Shares on major exchanges fell for a sixth consecutive day on Thursday while crude prices bounced back from multi-year lows as volatile markets digested another move lower in the yuan and Chinese efforts to stabilize a sinking stock market.
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“I think everybody’s on alert that if the dollar rises substantially further, there’s a good chance that [the PBOC] would change the mechanism or let the [yuan] go”, said Greg Anderson, global head of currency strategy at BMO Capital Markets. The CAC-40 in France was 0.6 percent higher at 4,428.
Australian shares lost 2.2 percent and South Korea’s KOSPI.KS11 fell 0.8 percent.
The 7-percent drop in Chinese markets overnight had triggered a flight to safety, but the circuit breaker reversal helped cut losses in other risk assets, including the US dollar.
The PBOC, which shocked global markets with its August 11 yuan devaluation, said at the time that it was revamping the fixing system to give market forces greater sway.
Allowing the yuan to trade more freely, however, could accelerate the currency’s decline, and make it more hard for Chinese companies to pay off debts denominated in dollars.
Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, said the declines in both China’s capital account and its foreign currency reserves have been driven by traders quickly unwinding bets that the yuan would continue to strengthen, following the yuan’s August devaluation. Wall Street was poised for a solid open, with Dow futures and the broader S&P 500 futures up 1.3 percent.
Jitters about China turned into entirely justified fear in Asia on Thursday, as China’s stock markets had their shortest trading day in history. The British pound slipped to a 14-month low of 173.88, erasing all of its gains made after the Bank of Japan’s monetary easing in October 2014.
Industrial metals like copper, iron ore and zinc also rose after losses of 4 to 6 per cent so far this week.
China is grappling with a series of unappealing choices as it tries to calm investors unnerved by abrupt falls in its currency and another stock market rout.
The circuit-breaker was just one in a series of attempts from authorities in Beijing to control the markets, which have reportedly cost China’s leaders $1trn (£686.66bn) in the previous year.
Asian stocks were subdued early on Wednesday as floundering crude oil prices continued to dampen risk sentiment, while the dollar and yen drew support from anxiety over global growth and geopolitical risk stemming from Iran-Saudi tensions.
Onshore yuan USDCNY, +0.6622% finished Monday’s session at 6.53 to the dollar, while its offshore CNYCNH, +0.3378% counterpart traded at 6.76.
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USA crude nudged up to $36.28 a barrel but was still down 2 percent on the week and near a seven-year low of $33.98 hit late last month. The benchmark 10-year note yield US10YT=RR sank almost 10 basis points to its lowest since mid-December.
