China’s central bank talks up fundamentals

In reaction to that, the freely-traded off-shore yuan dropped to 6.6915 versus the greenback, its weakest level going back to the last quarter of 2010, resulting in a record spread between the on-shore and off-shore exchange rates. That was the biggest daily decline since last August, when Beijing surprised global investors by abruptly devaluing the currency nearly 2 percent.

The PBoC yesterday said the yuan was stable against its basket of currencies introduced in December, adding the exchange rate would follow “market forces” such as supply and demand, which are related to the real economy, not “speculative forces”.

“We are only seven days into the New Year, and already we’ve had worrying news about stock market falls around the world, the slowdown in China, deep problems in Brazil and in Russia”, Osborne was to say in a speech to business leaders in Wales, according to pre-released remarks.

Policy advisers are anxious the PBOC’s gradualist approach risks reinforcing expectations for more depreciation – a sort of self-fulfilling prophecy – and a thesis supported by a sharper fall in the offshore exchange rate, which is not regulated by the central bank, than in the onshore rate.

The People’s Bank of China (PBOC) also wrong-footed traders by reportedly intervening heavily to defend the yuan in offshore trade, reversing a decline of more than 1 percent that took it to a record low of 6.7600 per dollar. The yuan is now at its weakest in five years.

It is based on the CSI 300 index, which tracks the largest 300 stocks on the two exchanges.

The market fell almost 2 percent more in just one minute after trading resumed and then was closed for the day. The so-called circuit breaker was used for the first time on Monday on the first trading day of 2016.

Minutes of the latest Fed policy meeting suggested that some officials were still concerned that inflation would get stuck at dangerously low levels.CHINA TO BECOME A BIGGER INFLUENCEMuch will depend this year on broader risks to the global economy, and in particular what China’s authorities do to prop up its slowing economy.

But on Thursday the restrictions, also brought in during the summer, were extended indefinitely with some tweaks, including a requirement to disclose planned sales 15 trading days in advance.

The carnage in China seeped through to other Asian bourses. The broader Topix index shed 0.73 percent to finish at 1,447.32. The local currency edged lower to 66.22 United States cents from 66.37 cents yesterday. The US benchmark West Texas Intermediate sank 5.6 percent to hit its weakest close since December 2008.

And falls in the yuan, coupled with the strength in the dollar, could increase political friction ahead of U.S. presidential elections.

Markets fled to safe havens like the Japanese yen on fears that Beijing, in a bid to help exporters, is allowing the yuan’s rapid depreciation to accelerate.

“It’s like trying to catch a falling knife”, he said.

On Wall Street, stocks fell the most in three months overnight after Chinese trading was halted for the second time this week and oil prices hit 12-year lows on worries about slowing global growth and swelling USA stockpiles.