It’s an interesting week in the currency markets, especially for China’s renminbi, which fell in value against the dollar for three straight days.
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The Shanghai Composite Index dropped 3.1 per cent to 3631.40 at the noon-time break, set to close below its 200-day moving average for the first time in a year.
The yuan posted its biggest weekly loss on record and touched four-year lows after the central bank’s surprise devaluation of its currency by almost 2 percent last Tuesday. On an annual basis, July prices fell 3.7 percent, compared to the previous month’s 4.9 percent slide, indicating the market’s nascent stage of recovery. Australia’s S&P/ASX 200 Index slid 0.2 percent. Futures augured a lackluster day for Wall Street. ( CAJ ) is declining nearly 1 percent and Panasonic is edging down 0.03 percent.
The announced measures including banning major shareholders from selling any of their shares.
But the stability was short-lived as the sell-offs restarted, rattling other financial markets.
“Market confidence was hit the most by signs that the “national team” is starting to retreat”, Zhou Lin, analyst at Huatai Securities said, referring to government funds that bought stocks in early summer to halt a market rout. He said that was compounded by concerns that last week’s change in exchange rate policy might accelerate flows of capital out of China.
Most investors, however, are certain a rate hike will occur by the end of year but any subsequent rate hikes will come very slowly, given the fragile state of the global economy.
Investors say China’s stock markets – which were never for the faint of heart – have become dysfunctional since the government’s massive and unprecedented rescue effort. For example, the European Central Bank has conducted a poslicy of quantitative easing for more than one year that lowered the value of the euro vs. the U.S. dollar from around $1.39 to around $1.10, where it is now.
The Chinese currency has remained stable this week following Beijing’s move last week to devalue its tightly controlled yuan. The gain comes a day after a plunge as investors sold Chinese stocks fearing that the Chinese yuan may fall further.
In Hong Kong, the Hang Seng Index finished midday at 23,232.76, down 1.03 per cent or 242.21 points. In addition to the yuan’s fall, intervention by Taiwan’s central bank to prop up the greenback also could be attributed to the weakness of the Taiwan dollar; the bank was trying to keep the local currency cheaper to protect Taiwanese exporters.
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“There is a gradual strengthening in the U.S. housing market with positive implications for employment and economic growth if sustained”, Matthew Sherwood, head of investment strategy at Perpetual Ltd.in Sydney, which manages about $22 billion, said by e-mail. The contract closed up 75 cents at $42.62 Monday. Brent crude, a benchmark for worldwide oils used by many U.S. refineries, fell 36 cents at $48.38.
