Morning Markets: Carnage as yuan slide quickens
- Japan Revised Industrial Production (0430 GMT; already published)
- China Industrial Production (0530 GMT; already published)
- GB Monthly unemployment (0830 GMT)
- EU Industrial Production (0900 GMT)
- Portugal CPI (1000 GMT)
- US: Job Openings & Labor Turnover Survey (1400 GMT)
- EIA Weekly Oil inventory Report (1430 GMT)
They said that they'd do it and by golly, China's leadership delivered with a fix at 6.3305 that signals Beijing is indeed prepared to allow (for now anyway) at least a degree of market forces interplay with the value of the yuan and boost its ailing exports.
An immediate spike in USDCNH to 6.56 spoke volumes while AUDUSD and NZDUSD both tanked and other Emerging Market currencies also came under the cosh. Oil was a big loser overnight with Brent marooned at sub-$49/barrel levels and WTI unable to gain a foothold above $43/b.
Chinese demand has been one of the few pluses in the supply and demand equation and the inevitable rise in the cost of imports is likely to stymie oil imports. Opec also smashed past its monthly target of 30 million barrels/day by 1.5 mn b/d on the back of Iraq and Iran figures that seem to cement a one-way street in oil for the foreseeable give or take the odd fluctuation with today's EIA weekly report the most likely source of any sudden price movement.
Risk-off has dominated markets in the aftermath with EURUSD pushing towards 1.1100, US and European equity markets down and commodities taking a battering with copper and aluminium hitting six-year lows. Luxury goods highly dependent on China too took an overnight hit with the likes of Burberry down 4%.
This could also send all Fed rate hike projections out the window with an overall dollar negative environment possibly pushing any interest rate hike move into the early part of 2016.
The pressure on other governments through Asia and in Emerging Markets to follow China's lead and keep exports competitive will inevitably grow, especially for the likes of Malaysia's beleaguered ringit. We're on the edge of a currency war.
- Nikkei 225 was down 1.68% at 1450 AEST to 20373
- Shanghai Composite in China also opened weaker, down 0.45% at 1450 AEST
- The ASX 200 fell to a seven-month low with miners taking the brunt of the selling
- The People's Bank of China set its reference rate 1.6% lower at 6.3306/US dollar
- AUDUSD slumps in aftermath, Australian shares also down
- Australia's consumer sentiment rose 99.5 in the first week of August, from 92.2 in July
- CNHUSD slated to move long term to 6.75/80 level
- China move should be seen as JPY supportive
- EURUSD could settle into 1.1100/1130 range
From the Floor
Flight to safety. “Risk appetite is taking a very big hit, I expect Asian currencies to retain a very bearish traction,” says Moltke-Leth.
Normalisation delay. “From a Fed perspective, the worry is that this could derail the prospect of a rate move,” says Hardy.
Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.
Today's update in the UK claimant count will verify if last month's increase was just a blip or if the UK's economic recovery has peaked, writes James Picerno
Float your boat?
China's devaluation move may be a free float in theory but that's not necessarily the same as practice, says John J Hardy. Nevertheless, offshore USDCNH fell a further 1 percentage point.
The Aussie dollar is now in a brand new ball game, explains Max McKegg. If commodity prices remain under pressure and AUDCNY holds up, then AUDUSD will need to fall to compensate
Alibaba's earnings will be in line with expectations, but the big company needs speed if it's to compete on delivery services with local rivals, says Neil Flynn.
Oil's got enough problems without a currency devaluation, but China's resetting of the yuan has combined with Opec's surging production to ratchet up the pressure, writes Ole Hansen
We're used to saying the world gets a cold when the US sneezes but China's move to devalue the yuan has rather twisted the adage.John J Hardy says the Fed in particular has much to ponder as the subsequent export of deflation forces a reassessment of hawkish policies.[video]
Syriza has been a disaster for Greece but it's rarely been quantified how much of a catastrophe until now as Mads Koefoed puts the GDP cost at a huge 5% after its protracted bailout talks.
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