Early yuan euphoria fades as stocks close in the red
UPDATED at 4:16 p.m.:
The yuan fever lasted until about noon then started tapering off and taking stocks with it. After a promising opening, stocks headed down steadily throughout the day and closed in the red.
The Dow closed down .08 percent at 10,442.41. The Dow is now up 3 percent for June and .14 percent for the year.
The broader S&P 500 closed down .4 percent at 1,113.20.
The tech-heavy Nasdaq, which is having its worst quarter since 2008, closed down .9 percent at 2,289.09.
Oil closed up half of 1 percent at just over $77.50 per barrel.
China's announcement over the weekend that it would allow its yuan to float against the dollar enthused traders in Europe all day long and in the U.S. during the morning. But the instant effects of what will be a slow currency revaluation seemed to kick in in afternoon trading, leading to a sell-off.
Stocks give up opening gains
12:35 p.m.: Stocks have given up some of their opening gains but remain in the green, boosted by China's announcement that it would stop artificially holding down the price of it yuan against the dollar.
In mid-day trading, the Dow is up .6 percent.
The broader S&P 500 is up .5 percent.
The tech-heavy Nasdaq is up .1 percent.
The European markets closed in the green about an hour ago, with London's FTSE, Germany's DAX and France's CAC 40 all closing up at or more than 1 percent.
China boosts stocks at opening
10:30 a.m.: Once again, China is driving the world economy, today driving up U.S. stocks at opening after weekend news that the giant Asian nation will stop artificially holding down the price of its yuan against the dollar.
In the first hour of trading, the Dow is up 1 percent.
The broader S&P 500 is up 0.9 percent.
The tech-heavy Nasdaq is up 0.8 percent.
The yuan vs. the dollar has been a problem for a long, long time. China has kept the value of its currency low to boost its exports, and it's worked. But it's also worked to keep out imports, because compared with the dollar, the yuan was so cheap. This has been an issue from nearly Day One of the Obama administration. Remember Treasury Secretary Tim Geithner complaining to Congress of China's "currency manipulation" as early as January 2009, which offended the Chinese to no end and touched off fears of a mini-trade war.
If the yuan gets closer in value to the dollar, U.S. exporters will be able to sell their products at a more affordable price in China, which is a massive market for imports and is hungry for U.S. products. (See: the success of GM's Buick in China.)
In response to the news, the yuan has risen today to its highest level against the dollar.
Though this is good news for the U.S. and other Chinese trading partners, it won't come all at once. The yuan-to-dollar adjustment will come over time, writes Miller Tabak equity strategist Peter Boockvar: "Bottom line, today's move is more symbolic than anything because the revaluation of the yuan will be very gradual and not one off but it is a very important step in China's maturation and global economic relevance."
At the same time, Boockvar writes:
"China's decision to gradually abandon their hard peg to the U.S. dollar takes us back to pre-July 2008 when it more freely floated. Yes, this comes right before the G20 meeting and with growing international pressure, particularly from the U.S. Congress, but China understands that the move is in their best long term interests in terms of growing the purchasing power of their citizenry, tempering inflation pressures and slowing the incredible trade imbalances that has seen their foreign-exchange reserves grow to $2.4 trillion, about 70% of which is in U.S. dollars. For China's growing stature in the world this is great news, although short term difficult for low margin Chinese manufacturers."
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