As a result, China suspended a so-called circuit breaker, implemented only earlier this week to avoid panic selling. Analysts and investors said the mechanism, put in place to avoid market volatility, may have backfired.
Advertisement
With risk sentiment in tatters, spreadbetters forecast a significantly lower open for Britain’s FTSE.FTSE, Germany’s DAX.GDAXI and France’s CAC.FCHI.
Deng Ke, spokesman for China’s Securities Regulatory Commission (CSRC), said in a statement that the circuit breaker should not be blamed for the falls on the market this week, “but the negative impact [of the policy] has now exceeded the positive side” and the policy would be shelved for further study.
Japan’s Nikkei shed 1.5pc.
This is the biggest drop for yuan since August 11 devaluation.
The crude oil market has so far shrugged off rising geopolitical risks such as the tensions between Saudi Arabia and Iran, and North Korea’s nuclear test. “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”.
The PBOC set the daily fixing for the yuan at 6.5636 per USA dollar, 0.02 per cent up from Thursday, having slashed the reference rate by 1.4 per cent over the past eight days. It was the eighth consecutive day the PBOC had set a lower guidance rate.
In the one-year non-deliverable forwards market the yuan approached fresh seven-year lows weakening by over 1 percent at around 6.94 per dollar.
“Although the deals may become more expensive due to the currency issue, it would not stop Chinese companies to go out to do mergers and acquisitions as many of them are cash rich”, Partridge said.
In bond markets, yields on 10-year US Treasuries fell to a two and 1/2-month low of 2.119 percent on Thursday and last stood at 2.17807 per cent. German Bunds were steady at 0.539 after their yields fell this week as investors headed into safe assets.
China’s central bank is capable of keeping the yuan “basically stable at a reasonable equilibrium level” in spite of “speculating forces”, according to an editorial on the bank’s website Thursday.
“The fact that 10-year German yields are back at around 50 basis points shows there is a flight to quality”, said Martin van Vliet, senior rates strategist at ING.
The yen, another beneficiary in times of perceived global turmoil, also attracted bids. The reserves fell by more than half a trillion dollars in 2015.
The euro was quoted at $1.0815-0816 and 127.60-63 yen against $1.0775-0785 and 127.71-81 yen in NY and $1.0730-0731 and 127.40-44 yen in Tokyo late Wednesday afternoon.
Advertisement
Brent crude oil LCOc1 fell to $33.09 a barrel, its lowest since June 2004.
