Chinese Halt Raises Fear Level Globally

Market Trends - 07/01/2016

Chinese market transactions were interrupted on Thursday for the second time this week, 29 minutes after the opening of the session. The markets opened in China to stock prices plummeting by more than 7.00%. At the same time, the People’s Bank of China accelerated the devaluation of the Yuan for the 8th day, sending the currency to the lowest level since 2011 in an effort to boost Chinese exports amid a greater than expected fall in economic activity. The Yuan devaluation is having a widespread impact across global currency, stock and commodity markets amid concerns that the Chinese economy is softening further as the country transitions from manufacturing towards services. Despite the economic makeover, data for services and manufacturing obtained earlier this week indicate a contraction in both spheres. S&P 500 futures dropped at the start of the Chinese session, slipping -1.10% with the Dow Jones mirroring the decline as European indices followed suit to the downside. Metals such as copper, which is China-driven commodity, continues to retreat, reaching lows of $2.0140.

The China Securities Regulatory Commission immediately imposed new restrictions on the sale of shares that will stay in effect for 3-months, replacing the expiring 6-month ban imposed back in the summer months. Nevertheless, fear and concern continue to rise as confidence falters with the CSRC calling a meeting to discuss and adjust policy. Economists regard the continued tumble of Chinese financial markets as the worst economic performance dating back to 1990. Meanwhile, the World Bank lowered its forecast for 2016 global growth, attributing the revision mainly to underperformance of large emerging economies such as Brazil and China. Global expansion has been estimated at 2.40% in 2015, less than the 2.80% forecast with projections for 2016 lowered from 3.30% to 2.90% according to the Bank’s report. China’s growth outlook was also trimmed from 7.00% to a 6.70% for 2016 , and revised lower to 6.50% for 2017. Major investors are already drawing a parallel to conditions in 2008, recalling the indicators that preceded the last global crisis.


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