Asian shares rally as China drops circuit breaker, firms yuan setting
Traders and analysts said that the weakening of the yuan in the morning triggered the initial losses, which spilled into the rest of the region.
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With risk sentiment in tatters, spreadbetters forecast a significantly lower open for Britain’s FTSE, Germany’s DAX and France’s CAC.
When U.S. investment bank Goldman Sachs said previous year that oil could fall as low as $20 per barrel, it assigned a fairly low probability to that scenario.
With the stocks circuit breaker deactivated late on Thursday, the CSI300 index.CSI300 closed up 2 percent at 3,361.56 points on Friday, while the Shanghai Composite Index.SSEC also closed up 2 percent at 3,186.41 points.
Shares on major exchanges fell for a sixth consecutive day on Thursday while crude prices bounced back from multi-year lows as volatile markets digested another move lower in the yuan and Chinese efforts to stabilize a sinking stock market.
“Geopolitical tensions stemming from Saudi-Iran tensions and North Korea’s nuclear test had already heightened the “risk off” mood”.
European stock markets plunged in morning deals following a heavy sell-off across Asia triggered by a suspension to trading in China, the world’s second biggest economy and key driver of commodities consumption.
The People’s Bank of China (PBOC) set the yuan reference rate at 6.5646 against the dollar, down 0.51 percent from Wednesday’s fix, and the lowest mid-point since 2011.
“Even as China’s export growth declined in 2015, the share of the country’s exports in the global total has still increased”.
The offshore Chinese yuan, which trades freely, sank to a fresh five-year low, too, at 6.7511 to one US dollar.
The impact was immediate as regional currencies went into a tailspin.
The euro ticked up to 127.83 yen from 127.76 yen in USA trade, and to US$1.0825 from US$1.0782 although it is sharply down from levels seen at the end of past year.
Of some comfort is the relative strength of the US domestically focused consumer economy, and continued gains in the job market.
HSBC yesterday said the PBOC’s recent central parity rates showed a greater tolerance for yuan depreciation onshore but its action in the offshore market could also indicate it sought to have the onshore and offshore rates converge.
In response to the widespread gloom, investors bought the yen, which is seen as a safe bet in times of turmoil and uncertainty.
The yen stood near Thursday’s 4 1/2-month high of 117.33 yen, last trading at 117.64 yen.
Industrial metals like copper, iron ore and zinc also rose after losses of 4 to 6 per cent so far this week.
The week’s geopolitical developments have combined to heap further pressure on oil prices, sending New York’s main crude contract sliding yesterday to a 12-year low at $32.10 a barrel. Data overnight showed a big build-up in U.S. petrol stocks, adding to fears of a growing global glut.