If yesterday it was the turn of the upside stop hunting algos to crush anyone who was even modestly bearishly positioned in what ended up being the biggest short squeeze of 2015, then today it is the downside trailing stops that are about to be taken out in what remains the most vicious rangebound market in years, in the aftermath of the Chinese currency devaluation which weakened the CNY reference rate against the USD by the most on record, in what some have said was an attempt by China to spark its flailing SDR inclusion chances, but what was really a long overdue reaction by an exporter country having pegged to the strongest currency in the world in the past year. The CNH (offshore) which was open for trade when the decision was made, weakened 2.25% vs. the USD . This lead to strength in USD, which in turn pressured its counterparts with notable weakness seen in antipodeans given their trade ties to China. Emerging market currencies have also weakened as other central banks now face pressure to weaken their own currencies. The currency devaluation completely eclipsed China's July monetary financing data where the PBOC disclosed a far greater than expected surge in loans and M2, however upon subsequent inspection, most of this was due to commingling bank loan data with the market bailout. In any event, no matter how you spin China's currency devaluation, China's entry into the currency wars is now official, and as the following Bloomberg heatmap shows, the CNY is a sea of red against virtually all currencies (including gold which soared earlier today). There are a few amusing exceptions: Not every https://twitter.com/hashtag/currency?src=hash!function(d,s,id){var js,fjs=d.getElementsByTagName(s)[0],p=/^http:/.test(d.location)?'http':'https';if(!d.getElementById(id)){js=d.createElement(s);js.id=id;js.src=p+"://platform.twitter.com/widgets.js";fjs.parentNode.insertBefore(js,fjs);}}(document,"script","twitter-wjs"); in the world is rising against https://twitter.com/hashtag/China?src=hash!function(d,s,id){var js,fjs=d.getElementsByTagName(s)[0],p=/^http:/.test(d.location)?'http':'https';if(!d.getElementById(id)){js=d.createElement(s);js.id=id;js.src=p+"://platform.twitter.com/widgets.js";fjs.parentNode.insertBefore(js,fjs);}}(document,"script","twitter-wjs");'s yuan after its biggest devaluation in 2 decades.... pic.twitter.com/iZdhAtuG7u — Mark Barton (@markbartontv) https://twitter.com/markbartontv/status/631039865208074240!function(d,s,id){var js,fjs=d.getElementsByTagName(s)[0],p=/^http:/.test(d.location)?'http':'https';if(!d.getElementById(id)){js=d.createElement(s);js.id=id;js.src=p+"://platform.twitter.com/widgets.js";fjs.parentNode.insertBefore(js,fjs);}}(document,"script","twitter-wjs"); Elsewhere, Asian equities traded mixed following the gains seen in EU and US counterparts. China was in focus as the Hang Seng (-0.1 %) rallied after the PBoC conducted further stimulus measures through weakening the CNY reference rate by 1.9% in response to the recent soft trade figures. ASX 200 (-0.7%) was underpinned by a bout of soft earnings, while the Nikkei 225 (-0.4%) paired gains having met resistance at the 18% year high of 20,952 coupled with initial JPY strength consequently weighing on exporters. Over in Europe stocks (Euro Stoxx: -1.0%) trade lower following the concerns over Chinese growth prospects with underperforming sectors including auto-names such as BMW (-3.8%), VW (-3.0%) and Daimler (-4.1 %) with today's news also coupled with disappointing Chinese vehicle sales data. Elsewhere, markets have generally shrugged off news that a deal has been preliminarily agreed between Greece and their creditors , however the Athens Stock Exchange (1.8%) has been bolstered by the news. In the US, E-mini futures were down about 13 points lower as of this moment, and are back to yesterday's market open level. In other FX crosses, after going through the European cash equity open, EUR ebbed higher with EUR/JPY printing a 2-month high underpinned by some desks noting a reversal of a substantial EUR/CNY short carry trade and news that Greece and creditors have reached a deal on a third bailout. This EUR strength then saw USD-index give back some of its overnight gains and briefly slip back into negative territory (USD-Index: 0.0%).However, the notable tier 1 data of the morning saw EUR come off its highs as German ZER survey expectations came in at the lower end of expectations (25.0 vs. Exp. 31.9). In the bond market, T-Notes trade higher by around 15 ticks due to the following reasons: firstly, the PBoC has acted to weaken their currency in an attempt to remain competitive amid falling exports and this has therefore been interpreted by some as an admission of global growth concerns. Secondly, in practicality, the PBoC will have to buy USTs in order to weaken their currency. The weaker CNY will in turn could lead to an overall stronger USD, which may influence the Fed's plans for future rate hikes. Finally, a quick look at commodities reveals that gold resides in positive territory after tripping stops through yesterday's highs to trade at its highest level for 3 weeks , while Dalian iron ore also saw strength overnight, benefitting from the measures by the PBoC. Elsewhere, overnight aluminium traded near 6 year lows during Asia-Pacific hours amid the initialy USD strength. WTI and Brent crude futures both saw mild weakness overnight after prices rose by the most in 2-months yesterday ahead of today's API crude oil inventory report (Prey. -2400k). Looking at today's US calendar, we get the NFIB small business optimism survey due along with Q2 readings for nonfarm productivity and unit labour costs and finally the June wholesale inventories and trade sales readings. The biggest topic will surely be the PBOC devaluation and confirmation of a global growth slowdown, and just how the Fed will respond and/or retaliate to this latest entrant in the currency wars. In summary: European shares fall with the autos and personal & household sectors underperforming and oil & gas, tech outperforming. China devalues yuan by most in two decades. Chinese car sales fell for a second month. Greece deal reached on bailout after all-night talks in Athens. The French and German markets are the worst-performing larger bourses, the Italian the best. The euro is stronger against the dollar. Greek 10yr bond yields fall; Japanese yields decline. Commodities gain, with nickel, zinc underperforming and Brent crude outperforming. U.S. wholesale inventories, small business optimism, nonfarm productivity, unit labor costs due later. Market Wrap S&P 500 futures down 0.6% to 2087 Stoxx 600 down 0.5% to 397.8 US 10Yr yield down 6bps to 2.17% German 10Yr yield down 2bps to 0.68% MSCI Asia Pacific down 0.8% to 140.3 Gold spot up 0.8% to $1113.5/ozEurostoxx 50 -0.5%, FTSE 100 -0.4%, CAC 40 -0.6%, DAX -0.6%, IBEX -0.2%, FTSEMIB -0.2%, SMI -0.3% Asian stocks fall with the Shanghai Composite outperforming and the Kospi underperforming; MSCI Asia Pacific down 0.8% to 140.3 Nikkei 225 down 0.4%, Hang Seng down 0.1%, Kospi down 0.8%, Shanghai Composite little changed, ASX down 0.7%, Sensex down 0.5% Euro up 0.19% to $1.104 Dollar Index down 0.08% to 97.08 Italian 10Yr yield down 4bps to 1.79% Spanish 10Yr yield down 4bps to 1.93% French 10Yr yield down 3bps to 0.97% S&P GSCI Index up 0.3% to 376.2 Brent Futures up 1% to $50.9/bbl, WTI Futures up 0.5% to $45.2/bbl LME 3m Copper down 1.1% to $5252/MT LME 3m Nickel down 1.9% to $10940/MT Wheat futures down 0.4% to 523.5 USd/bu Bulletin Headline Summary from RanSquawk and Bloomberg The main event driving price action today has been the decision by the PBoC to weaken the CNY reference rate vs. the USD by the most on record Elsewhere, markets have generally shrugged off news that a deal has been preliminarily agreed between Greece and their creditors Today's highlights include US Wholesale Inventories and API crude oil inventories as well as a USD 24b1n 3yr note auction Treasury yields drop overnight, led by the long-end, after China devalued the yuan by 1.9%, the most in two decades; this week’s U.S. Treasury auctions begin today with $24b 3Y, WI 1.065% vs. 0.932% in July. China’s currency move rippled through global markets as its policy makers step up efforts to support exporters and boost the role of market pricing in Asia’s largest economy Treasuries rose as China’s devaluation of the yuan stoked speculation a slowdown in Asian economies may prompt the Federal Reserve to delay raising interest rates David Miles said there was a “reasonable” argument for the Bank of England to raise interest rates at its meeting last week in order to avoid faster tightening in future Fixed-income strategists are under growing pressure to do something they’ve never really had to do before: bring in money as investment houses struggle to make research of all kinds pay for itself Greece reached an accord with creditors on the terms of a third bailout, paving the way for national parliaments to vote on the deal before an Aug. 20 payment falls due to the ECB Alan Greenspan has a warning for bond investors as the U.S. central bank prepares to raise its benchmark interest rate from close to zero. “We have a pending bond market bubble,” he said on Bloomberg Television yesterday $13.5b IG and $1.1b HY priced yesterday. BofAML Corporate Master Index OAS widens +1 to new YTD wide 161; YTD low 129. High Yield Master II OAS -1 to 551, new YTD wide 549; YTD low 438 Sovereign 10Y bond yields lower, led by Greece. Asian, European stocks drop, U.S. equity-index futures lower. Crude oil, cooper drop, gold rises US Event Calendar 6:00am: NFIB Small Business Optimism, July, est. 95.4 (prior 94.1) 8:30am: Non-farm Productivity, 2Q P, est. 1.6% (prior -3.1%) Unit Labor Costs, 2Q P, est. 0.0% (prior 6.7%) 10:00am: Wholesale Inventories, June, est. 0.4% (prior 0.8%) Wholesale Sales, June, est. 0.5% (prior 0.3%) DB's Jim Reid completes the overnight recap It was a commodity market led rebound yesterday that finally saw the Dow (+1.39%) end its run of seven straight daily declines and its longest losing streak since 2011, finishing in positive territory for the first time this month. The S&P 500 (+1.28%) was up a similar amount as rumblings in the M&A space also helped fuel a positive start to the week for risk assets. In the commodity space it was Oil in particular which led the gains as WTI (+2.48%) and Brent (+3.70%) closed up, the latter surging the most in more than two months on the back of record China crude import data, helping the complex to rally through the afternoon. With data-flow relatively light, Fedspeak garnered much of the attention after we heard from Lockhart and Fischer yesterday. Before we touch on that however, it’s straight to China where the breaking news this morning is that the PBoC has taken the step to devalue the Yuan, cutting the currency’s reference rate set this morning by a record 1.9% and in turn allowing the currency to depreciate following the recent run of poor data in a bid to stimulate a stuttering economy. The fixing is said to be a one-off adjustment, however a statement released from a PBoC spokesman has said that the market will play a bigger role in setting the currency rate (using a combination of the opening market makers quotes and the previous day’s close). Putting the size of the cut in perspective, the previous biggest move this year was 0.16%. We’d highlighted a while back following initiatives aimed at boosting exports that questions may be asked around China soft-entering into some form of global currency war. Well this latest move will only go further in boosting that argument following this significant shift in policy. Looking at the market reaction, the Yuan has sold off 1.83% versus the USD as we go to print following the move (the biggest daily slide since 1994) after briefly touching its 2% limit. The move has had ramifications across FX markets with the Aussie Dollar (-1.07%), NZ Dollar (-0.98%), Korean Won (-1.03%) and Taiwanese Dollar (-1.40%) all plummeting. The Dollar index (+0.3%) has bounced on the news while 10y Treasury yields (-3.2bps) have benefited from a decent bid this morning. Chinese equity markets appear to be more uncertain over how to react. As we head into the midday break, the Shanghai Comp (-0.40%) has fallen while the Shenzhen (+0.25%) is slightly up, although the former has crossed between gains and losses 10 times already this morning. Mixed data in China has only muddled the picture with soft aggregate financing data for July (Rmb718bn vs. Rmb1tn expected) but better than expected new yuan loans data (Rmb1.48tn vs. Rmb750bn expected). Elsewhere, the Hang Seng (+0.96%) has received a boost while the Nikkei (-0.65%) and ASX (-0.59%) have both declined. WTI has tumbled 0.56% while precious metals have dropped half a percent. Back to yesterday. In light of his comments last week which resulted in material moves across the bond market in particular, much of the focus was on the Atlanta Fed President Lockhart. Yesterday was largely a reaffirmation of his view however, saying that ‘I think the point of liftoff is close’ and telling the audience that he is ‘very disposed’ to a rate hike in September. Lockhart also added that his ‘most important message’ was that rate increases will follow a gradual path after liftoff. The Fed official saw Friday’s payrolls report as ‘satisfactory’ although continued to acknowledge that ‘downward pressures on the rate of inflation are not yet behind us’. This was a theme consistent with the rhetoric out of the Fed Vice-Chair Fischer yesterday. Giving little away on the whole, Fischer noted that the US economy is nearing full employment but inflation is ‘very low’ as a result of the temporary impact of the recent slump in commodity prices. In perhaps hinting at a slightly more dovish stance than his colleague, Fischer added that ‘the concern about this situation is not to move on before we see inflation, as well as employment, returning to more normal levels’. The surge in Oil prices along with yesterday’s Fedspeak helped support a reasonable bear steepening across the US Treasury curve yesterday. 2y yields closed up 0.4bps at 0.723% yesterday, with the 10y (+6.5bps) and 30y (+7.7bps) part of the curve leading the move higher and closing at 2.228% and 2.896% respectively - in turn wiping out the bulk of Friday’s move lower. Across the Fed Funds contracts, the Dec15 contract finished unchanged at 0.340% while Dec16 (+0.5bps) and Dec17 (+0.5bps) contracts saw a slight nudge up to 1.045% and 1.650% respectively. The probability of a September move, meanwhile, was unchanged at 54%. Elsewhere, as well as a better day for Oil, Gold (+0.95%), Aluminum (+1.86%) and Copper (+2.63%) were some of the highlights for a broadly stronger day across the commodity space which saw the Bloomberg commodity index have its biggest gain since February after rising 2.4%. This, combined with the stronger showing in Chinese equity markets yesterday saw the Dollar come under some pressure with the broader Dollar index closing down 0.41%, slipping for a third day in its longest losing streak in two months. Elsewhere yesterday, M&A activity was also supportive of the better sentiment in markets, particularly the news that Berkshire Hathaway has agreed to buy Precision Castparts in a $37bn deal which saw the share price for the latter bounce 19% and lead all stocks in the S&P 500. Appetite for M&A deals has been particularly supportive of late and has been seemingly ramping up as the year moves on with Reuters reporting that July alone was the seventh strongest month for global deal activity since 1980. The same wire is reporting that it was no less busy for primary credit markets in the US either with yesterday the second busiest day this year by number of deals raised in IG after 12 deals raised $14bn. The earnings calendar was quiet meanwhile with just 6 of the S&P 500 reporting with Kraft Heinz in particular declining in post-market trading after disappointing analysts in its latest report. At the latest count, with 450 S&P 500 companies now having reported, sales beats are unchanged at 49% while earnings beats have ticked back up to 74% (from 71%). It was a better day closer to home yesterday for risk assets also with gains for the Stoxx 600 (+0.69%), DAX (+0.99%) and CAC (+0.79%) while in credit markets Crossover closed 9bps tighter. The data calendar was quiet with just slightly softer than expected French business sentiment (98 vs. 99 expected) and Euro area investor sentiment readings (18.4 vs. 20.3 expected). 10y Bund yields largely mirrored the moves seen across the pond, closing 3.7bps higher at 0.696% while yields in the periphery ended 1-4bps lower. Greek equities (+2.06%) rose again as optimism continues to build that the final touches to a deal being signed with the Creditors are just around the corner. That optimism appears to continue to be driven by the Greece camp with Ekathimerini reporting that German officials yesterday continued to stress its wish for ‘quality before speed’ with regards to the conclusion of an agreement and that Germany is setting out ‘strict’ conditions for further aid with suggestions that it would be sensible to link the size of the first payment tranche to the extent of the reforms implemented. voting to keep rates on hold last week, said that there was a ‘reasonable’ case to be made for the Bank to raise rates last week, cautioning that ‘the longer you leave it, the slightly more steep that trajectory becomes’. Suggesting that the decision wasn’t an easy one, Miles also said that, in reference to his decision last week ‘sterling had gone up a bit, oil prices had fallen a bit, there were somewhat ambiguous signals from the labour market, but on balance it was a set of economic news that probably reduced at least the near-term inflation profile by a non-trivial amount’ and that ‘for me that was what made the decision ultimately to keep policy on hold’ but that ‘it wasn’t a compelling clear-cut case one way or the other for me’. Taking a look at today’s calendar now, this morning’s highlight in the European session is set to be the release of the August ZEW survey out of Germany. It’s a busier session over in the US this afternoon, with the NFIB small business optimism survey due along with Q2 readings for nonfarm productivity and unit labour costs and finally the June wholesale inventories and trade sales readings.