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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

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."

By Frank Ahrens  |  June 21, 2010; 4:16 PM ET
Categories:  The Ticker , Wall Street  
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Comments

While this trend is for the most part beneficial to our export sector, it does not come without a significant down side. I have not seen any mention of the effect that higher prices may have on our big retailers such as Wall Mart. In fact, Chinese goods permeate nearly everything that is sold here in the US. Revaluing the yuan upward against the dollar will create inflationary pressure, and dampen our domestic retail trade. It's hard to see whether the net effect will be good or bad, but I wouldn't just assume that it will be all good.

Posted by: capmbillie | June 21, 2010 11:30 AM | Report abuse

None of this matters because Obama and Gibbs told us the "day to day fluctuations of the stock market are irrelevant" ... remember that? Sure you do. Of course, the stock market was diving then in anticipation of this atrocity known as Obama-Care destroying whatever vestiges of hope was left for a free market. But, I digress. The Washington Post, et al., raced to splash Obama's disregard for the stock market all over its front page then, and we all suspect that your present race to trumpet a couple of good weeks (despite the administration's efforts to create exactly the opposite effect) is more, uh, shall we say, "polishing the bishop's staff". We all get it. You have no shame, Post. The emperor has no clothes. ; )

Posted by: Nimblerod | June 21, 2010 11:35 AM | Report abuse

None of this matters because Obama and Gibbs told us the "day to day fluctuations of the stock market are irrelevant" ... remember that? Sure you do. Of course, the stock market was diving then in anticipation of this atrocity known as Obama-Care destroying whatever vestiges of hope was left for a free market. But, I digress. The Washington Post, et al., raced to splash Obama's disregard for the stock market all over its front page then, and we all suspect that your present race to trumpet a couple of good weeks (despite the administration's efforts to create exactly the opposite effect) is more, uh, shall we say, "polishing the bishop's staff". We all get it. You have no shame, Post. The emperor has no clothes. ; )

--------
Another hysterical and incoherent screed from an Obamaphobe. Of course there's no mention in your rant of where the market was headed in 2008 and how much it's recovered since then.

Nimblerod - What benighted hamlet do you hail from? I'd like to know so I can avoid it in case it's the water.

Posted by: dldbug | June 21, 2010 11:45 AM | Report abuse

What a poor piece of news with obvious propaganda from China used to ease U.S. pressure on them truly free floating their currency. A quick Google will show you that the exchange rates in 2005 was around 8 yaun to 1 dollar, now it might go to 6.80 or 6.81 wooo-wooo! The real story is the propaganda by both U.S. investors and China NOT wanting the yaun to increase in value...The company I work for is terrified as we have built new plants in China and significantly increasing the yaun's value would start to affect Management's plans for low cost labor. The yaun Should Be at 12 or 18 going up a few tenths of a percentage point is nothing but meaningless propaganda.

Posted by: jamespsea | June 21, 2010 12:01 PM | Report abuse

What a poor piece of news with obvious propaganda from China used to ease U.S. pressure on them truly free floating their currency. A quick Google will show you that the exchange rates in 2005 was around 8 yaun to 1 dollar, now it might go to 6.80 or 6.81 wooo-wooo! The real story is the propaganda by both U.S. investors and China NOT wanting the yaun to increase in value...The company I work for is terrified as we have built new plants in China and significantly increasing the yaun's value would start to affect Management's plans for low cost labor. The yaun Should Be at 3 or 1 going up a few tenths of a percentage point is nothing but meaningless propaganda.

Posted by: jamespsea | June 21, 2010 12:10 PM | Report abuse

A rise in the value of the Yuan is in essence a tax increase on American consumers with the benefit going to China. Does Wall Street now rally on tax increases?

Posted by: slim2 | June 21, 2010 12:12 PM | Report abuse

jamespsea wrote:
...The yaun Should Be at 3 or 1 going up a few tenths of a percentage point is nothing but meaningless propaganda.
============================

Not that I disagree with the importance of a fair market, but where do you get your 3 to 1 ratio?

I have thought for years that the GOP was failing to bring China to bear for the trade imbalance, because the GOP leadership was making too much money off of the imbalance to look out for the voters in those manufacturing towns who need work.

I've always been amazed that the GOP faithful never seemed to understand that our own leadership was causing unemployment in the manufacturing sector in this country to be virtually eliminated.

Posted by: ProfessorWrightBSU | June 21, 2010 12:21 PM | Report abuse

Suggested headline:
"Stocks Rise Slightly as China Agrees to Manipulate its Currency Slighly Less"

Posted by: kls1 | June 21, 2010 12:24 PM | Report abuse

Dldbug wrote: Another hysterical and incoherent screed from an Obamaphobe.

You didn't really think that the US health insurance industry with 854 billion dollars in annual sales would just role over, did you? what other insurance sector is exempt for anti-trust regulations, or has a virtual monopoly by state? What other insurance industry can cherry pick its insured, deny claims, and cancel or rescind subscribers who become too expensive to carry?

No. What we are seeing is the effect of a multi-million dollar lobbying campaign to portray reform as socialistic and un-American. With that kind of PR money , you could convince people that the Pope is not really a Catholic.

Posted by: capmbillie | June 21, 2010 12:27 PM | Report abuse

"Another hysterical and incoherent screed from an Obamaphobe. Of course there's no mention in your rant of where the market was headed in 2008 and how much it's recovered since then.

Nimblerod - What benighted hamlet do you hail from? I'd like to know so I can avoid it in case it's the water."

-----------

The incredible naievete of this mindless Obama robot is breathtaking and sweeping in its scope.

Of course, there is no response whatsoever to the primary point that we are now suddenly supposed to believe that the stock market matters after a couple good weeks, when we were previously led to believe that the stock market didn't really represent anything significant or matter (when it was crashing).

Pigs do squeal when stuck, especially so when the stick has hit its mark so precisely. How's that "hope and change" working out for you? Gosh, things are so nice now that we've moved beyond the bitter politics of partisanship that this amateur promised he'd get rid of. Well, as Joe Biden said, at least he's "clean and articulate". Ahem.

This amateur is way in over his ears. Mount up, gentlemen, let's ride to November and return our country back to the people. With an approval rating hovering at 40 percent now and dropping like a rock in deep water, I say just get out of the way and let the boy talk. Just keep on talking. ; )

Posted by: Nimblerod | June 21, 2010 12:31 PM | Report abuse

"This amateur is way in over his ears. Mount up, gentlemen, let's ride to November and return our country back to the people. With an approval rating hovering at 40 percent now and dropping like a rock in deep water, I say just get out of the way and let the boy talk. Just keep on talking. ; )"

---
Hey, how did you guys fix that crystal ball? I'm refering to the one that said in October 2008 that there was no way that that "community organizer" would get elected POTUS.

BTW - How's that "Bradley effect" working out for you?


Posted by: dldbug | June 21, 2010 12:41 PM | Report abuse

The action on the Yuan looks at best like a one day wonder. Its value is still being managed and is not likely to change much. To the degree it is being changed, it is likely because, in the current environment, the dollar peg makes the Yuan stronger than desirable to the Chinese. Even as an excuse to reinforce a short term up trend, the stock market's response appears tepid. Togther with last week's market action, this response seems to be revealing stock market that is weak even when viewed as just trying to correct the excesses in May's downturn.
But, even though the Chinese action on the Yuan is likely to prove to be a non event, some level of sanity does seem to be creeping into US Chinese economic relations. We seem to have grasped the nonsense of the concept of "free" trade with the Chinese. I suspect there is also a growing realization on our part of the nonsense of the concept that we could have some long term economic relationship with the Chinese predicated on the idea that we would supply them with financial and other high value services while they did all of the real work. On the Chinese part, I suspect they have moved beyond the concept that they could manage their growth by targeting one part of our economy after another as a target for takeover. There is at least some realization on their part that they have to provide their workers with better wages and try to grow their economy internally. None of this progress is likely to resolve the imbalances in our trade. But, quite likely it will be enough to keep the problems relating to that trade in the background as we confront other more acute problems in the immediate future.

Posted by: dnjake | June 21, 2010 12:57 PM | Report abuse

Right now Renewable Energy Jobs account for 40% of all direct Energy Industry Jobs. At only 5% of Energy Generation, Renewable Energy employees over 40% of Energy Workers (over 770,000 direct Jobs compared to 1.27 million in Oil and Gas in 2007). Renewable Energy Industries are the only game in town for Doubling and Tripling employment in Energy generation and in creating Products we can export and sell to the World.

Place a Price ($30~$50/ton) on large scale Carbon Pollution. The market will create Energy Solutions to meet and beat that Price.

Every week Soldiers are coming home in Body Bags while shoppers flock to buy Chinese products which funds new Jobs and Industries in China. China is happy to keep subsidizing our debt so we can purchase products made in China and Create Jobs and Industries in China.

Clean Energy Technologies creates Jobs, Private Investment and Tax Revenue while Producing Products we can sell to the world. We Cannot Sell Multi-Billion 100% Taxpayer Funded Military Hardware but we can Sell Taxpayer and Private Industry Funded Wind, Solar, Torrefactioned Biomass, Stationary Fuel Cell, Nuclear, Hydro, Natural Gas, and Efficient Freight Rail Systems to meet Global Needs.

Posted by: liveride | June 21, 2010 1:06 PM | Report abuse

The three biggest lies in the world:

1) The check is in the mail.

2) My wife doesn't understand me.

3) China will stop manipulating it's currency.

Will all those who really believe China is going to follow through please post your name and home phone number? I have a couple of "gently" use bridges and some lovely swampland in Louisiana I can make you a heck of a deal on!

Posted by: Bushwhacked1 | June 21, 2010 1:08 PM | Report abuse

The Yuan should be appreciated to around 4 Yuan to 1 Dollar. This is closer to the Fair market value of the Yuan.

This means that a Chinese product that usually costs us $1 will cost us $1.60. A USA made product that cost the Chinese 100 Yuan would instead cost them roughly 60 Yuan. This will grow our USA made exports to China and level the Import/Export market.

Posted by: liveride | June 21, 2010 1:15 PM | Report abuse

How many economies peg to the dollar right now?

Why isn't and hasn't the US screaming for those to be unpegged?

This is less about doing right in the way of free trade, and more about helping the USA with what will be its largest trading partner.

This will not fix the US economy nor will it fix the balance of trade with China. Sure, it will tweak it and it does move towards fairer trade, however the real work needed by the US is not even being discussed: production. When is that going to happen?

Flag waving and harumphs doesn't cut it.

And the dollar is being helped by it continuing to be the "go to" currency. Let's say it continues to be that way. Does that mean we don't have debt problems just because its not affecting our currency? I say not. When will spending and debt be brought under control. It's being talked about right now, sure, but we also need action right now.

Flag waving and harumphs doesn't cut it.

America needs real action instead of more political monkey business.

Posted by: ArrestedAtPotomacElementaryMaryland | June 21, 2010 1:30 PM | Report abuse

There's one factor that's not being discussed here that would definitely impact our trade with China more than devaluing the yuan and that is the world price of oil. If the cost of a barrel of oil were to dramtically rise again, as in 2008, it would erase the cost benefit of keeping manufacturing off shore. No doubt a movement to high oil prices would be hard on the American way of life but definitely more so on the new prosperity of China. And I don't see any other way that the trade imbalance will be resolved.

BTW -That the blowout in the Gulf is not causing world oil prices to shoot upwards clearly shows that the excuses for the 2008 peak prices were indeed just that, excuses for speculators. But I digress.

Posted by: dldbug | June 21, 2010 1:51 PM | Report abuse

It is a sad day when American stocks are dependent on China. Investors are concerned about China’s economic policies that will devalue stocks to go down instead of up. Wall Street has become a political pawn by the Obama administration’s decisions on foreign economic policy and deference to financial and banking international community.

Read the Harrisburg - little brother - scenario compared to - big government - scenario resulting from insidious effects of the Democrat Obama administration since Federal stimulus spending; bailouts of “too big to fail”; deficit spending; mandated government health and cost of war in Afghanistan and borrow money from China.

American voters face unpleasant fixes: steep tax increases, severe layoffs and crippling service cuts, even bankruptcy.

Harrisburg has a $68 million bill coming due before year's end, an impossible sum that is larger than its annual budget. It's a predicament caused by extravagant borrowing and spending, and now there are only unpleasant fixes: steep tax increases, severe layoffs and crippling service cuts, even bankruptcy.

Vote Republican.

Posted by: klausdmk | June 21, 2010 2:11 PM | Report abuse

The Euro panic is echos from the many scary waves of it in 2008, set up by years of improper and lax regulation of the financial industry by the Bush administration. GOP'ers do not believe in regulation, the Bush team set out to prove that, and it blew up in their face. Greed is greed, and proper oversight is proper oversight.

Balkingpoints / www

Posted by: RField7 | June 21, 2010 2:41 PM | Report abuse

The S&P closed at 1115 on 12/31/09. Today it is 1112 and will probably go down a bit more before the day is over. it all happens in the last 30 minutes of the day.
Now what gains are we giving back? There were no gains in 2010.

Posted by: nychap44 | June 21, 2010 3:38 PM | Report abuse

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