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Stocks rallied today on signs that the People’s Bank intends to deliver an orderly drop in China’s currency. This morning the yuan traded slightly above the critical 7 yuan to the dollar currency band. And the bank said it will sell $4.2 billion in yuan bills in Hong Kong on August 14. A debt sale by the People’s Bank removes liquidity from the offshore yuan market making it more expensive for traders and speculators to short the currency.

As of 2 p.m. New York time many parts of the U.S. market had recovered about one-third of yesterday’s plunge. The Standard & Poor’s 50, down 2.98% on Monday, was up 0.93% today. The Dow Jones Industrial Average, lower by 2.90 yesterday, was up 0.76% today.

The bounce to the upside might have been stronger except that Treasury Secretary Steven Mnuchin named China a currency manipulator, following up on a Tweet to that effect from President Donald Trump.

The practical effect of that call out is relatively small–the United States can now go to the International Monetary Fund for help in fixing the problem. Even in a best case scenario it’s not clear that the IMF would do much of anything, but its reaction is likely to be especially muted because by the accepted international definition China isn’t currently manipulating its currency.  Yesterday’s drop showed no signs of the People’s Bank intervening in the markets by selling yuan or buying dollars and instead was most likely a market reaction to the news that the United States would impose tariffs on an additional $300 billion in Chinese exports. The currency market action looks like the People’s Bank, which had been defending the 7 yuan to the dollar level simply stepped out of the way and let the market drive the yuan lower.

The effect on market sentiment of branding China a currency manipulator, however, is another matter. Traders and investors see it as a sign that the Trump administration will impose additional burdens on Chinese exports–maybe raising those 10% tariffs to 25% or selling advanced fighters to Taiwan or putting new restrictions on China’s Huawei telecom equipment giant. And that Washington has no interest in bringing the U.S.-China trade war to a resolution ahead of the 2020 elections.

It also strikes those same traders and investors as a conscious provocation designed to encourage China to retaliate again. Perhaps, the thought goes today, the next step would be for China to impose duties on U.S. oil and for the country to step up its buying of oil from Iran. China already buys some oil from that country in the face of U.S. sanctions but it is  buying less than it did before the U.S. decided to reimpose sanctions after pulling out of the Iran nuclear deal. China could increase its purchases of Iranian oil, in effect increasing the amount of oil for sale on the global market, to an extent that could push oil prices down $20 to $30 a barrel in concert with slowing global economic growth, Wall Street is speculating today.

As a sign that Wall Street doesn’t expect the U.S.-China trade war to end soon, Bank of America lowered its year-end forecast for the yuan to 7.3 to the dollar from 6.63. Citigroup projects that the yuan could fall to 7.5 to the dollar on higher tensions. Yesterday I noted that forecasts had moved to 7.4 yuan to the dollar by yearend in the immediate aftermath of higher tariffs and a test of the 7 yuan to the dollar level.

It looks like those forecasts continue to fall today.