-denomination yesterday was lifted by the usual M&A debasement and quite sour data from China. The latter was taken as if there would be renewed “stimulus” in the near term. The “dollar” took a break from its recent destructive nature, as commodities rebounded as did currency proxies and even gold. Stocks in the US and elsewhere jumped and treasuries fell (in price). It was a “good” day.

Then China actually undertakes what these same commenters are saying is “stimulus” but the entire script has been flipped. Stocks are down, treasuries are not just up (in price) but way up, currency proxies are getting hammered again and commodities have more than round-tripped from yesterday. As noted earlier, the actions by the PBOC are not “stimulus” or even devaluation, but at first notice a very hard financial break. Markets seem to be bearing that out – in a wholesale world, look wholesale eurodollar first.

Copper prices, particularly for September 2015 delivery, have traded down as low as $2.3135, which would be a new cycle low by far. Crude oil is much more “mobile” in the front end, which is, again, the hallmark of the “dollar” more than anything. After yesterday’s rebound, the curve today is steeper on that financial feature with more volatility (downward) at the front/”dollar” end.

ABOOK Aug 2015 China Yuan WTI

And eurodollar futures are being heavily, heavily bid all down the curve. Such flattening has been consistent with the “dollar” ruining far and wide. It doesn’t sound like much, but 10-12 bps moves are quite atypical especially in the context for how much “money” is involved (liquid depth) at those maturities.

ABOOK Aug 2015 China Yuan Eurodollar

If the yuan is “stimulus” it is sure acting the opposite of yesterday’s hopes for it. Maybe the eurodollar market was more eager for something different from what the PBOC actually delivered, but given the way the yuan has been framed today you would think that China has acted in exactly what was expected yesterday. Instead, I think trading today, so far, seems to confirm that the PBOC simply broke and couldn’t sustain whatever it was doing to try to stabilize China’s precarious financing situation.

You can certainly understand trading today if that is the case. The yuan’s move is thus not “stimulus” but rather admitting that the “dollar” problem is more than even the vaunted PBOC can handle; they stuck it out for almost five months (perhaps commendable in the attempt) and gained less than nothing in the end. And there is that little matter of the confirming global recession (China at the center of the global supply chain) in the data to go along with all of that.