China lets yuan fall faster, sends markets reeling

Global stock markets were deep in the red, rattled by the Chinese market, which plunged 7 percent at one point, leading to a nation-wide trading halt for the second time this week.

The apparent Chinese decision to allow for a drop in the yuan “will be very detrimental to the global economy”, Chovanec predicted. The gains narrowed losses for the week to 7.7%.

“This will have a crimping effect on Chinese demand for commodities and affect the economies of its trading partners, which is why we’re seeing a weakening of the Australian and New Zealand dollars”.

“We’ve had a stabilisation in China overnight, but the question remains as to whether China’s economy is headed for a hard or soft landing”, said Richard McGuire, senior fixed income strategist at Rabobank.

Kathy Lien, managing director of FX strategy at BK Asset Management, wrote that the USA and Japanese currencies were being bought because “China is in trouble, US data has been disappointing, Japan refuses to increase stimulus and oil prices continue to fall, but everyone’s greatest fear is that stocks have finally peaked”.

On Thursday, official data showed eurozone unemployment dropped to its lowest level in four years in November, offering a glimmer of hope for the bloc’s hard-hit economy.

West Texas Crude advanced 1.9 per cent to $33.91, on track for a weekly loss of 8.4 per cent. Vietnam and Taiwan’s currencies too have declined 4% and 6%. Meanwhile, the United States raised interest rates in December and more rises are expected in 2016.

If the first week of 2016 has shown one thing, it’s that when it comes to safe havens the yenis still No. 1.

China’s central bank is under increasing pressure from policy advisers to let the yuan currency fall quickly and sharply, by as much as 10-15 per cent, as its recent gradual softening is thought to be doing more harm than good.

The Chinese central bank on Thursday wrong-footed traders by reportedly intervening heavily to defend the yuan in offshore trade, reversing a decline of more than 1% that took it to a record low of 6.7600 to the dollar.

The PBOC on Thursday had guided the yuan lower at the fastest pace since its shock devaluation in August – a move which knocked markets around the world. Japan’s Nikkei shed 1.8 percent in sympathy. A Chinese yuan-led competitive devaluation across the emerging markets could spell more bad news for India’s exports sector, which was in the negative for the 12th straight month in November 2015 and contracted by over 18 per cent year-on-year during April-November this fiscal to $174.3 billion.

The dollar’s value grew significantly previous year, eating into the earnings of US multinationals overseas.

After the U.S. market close, two Apple suppliers added to growing worries about slowing shipments of iPhone 6S and 6S Plus by cutting their revenue estimates for the third quarter.