Yesterday when summarizing the Fed’s action we said that in its latest dovish announcement which has sent the USD to a five month low, the Fed clearly sided with China which desperately wants a weaker dollar to which it is pegged (reflected promptly in the Yuan’s stronger fixing overnight) at the expense of Europe and Japan, both of which want the USD much stronger.

ECB, BOJ don’t want a weak dollar; China does not want a strong dollar
Fed sides with China for now

— zerohedge (@zerohedge) March 16, 2016

This morning the global markets got a rude reminder that at the end of the day it is all about currency devaluation and competitive debasement – even if it means appeasing China in the process – when the plunge in the dollar, much to Goldman’s ongoing embarrassment, extended overnight as seen in the chart below.

This has led the USD/JPY slide to just over 111 while the EUR/USD was surging over 1.13 as of this moment, and in the process undoing all the recent easing by both the ECB and the ECB; furthermore an expected 25 bps rate cut by the Norway Central Bank, not only did not weaken the NOK but in fact sent it surging against the EUR, indicating that even when central bank decisions are fully priced in, few can actually trade the reaction and the implication of such moves.

Worse, after briefly spiking in the aftermath of the Fed’s decision overnight European sovereign and US Treasury yields have tumbled, commodities and especially gold have soared, and as of moments ago, European stocks hit their lows on the day now that the European currency is surging, leading to this:

And since these are all the telltale signs of yet another Fed policy error, it was only a matter of time before the move also hit the Fed’s favorite asset class – equities, and sure enough, after posting modest gains overnight, US index futures have seen a sharp reversal lower, and from up 0.3% were down -0.3% at last check, as suddenly the market appears to be getting cold feet not only about the Fed’s decision to slam the Dollar at the expense of the Euro and the Yen, but also going back to that all important question which Yellen was unable to answer: has the Fed lost its credibility?

While risk assets are suddenly air pocketing, dollar-denominated oil, copper and zinc all jumped by more than 2 percent, with Brent trading above $40 a barrel, which means we can expect a rewriting of the narrative that higher gas prices are actually good for consumers, even if it also means that marginal shale production is likely to start coming back on line any moment.

And the cherry on top may have come when moments ago industrial bellwether Caterpillar slashed guidance, and now expects non-GAAP Q1 EPS of $0.65-$0.70 per share, about 25% below consensus estimates of 95 cents.

All of the above, this had led to sudden repricing of risk, which has seen equity futures stumble, and the ES is now down 10 points to 2,007, roughly where it was when the Fed unveiled its dovish surprise. Was that it for the Fed’s intervention half life? We don’t know, but we expect much confusion today over whether even the Fed has now run out of dovish ammunition.

This is where we stand currently

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