Under China’s currency regime the yuan is allowed to deviate 2 per cent either side of the midpoint.
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On Thursday, the suspension of China’s stock markets of trading within the very first 30 minutes activated a huge selloff in global markets.
China’s central bank pledged to carry out prudent monetary policy on Friday as the country’s fumbling attempts to control its currency and stock market rattled investors worldwide.
Europe initially followed suit, with the FTSE, DAX and CAC40 up as much as 0.5 per cent, but they later gave up their gains. “This is more of an echo of the crisis we had in August rather than a replay because it lacks some of the surprise element”. Intervention by China’s regulatory body has somewhat succeeded to cool down the negative sentiments among market participants.
A solid report could soothe fears over the economy’s health by showing recent weakness was largely restricted to manufacturers and exporters. Natixis said in a note that global demand should rise by 1.1 million barrels per day (bpd) versus 1.7 million bpd in 2015.
Meanwhile the pound slipped to its lowest level against the USA dollar since May 2010 as prospects of a United Kingdom interest rate hike faded amid gathering gloom for the domestic and world economies. The regulator also clarified the mechanism was NOT the major cause for the fall in stock prices.
The kiwi could fall back to its lows of last September of around US64c, he said.
Fast-forward five months and in some parts of the world the forecast has already proved correct. “It’s creating a lot more aggressive selling of the Canadian dollar”.
Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said: “With the Chinese deciding that the idea of a circuit breaker is broken, withdrawing the facility after just four days with it having been triggered twice, some stability returned to Asian markets overnight and London in turn”.
With risk appetite severely hurt, investors are flocking to low-risk assets such as bonds, gold and traditional safe-haven currencies. It was cut 1.42 per cent over the last eight days.
Friday’s reversal came after China’s central bank nudged the yuan/dollar rate up to 6.5636 per dollar.
After its sharply lower fix on Thursday, the PBOC had later sown confusion by reportedly intervening heavily to defend the yuan in offshore trade, reversing a decline of more than 1 percent that took it to a record low of 6.7600 per dollar.
“The poor start to the year clearly warns that global growth concerns remain, that commodity prices are still under downwards pressure and that volatility in investment markets will likely remain high”, said strategist Shane Oliver of AMP Capital in a report.
U.S. stocks also tumbled Thursday ahead of Friday’s closely watched monthly employment data from the Labor Department that is expected to show jobs growth slowed in December. Both the Dow Jones Industrial Average and the Nasdaq Composite suffered triple-digit losses as a result on Thursday.
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Before the U.S. market open, Taiwan’s Hon Hai Precision Industry Co became the latest Apple supplier to feed worries about iPhone sales as it reported a 20 per cent slump in December revenues.
