China will suspend automated stock trading halts

In the wake of market turmoil in key trading partner China, Australia saw its dollar fall below the closely watched USD 0.70 support in overnight trade, but the Aussie recovered to around USD 0.7028 in Asian hours.

A man walks past an electronic stock board of a securities firm in Tokyo, Friday, Jan. 8, 2016.

China on Thursday suspended the stock market “circuit breaker” mechanism which has halted trading in Chinese stock markets for the second time this week, triggering a cascading impact on the global markets as the country saw the shortest trading time in the Communist giant’s market history.

Chinese markets have seen a week of high drama, buffeted by the PBOC’s lower yuan fixings against the dollar, two days of stock exchange suspensions, weak factory and services data and concerns about pending share sales by major stakeholders as a ban on such sales expires.

The plunge in Chinese stocks Thursday was set off by concern Beijing is allowing its yuan to weaken too fast against the dollar. The Nasdaq Composite (COMP) dropped 63 points, or 1.3 percent, to 4,771.

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The S&P 500 is down around 1.5 percent in early trading.

If ever proof were needed of how deeply financial markets are interconnected and dependent on investors’ “sentiment”, look no further than the worldwide tremors set off by a 1 percent fall in China’s currency this week.

Similar speculation has been heard before, and investors have repeatedly called for Xiao’s head in recent months over the government’s interventions following the market falls.

The blue-chip CSI300 index, which the newly-introduced circuit breaker is tied to, ended 2 per cent higher at 3,361.56 points as of 1.10 pm local time.

In Hong Kong, the benchmark Hang Seng index rallied 1.1 per cent. Stocks rose in Taiwan and were mixed in Southeast Asia.

Danish jewellery maker and retailer Pandora was a standout gainer, rising 4.5 percent after reporting a 40-percent rise in 2015 revenues and outlining store openings. The nation’s market circuit breakers, which halt exchanges for 15 minutes after a 5% drop in the CSI 300 and for the rest of the day after a 7% retreat, have been criticised by analysts for exacerbating losses as investors scramble to exit positions before getting locked in.

All eyes will be on the yuan and the Chinese markets today.

Since the PBOC devalued the yuan by about 2 percent last August, the onshore-offshore spread had been growing, encouraging an outflow of capital that Beijing has been struggling to stem through measures including halting some forex business by a number of foreign banks, and ordering banks in some trading hubs to limit clients’ dollar purchases, sources have told Reuters. The American currency has risen over the past year, leaving the yuan overvalued compared with other developing countries and hurting Chinese exporters. The Stoxx Europe 600 fell 2.2% Thursday after declining as much as 3.6%.

The sell-off came as weakening of the yuan led to worries that China’s economy was slowing more than expected.

The market mayhem has been compounded by the slide in the price of oil, with Brent crude collapsing to fresh lows close to $32 a barrel – the lowest level since April (LSE: 0N69.L – news) 2004. On Thursday, the contract lost 70 cents to $33.27.