Lacker, who does not have a vote on the Fed’s rate-setting committee this year but will participate in its discussions, had pressed for rate increases earlier in 2015, but his colleagues balked after worries over slower economic growth in China triggered a global equities selloff. Analysts said the market was likely being supported by buying from Chinese government entities that have been dubbed the “National Team”. “Much of the recent market reaction has been psychological -it is not as if the Chinese economy has gone into a sharp and sudden deterioration”.
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The People’s Bank of China set the mid-point for the yuan at 6.5626 per dollar, firmer than Friday’s fix and substantially stronger than the spot yuan’s previous unofficial close of 6.5938.
Calm returned Friday to China’s stock markets after a torrid week but underlying reasons for the turmoil remain: a weakening yuan and perceptions China’s leaders are bungling their handling of the economy.
In Europe, Germany’s DAX advanced 0.7 percent to 10,050.46 and Britain’s FTSE 100 gained 0.8 percent to 5,998.47. Almost two-thirds of the drop came between August and December, hinting at the scope of the central bank’s attempts to stabilise the yuan after its surprise devaluation in August panicked markets. “Sure, Chinese shares have weakened, but keep in mind they experienced a big bubble phase quite recently”, said Koji Fukaya, president of FPG Securities in Tokyo.
A former head of global payments at China’s foreign exchange regulator urged investors not to be alarmed by foreign institutions “talking down” the yuan, saying the currency remained stable against most currencies, even though it was down against the dollar, the official Economic Daily reported on Monday.
Beijing has gradually loosened the reins on the tightly controlled currency, pledging to let market forces have greater influence on the exchange rate. “Unfortunately, this sends signals that at least in area of the stock market, policymakers are making big mistakes and are going back and forth and have kind of lost the game on policy”, said Kuijs.
“We still need some time to check the credibility of China’s new currency basket”, he added.
“But most people would recognize that were you to take away the interventions it is a currency that would fall”.
“Markets will be waiting to see the Chinese government’s determination to prop up the stock market and the currency into next week before any major recovery rally is likely to be seen”, he said.
All of which raised anxieties ahead of China trade data on Wednesday, which are expected to show further declines in exports and imports, underlining the parlous state of world trade flows.
Chinese stock investors play cards in a brokerage house in Beijing, Friday, Jan. 8, 2016. Key food prices including pork and vegetables rose 9.5 per cent and 7.4 per cent year on year respectively, with a fall in global oil prices weighing on the index.
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He said he favors the Fed committing to a steady winding down of the massive trove of securities it acquired as part of its efforts to stimulate the economy in response to the 2007-2009 financial crisis.
