PBOC Devalues Yuan for Second Day Running, Worldwide Markets Take a Hit
August 12, 2015 6:28 am
A wide range of markets have fallen in response to the People’s Bank of China’s Yuan devaluation. The PBOC let the Chinese currency fall sharply for a second straight day, and the large fall of 4% in the Chinese currency dampened sentiment for risky assets globally, with equities, currencies and commodities coming under pressure as concerns were heightened regarding the possibility of a currency war that would destabilize the global economy.
Equity markets saw drops across the board, with the S&P500 and the Dow closing down by 0.96% and 1.21% respectively yesterday, as the PBOC’s currency move added fears about the global economic outlook and hit companies with large earnings exposure to China. Asian markets fared little better in Wednesday’s session, with the Nikkei closing down by 1.58%, the Shanghai Composite dropping by 1.06% and the Hang Seng ending up 2.48% lower. Over in Europe the FTSE is currently down by 1.85%, while on the continent the DAX and CAC are down by 2.56% and 2.06% respectively. Currencies considered as China proxies were significantly lower with the Australian Dollar nursing losses at 0.7250, falling more than 1.5 percent overnight. Against the Yen, USD was slightly lower at 125.07 after rising as high as 125.28 yen earlier in the trading session, its highest level since early June. The Euro gained 0.2 percent against the Yen to 138.44, after earlier rising as high as 138.69, its highest since June the 25th. U.S. Treasury yields dropped to their lowest levels since late April as nervousness around China’s currency measures curbed investor appetite for risk. The benchmark 10-year note yield slipped to 2.080 percent in Asian trading, compared to its U.S. close of 2.139 percent. Commodities investors worried that prolonged Yuan weakness could revive deflationary pressures, with the expectation being that import costs for Chinese firms could rise due to the PBOC currency intervention, dampening demand for raw materials. U.S. crude futures were at $42.99, down 9 cents from their last close, which marked its lowest settlement since March 2009. Brent futures were down 26 cents at $48.92, more than 25 percent below their last peak in May. The Organization of the Petroleum Export Countries (OPEC) said that its members continued to boost supplies. According to secondary sources cited by the report, OPEC produced 31.51 million barrels per day (bpd) in July, 1.5 million bpd more than its 30-million-bpd target. Copper and aluminium also hit six-year lows on Tuesday as the cheaper Yuan fuelled worries the world’s top metals consumer would cut back on imports.
Although individual stock prices are red across the board this morning, once again the biggest losers appear to be mining companies, which continue to take a major hit due to the situation in China. Glencore is the most significantly affected on the FTSE, currently down by 5.68, but the other mining firms are down by anywhere between 2.5 and 4%. Many Western firms have already reported slowing sales in China as its economy slows pace and shares of companies with significant Chinese markets, from German auto makers to luxury goods makers, are expected to come under pressure with the fall in demand – a prime example is Burberry, which has dropped by more than 7% since Monday’s close.
A wide range of markets have fallen in response to the People’s Bank of China’s Yuan devaluation. The PBOC let the Chinese currency fall sharply for a second straight day, and the large fall of 4% in the Chinese currency dampened sentiment for risky assets globally, with equities, currencies and commodities coming under pressure as concerns were heightened regarding the possibility of a currency war that would destabilize the global economy.
Equity markets saw drops across the board, with the S&P500 and the Dow closing down by 0.96% and 1.21% respectively yesterday, as the PBOC’s currency move added fears about the global economic outlook and hit companies with large earnings exposure to China. Asian markets fared little better in Wednesday’s session, with the Nikkei closing down by 1.58%, the Shanghai Composite dropping by 1.06% and the Hang Seng ending up 2.48% lower. Over in Europe the FTSE is currently down by 1.85%, while on the continent the DAX and CAC are down by 2.56% and 2.06% respectively.
Currencies considered as China proxies were significantly lower with the Australian Dollar nursing losses at 0.7250, falling more than 1.5 percent overnight.
Against the Yen, USD was slightly lower at 125.07 after rising as high as 125.28 yen earlier in the trading session, its highest level since early June. The Euro gained 0.2 percent against the Yen to 138.44, after earlier rising as high as 138.69, its highest since June the 25th. U.S. Treasury yields dropped to their lowest levels since late April as nervousness around China’s currency measures curbed investor appetite for risk. The benchmark 10-year note yield slipped to 2.080 percent in Asian trading, compared to its U.S. close of 2.139 percent.
Commodities investors worried that prolonged Yuan weakness could revive deflationary pressures, with the expectation being that import costs for Chinese firms could rise due to the PBOC currency intervention, dampening demand for raw materials. U.S. crude futures were at $42.99, down 9 cents from their last close, which marked its lowest settlement since March 2009. Brent futures were down 26 cents at $48.92, more than 25 percent below their last peak in May. The Organization of the Petroleum Export Countries (OPEC) said that its members continued to boost supplies. According to secondary sources cited by the report, OPEC produced 31.51 million barrels per day (bpd) in July, 1.5 million bpd more than its 30-million-bpd target. Copper and aluminium also hit six-year lows on Tuesday as the cheaper Yuan fuelled worries the world’s top metals consumer would cut back on imports.
Although individual stock prices are red across the board this morning, once again the biggest losers appear to be mining companies, which continue to take a major hit due to the situation in China. Glencore is the most significantly affected on the FTSE, currently down by 5.68, but the other mining firms are down by anywhere between 2.5 and 4%. Many Western firms have already reported slowing sales in China as its economy slows pace and shares of companies with significant Chinese markets, from German auto makers to luxury goods makers, are expected to come under pressure with the fall in demand – a prime example is Burberry, which has dropped by more than 7% since Monday’s close.
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