“The lower yuan fixing probably signifies greater risks to the Chinese economy than we know of, leading to risk-off trades”, said CIBC World Markets head of currency strategy Jeremy Stretch.
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European financial markets recovered some ground after China said it would suspend its new stock market circuit breaker mechanism as of Friday. The Nasdaq composite index fell 69 point, or 1.4 percent, to 4,766.
China’s stock market has skidded this year as the government prepares to remove measures that were introduced last year to prop up share prices following a meltdown in June. Investors are also unnerved that Beijing has allowed the yuan currency to weaken, a possible sign the economy is in worse shape than thought.
The falling currency can then fuel further stock losses in China.
It was the shortest trading time in China’s capital market history.
The health of the Chinese economy resurfaced as a topic of key concern after rattling the markets last August when Beijing began devaluing the yuan.
Shares in Asia extended losses and regional currencies sank on Thursday after the People’s Bank of China (PBOC) set the yuan midpoint rate (CNY=SAEC) at 6.5646 per dollar prior to the onshore market open, 0.50 percent weaker than the previous fix 6.5314. The index dived a further 2 percent in just 2 minutes after reopening at 9:57 a.m., and trading was ceased. Germany’s DAX slid 2.3 percent, the France CAC 40 gave up 1.7 percent, and Britain’s FTSE 100 lost 2.1 percent. Japan’s Nikkei shed 2.2 per cent.
The rules shut down China’s main markets twice this week, on Monday and again on Thursday, after shares plunged by 7% on both days.
A 15-minute halt to trading is triggered if the CSI300 (this is an index that tracks the 300 largest shares in the country, these trade on Shanghai or Shenzen exchanges) dips 5%.
“Sentiment seems to be rather fragile at the moment as the soft macroeconomic environment together with the fear of not being able to sell during a market correction causing some anxiety among investors”, he wrote in a note to clients.
The uncertainty has contributed to the volatility on the stock exchange.
Benchmarks in Taiwan, New Zealand and Southeast Asia also fell. The figures fed worries about a global supply glut and weak demand that has sent prices slumping more than 60 percent since mid-2014. Benchmark U.S. crude futures fell $1.39, or 4.1 percent, to $32.58 in electronic trading on the New York Mercantile Exchange. The value on Thursday marked a sudden drop of 0.5 percent in the currency’s value.
Economic growth fell to a six-year low of 6.9 percent in the July-September quarter and is forecast by the International Monetary Fund to decline further to 6.3 percent this year.
The Australian dollar, often used as a proxy for China-related trades, fell to a two-month low of $0.7025 (AUD=D4).
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The carnage in China seeped through to other Asian bourses.
