China’s forex reserves drops to three years low

“China is a command economy but you can not have a command stock market”. The Bloomberg Dollar Spot Index added 0.3 per cent, trimming a rise of 0.7 per cent spurred by the jobs report. Treasuries and the yen headed for their first declines this week and gold dropped. That was back when the authorities first started to devalue the currency and triggered a global market selloff. Payroll growth surged in December, capping the second-best year for American workers since 1999.

“We’ve had a stabilisation in China overnight, but the question remains as to whether China’s economy is headed for a hard or soft landing, ” said Richard McGuire, senior fixed income strategist at Rabobank. “The China growth story is the elephant in the room”. That would be the opposite of what would be expected in a “currency war” aimed at gaining an export advantage. The median forecast in a Bloomberg survey called for a 200,000 advance.

The yen briefly retreated from its initial highs after China suspended its stock market circuit breaker mechanism, which is seen as a move to shore up investor confidence.

CHINA’S central bank is capable of keeping the yuan “basically stable at a reasonable equilibrium level” in spite of “speculating forces”, the People’s Bank of China said yesterday.

A European Central Bank official, who didn’t want to be identified, said the weaker yuan would have a “relatively minor impact” on the eurozone’s imported inflation, but the underlying message on the health of China’s economy was “a much bigger concern” and any increase in market volatility could upset the U.S. Fed’s schedule on interest rates.

The slump in the currency market has spilled onto the Shanghai stock market.

There is lots of negative news from China, North Korea and indeed nearly all of the emerging markets…

The spread between the officially set onshore Yuan rate and the market driven offshore Yuan widened significantly to a 4 year high, implying one of the currency’s key metric that influences the currency’s overall momentum is pricing in greater risk of the Yuan weakening going forward.

The currency has steadily lost another 2.6 percent against the US dollar even after the bank sprung a surprise devaluation of almost 2 percent in August. Brazil’s real strengthened 0.3 per cent.

The dollar fetched 6.5915 yuan, down from 6.5956 on Thursday. It dropped to 61.32 euro cents from 61.90 cents yesterday, and was little changed at 45.34 British pence from 45.37 pence. While data in November showed somewhat of a rebound in the economy, the Goldman analysts suspect it won’t last. The Markit iTraxx Europe Crossover Index, which tracks default swaps on high-yield issuers, fell three basis points to 339 basis points.

Global oil benchmark Brent gained 0.5 percent at $34.40 a barrel and WTI gained less than 0.1 percent to $33.99 a barrel.