 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Monday's Headlines 1. Global Markets Routed as China Lowers Yuan 2. DJIA has Biggest Drop of 2019 3. How Currency Manipulation Works 4. Volatility is Back and its Mad Markets Closed
 Markets Today
First the numbers:
And some need-to-know terms:
U.S. investors woke up to a broad global sell-off this morning and news that the People's Bank of China had lowered or set the yuan's daily reference rate below seven per dollar for the first time in over a decade. The Chinese government has also asked its state-owned firms to suspend imports of U.S. agricultural products, according to multiple reports.
Read more: Global Markets Hit as China Devalues Yuan
The lowering of the yuan was China's response to a new round of tariffs to be imposed on $300 million worth of Chinese imports to the U.S. set to begin Sept. 1. Just last week, the U.S. Commerce Dept. reported that the U.S. China trade deficit widened as the two largest economies in the world drift further apart on a trade deal. U.S. exports to China are down 18.1% this year, while imports have fallen 12.2%.
President Trump, who has been accusing China of manipulating its currency for years to make its exports cheaper, immediately denounced the move and called on the U.S. Federal Reserve to take notice.  Why the Fed? Trump has targeted the Fed for not moving aggressively enough to lower interest rates. The Fed lowered interest rates by 0.25% last week, the first cut in over a decade. But Powell and the FOMC did not signal that this would be the beginning of a cycle of rate cuts as Trump and many investors were hoping. That, and the President's tweet that the U.S. would impose 10% tariffs on an additional $300 billion in Chinese imports on Sept. 1, sent U.S. markets to some of their worst losses of the year...until today.
China's response today threw more fuel on the fire as stock market losses increased throughout the afternoon. Industrial and tech stocks were sold off in a frenzy as investors piled into Treasury bonds and gold.
While Powell did not indicate further rate cuts ahead, options traders are pricing in a 100% chance of another rate cut when the Fed meets next in mid September. We keep our eyes on the CME's Fed Watch Tool to see what the options market is telling us about the Fed's future moves, and it is unanimous. 74% of traders think the Fed will cut by another 0.25%, while 26% predict a 0.50% cut.  Rate Cuts as Currency Manipulation? One could easily argue that interest rate cuts are a form of currency manipulation. They lower borrowing costs, effectively making money cheaper. Rate cuts combined with quantitative easing, or the buying up of Treasury bonds by the Federal Reserve, add liquidity to the market. Since the U.S. does not peg the dollar to other currencies or gold (anymore), monetary policy is one of the only ways to lower the value of the dollar. The problem is, it's not working.
Here's the U.S. dollar against the Chinese yuan year-to-date:  Behind China's Devaluation
To fully understand the context of China's move, you have to understand China's history of pegging the yuan to the U.S. dollar.
A cornerstone of China's economic policy is managing the yuan exchange rate to benefit its exports. China does not have a floating exchange rate that is determined by market forces, as is the case with most advanced economies. Instead it pegs its currency, the yuan (or renminbi), to the U.S. dollar. The yuan was pegged to the greenback at 8.28 to the dollar for more than a decade starting in 1994. It was only in July 2005, because of pressure from China's major trading partners, that the yuan was permitted to appreciate by 2.1% against the dollar, and was also moved to a "managed float" system against a basket of major currencies that included the U.S. dollar.
Over the next three years, the yuan was allowed to appreciate by about 21% to a level of 6.83 to the dollar. In July 2008, China halted the yuan's appreciation as worldwide demand for Chinese products slumped due to the global financial crisis. In June 2010, China resumed its policy of gradually moving the yuan up, and by Dec. 2013, the currency had cumulatively appreciated by about 12% to 6.11.
Read more: Why the Chinese Yuan is Pegged
On Aug. 11, 2015, the People's Bank of China (PBOC) surprised markets with three consecutive devaluations of the yuan renminbi or yuan (CNY), knocking over 3% off its value. Nearly four years later amid an intensifying trade war with the U.S., the PBOC lowered or set the yuan's daily reference rate below seven per dollar for the first time in over a decade. The seven to one ratio is not set in stone, but it has been somewhat of an agreed upon level between the two superpowers since President Trump took office in January of 2017. Since then, the U.S. and China have been in an intensifying trade war, and you know the rest.  What Happens Now? That's the $10 trillion question, but these things we know:
Here's the VIX or Volatility Index over the past month via Trading View: 
chart courtesy www.koyfin.com  Shares of Tyson Foods increased by just over 5% today after the multinational corporation announced that it's planning to begin selling plant-based nuggets as early as September. Abiomed's stock rose by almost 2% once the Centers for Medicare and Medicaid Services reported it's going to raise the reimbursement rate on one of the medical implant manufacturer's heart pumps.  Valero Energy suffered the biggest loss today, with its stock falling by almost 8%. Shares of Nectar Therapeutics decreased by over 7%, following more recent losses that have taken the stock down by 20%. The news on Nektar has been thin, which is never a good sign when the stock keeps falling.  The news out of China was not well received around the world. Word of the Day Competitive devaluation is a specific scenario in which one nation matches an abrupt national currency devaluation with another currency devaluation. In other words, one nation is matched by a currency devaluation of another. This occurs more frequently when both currencies have managed exchange-rate regimes rather than market-determined floating exchange rates.  image courtesy senate.gov Today in Financial History Aug. 5, 1861: Federal income tax is inflicted on the U.S. public for the first time, as the Revenue Act of 1861 becomes law, assessing a tax of 3% on all personal income in excess of $800 a year to help pay for the Civil War.
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