Bumper US jobs figures give stock markets further lift

During 2008-09, a fiscal stimulus package amounting to more than $ 4 trillion renminbi was implemented even as other advanced economies were unsure about the nature of their response to the crisis that was unfolding just then. Investors remained confident that the United States economy has entered a tightening cycle and it will continue to benefit banks as they boost their overall income.

The figures are the latest highlighting weakness in China, which is expected to have grown in 2015 at its slowest rate in a quarter of a century.

The clearest indication of investor sentiment about the renminbi lies in the currency’s value in unrestricted trading here in Hong Kong.

The index measuring price differences between dual-listed companies in Shanghai and Hong Kong stood at 143.47.

The central bank’s strategy has backfired. On Thursday, the contract lost 70 cents to $33.27. It was beaten only by 1997, when a more than 10 per cent drop was recorded.

“While the market was left with uncertainty on how far the yuan will fall, the Chinese central bank’s action (the stronger fix on Friday) was taken as a signal that it does not intend to keep allowing the yuan to fall”, said Yoshinori Shigemi, a market strategist at JPMorgan Asset Management.

Lin Caiyi, chief economist at Guotai Junan Securities, was among the experts who argued against the circuit breakers on the grounds it does not suit the country’s stock market. But the cooling-off period may be intensifying the sell-off.

The Shanghai Composite closed 1.98 percent higher on Friday, one day after a seven percent stock drop triggered a circuit breaker and forced Chinese markets to close early for the second time in a week. China’s SSE Composite index closed 1.97% higher, adding 61 points. The China Securities Regulatory Commission (CSRC) introduced this emergency brake in December after the ups and downs on the Chinese stock markets and losses of up to 40 percent last summer.

The yuan was little changed at 6.5919 per dollar in the onshore market and at 6.6862 in offshore trading.

“The market’s reaction (to the jobs report) is something between curious and concerning”, said Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago.

Aussie’s S&P/ASX 200 plunged 0.39% on Friday.

The CSI 300 blue-chip stock index finished down 6.9 percent on Thursday. People tried so hard to avoid being stuck with losing shares that “panic set in when prices fell by only 3 percent”.

China is grappling with a series of unappealing choices as it tries to calm investors unnerved by abrupt falls in its currency and another stock market rout.

“What they are actually doing is strengthening the state across the board”, said Fraser Howie, co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise”.

But now policymakers are trying to “rebalance” the financial system, by shifting this debt of bank balance sheets and into the market, so that banks are able to lend to consumers and businesses, enabling the country’s economy to grow.

In a note published on Friday, the investment bank cut its forecast for the Chinese currency, saying it now expects the dollar USDCNY, -0.0076% to buy 7.00 yuan in 12 months, up from their previous forecast of 6.60 yuan. It could also further increase its already considerable stimulus spending on infrastructure.

One analyst called the move a “drip-feed devaluation” which was raising worries over China’s slowing economy, bigger capital outflows and the threat of a currency war.