China Muddies Fed Outlook as Traders Trim Bets on September Move

In the short term, China’s currency move will amplify challenges to global growth and add volatility to markets that have lost some of their fundamental anchoring, wrote Bloomberg View columnist Mohamed El-Erian, former co-chief investment officer for Pacific Investment Management Co. Retail spending climbed 2.2%year-on-year last month after rising 2.9% in June. The Hellenic nation reached an outline agreement on a €86bn deal, after agreeing a budget with a primary deficit of 0.25% of gross domestic product (GDP) in 2015, improving to a 0.5% surplus in 2016, a 1.75% in 2017 and a 3.15% surplus in 2018.

The broader market, measured by the S&P 500, has fallen by 1.2% roughly two hours into today’s trading session.

Standard Chartered slumped on news it was the second biggest bank to walk away from the Carmichael coal mine in Australia in a week. Before Tuesday’s devaluation, XYZ Corp.’s annual interest expense would cost it 42.8 million Yuan.

The country has a history of refusing to adopt a “beggar-thy-neighbour” competitive devaluation strategy to its own benefit, a stance that was most clearly reflected by its costly decision not to let the yuan depreciate to help anchor the regional situation during the 1997-98 Asian financial turmoil.

Although slightly higher borrowing costs probably won’t trigger widespread defaults, they could spell trouble for highly leveraged companies that are already operating in or near the red.

UK shares dropped as China’s central bank slashed the renminbi to try to boost the slowing economy. In Citigroup’s latest 10-Q, it lists total exposure of $21.1 billion.

The prices of toluene were at $610-630/tonne FOB Korea at noon time on 13 August while spot acetone prices sank to an average of $535/tonne CFR China for the week ended 7 August, ICIS data showed.

Even widely diversified banks like JPMorgan Chase, Bank of America, and Citigroup look to net interest income for a substantial share of their revenue and earnings.

He said the move will also raise further questions about whether the US Federal Reserve can still seriously consider raising rates this year.

Fed funds futures implied traders see a 39 percent chance of a rate increase in September and a 66 percent chance in December, according to CME Group’s FedWatch program.

Investors saw Beijing’s move as an effort to benefit its exporters but many economists rejected that view because global demand is weak. However, China’s decision to devalue the Yuan could delay this.

In fact, the current way of managing the yuan’s exchange rate has resulted in large accumulated differences between the official central parity rate and the market rate, which is not conducive to finding the real market value of the yuan and prevented it from becoming a real worldwide currency. The strength in the precious metals during yesterday’s trade was also aided by the weakness in the US dollar, as the US dollar-denominated metals became more attractive for foreign investors.