In the aftermath of the US shockingly designating China a currency manipulator - for the first time in over 25 years - there was a tense period of several hours in which it appeared that all bets were off, and that with both the US and China seemingly going full tilt, China would fix the Yuan not only far weaker than its Monday rate, but also weaker than expected according to an imputation of the country's currency basket, which was 6.9736, well below the previous fixing of 6.9225, the first fixing below 6.90 in 2019 and the catalyst for the overnight plunge in risk assets. Heck, some even speculated that Beijing may fix the Yuan below 7.00 vs the USD, if not launch a couple of nukes at the US for good measure.

It wasn't meant to be though: shortly after 9pm EST, the PBOC lifted the kimono so to speak... and the market collectively exhaled when China revealed that while it had indeed fixed the onshore yuan weaker than Monday, it did so stronger relative to both the 7.00 proverbial line in the sand, and which would have been a retaliatory declaration of outright currency war, but also relative to the expected fixing, with the number coming at 6.9683.

In kneejerk reaction, a wave of relief washed over the market, sending the offshore Yuan surging, and reversing all prior session losses which had dragged it as low as 7.14 just moments ahead of the fix, to above 7.10 last...

... while the S&P Emini future recovered all losses from the declaration of China as a currency manipulator...

... although after a sharp spike, it appears that the initial euphoria is starting to wear off.

Commenting on the move, Bloomberg's Garfield Reynolds notes that the PBOC "just won back some measure of control over the slumping yuan with a surprisingly strong fix. There's some immediate relief seen across bruised risk assets, with crude and the Topix paring declines. And the retreat in havens like Treasuries and the yen signals that the move could reduce some of the heat in markets from the trade-war escalation."

It might also, Reynolds adds, "soothe the White House to see China leaning against the fundamentals to prop up its currency."

And while this was certainly a "generous" gesture by Beijing, especially if the two nations are now indeed engaged in FX war, one wonders what if anything China stands to gain by appearing somewhat appeasing: after all just hours earlier it had been branded a manipulator, an insulting designation in a world in which everyone manipulates their currency, and with the US no longer willing to back off, all Xi stood to "win" was to appear weaker when faced with a berserk opponent.

In any case, now that Beijing has shown some control - instead of hurtling head on into a currency war and global financial crisis that would have blown up its banking system - we wait for the next developments, of which there will be plenty. And, as usual, we urge readers to keep a close eye on the events in Hong Kong, which has emerged as the most important geopolitical hotspot of the year, if not decade.