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Chinese Devaluation Spooks Markets

American Equities fell for the second time this week and the dollar lost ground against the euro and the yen as a Chinese devaluation of the Yuan sparked fears that world economic growth will be further undermined by the slowdown on the mainland. 

The Dow lost 1.47 percent, 252.15 poinst, to end at 16,906.51, its lowest close since October 6th. The S&P 500 shed 1.31 percent and the NASDAQ 1.14 percent, following the lead of stocks around the world.

In Japan the Nikkei dropped 0.99 percent and in Hong Kong the Hang Seng fell 0.98 percent.

European bourses were uniformly negative with the FTSE 100 losing 1.04 percent, the German Dax 0.93 percent and the CAC 40 1.26%. 

Ironically the only major exchanges posting gains were in China with the Shanghai Composite rising 2.25 percent and the Shenzhen Composite gaining 2.61 percent.  Chinese state funds had intervened in the market on Tuesday, buying equities, following Monday's 7 percent collapse and the China Regulatory Commission said that a selling ban on major investors will remain beyond this week's January 8th expiration date. 

The euro gained a modest 33 points on the day closing at 1.0748, reversing about half of yesterday's safe haven losses. The Dollar Yen was essentially unchanged at 118.60 from its open at 118.47. On Tuesday, the Yen had been the recipient of safety flows which propelled the Japanese currency to 118.47 to the dollar from 119.06. 

Crude oil lost heavily despite the weaker dollar. West Texas Intermediate sank 6.01 percent from $36.18 to $33.97. It was the lowest close in more than six years and the second lowest ending price since February 2004. On December 12, 2009 WTI closed at $33.87.

The Chinese Yuan closed at 6.5559 to the dollar, its weakest since March 2011. It has now lost more than 60 percent of the appreciation that it has added from June 2010 until January 2014. 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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