Chinese yuan strengthens against dollar
A Chinese investor monitors stock prices in a brokerage house in Beijing, Friday, Jan. 8, 2016.
The government’s attempts to appease the nation’s army of retail investors comes just a month ahead of the Chinese New year celebrations, a time when hundreds of millions of people travel for traditional family gatherings.
Bonds prices rose. The yield on 10-year Treasury bond fell to 2.16 percent from 2.17 percent.
The depreciation of the yuan earlier in the week is what in part caused sentiment to sour amongst investors, and the higher value of the currency this Friday, is what’s brought back some sanity back to Chinese shares.
With the stocks circuit breaker deactivated late on Thursday, the CSI300 index closed up 2 percent at 3,361.56 points on Friday, while the Shanghai Composite Index also closed up 2 percent at 3,186.41 points. Analysts said the market was likely being supported by buying from Chinese government entities that have been dubbed the “National Team”.
Some €2.4 billion was wiped off the value of shares listed on the Iseq in Dublin on Thursday on a day when global stock markets wobbled amid concerns that growth in China is slowing more than previously forecast.
The Shanghai composite saw gains of more than 3% after Beijing moved to guide the Yuan higher by 0.02% today. Against the euro, it gained 0.5 percent to $1.0861.
Forex investors fled to the traditional haven of the yen, which rose 0.7 percent against the greenback at 117.65 yen around 2200 GMT. These indexes lost around 12 percent in the first four trading days of 2016, essentially giving up all the gains made in 2015.
China’s circuit breaker had been triggered twice during the week and was suspended late Thursday with China claiming that the system failed to reduce market volatility and some market players even claiming it backfired.
“It takes quite something to relegate the United States employment report to a footnote in this week’s trading activity, but the China induced volatility seen over the past few days appears to have done the trick”, said Michael Hewson, chief market analyst at CMC Markets UK.
It appeared the “National Team” responded Friday by “intervening heavily”, said Nicholson.
The Brazilian currency is still down 1.6 percent in the first week of the year as pessimism surrounding China has added to bearish views on the domestic economy.
On other major Asian bourses, Tokyo’s Nikkei 225 fell 2.3%, and Hong Kong’s Hang Seng Index shed 3.1%.
In other energy trading, wholesale gasoline declined 1.6 cents to $1.146 a gallon and heating oil lost 1.5 cents to $1.066 a gallon.
To restructure without triggering mass bankruptcies and redundancies, sources said the PBoC is being encouraged to let the yuan fall, keeping downward pressure on interest rates and relieving some of the debt servicing burden on businesses.
The People’s Bank of China has allowed the yuan to decline by about 6 percent against the dollar since August after loosening its tie to the USA currency. The American currency has risen over the past year, leaving the yuan overvalued compared with other developing countries and hurting Chinese exporters. Those worries about China have drowned out signs that the economies of the USA and Europe are doing fairly well.
Brent crude, used to price global oils, rose 62 cents to $34.37 a barrel in London. This news follows China’s recent release of its foreign reserves position on Thursday.