China Revalues Yuan, at least sort of

China has finally announced a revaluation of the
Renminbi and no one should be terribly surprised.

My first responses to the news:

1. This is a very small change... only 2% and that is far, far
too little to have any major effect upon the imbalance of trade.
2. We are confused as to the "basket" that shall be used, and we
wonder why it is that China is revaluing its currency against the
dollar and then tossing the dollar out, only to replace it with a
basket whose value has not yet been set.
3. This is very bearish of US debt, for even though the change is
only 2% this will eliminate a good portion of the intervention efforts
the PBOC has been undertaking to hold the Renminbi steady and
thus reduces demand, at the margin, for that debt.
4. This is modestly bullish of most US equities for it will increase
(slightly) the demand for US produced goods, but this is very
bearish for Wal-Mart and others who buy low end goods from
China.
5. This is bullish for commodities generally for they have suddenly
become 3% cheaper for Chinese buyers, and it is likely
especially so for crude oil.