This blog gives investors more financial information for very smart investing!
Tuesday, August 11, 2015
Markets pull back on China devaluation
Dow dropped 155, decliners over advancers 2-1 & NAZ lost 25. Along with falling oil prices, the MLP index fell 3+ to the 352s while the REIT index rose 2+ to the 319s. Junk bond funds declined & Treasuries rallied. Oil fell back to the 44s (see below) & gold inched higher (above 1100).
China devalued the yuan in a move that rippled through global
markets, as policy makers stepped up efforts to support exporters &
boost the role of market pricing. The central bank cut its daily reference rate by 1.9%, triggering the yuan’s biggest one-day drop since China ended a dual-currency system in 1994. The People’s Bank of China
called the change a one-time adjustment & said its fixing will become
more aligned with supply & demand. This suggests policy makers are placing a greater
emphasis on efforts to combat the deepest economic slowdown since 1990 & reduce the gov's grip on the financial system. Authorities
had been propping up the yuan to deter capital outflows, protect
foreign-currency borrowers & make a case for official reserve status
at the IMF. China's devaluation jolted global markets, with
the currencies of South Korea, Australia & Singapore falling at least
1% amid bets other countries will seek weaker exchange rates to
keep exports competitive. Shares of Chinese airlines sank on concern
dollar debt costs will rise, while commodities retreated amid
speculation yuan weakness will erode the buying power of Chinese
consumers. Treasuries gained on growing demand for dollar assets. Exchange-rate
intervention contributed to a $300B slide in China's
foreign-exchange reserves over the last 4 qtrs. It also made the
yuan the best performer in emerging markets, a factor behind last
month’s 8.3% slide in exports.
OPEC pumped the most crude last month in more than 3 years as
Iran restored output to the highest level since intl sanctions
were strengthened in 2012. OPEC is responsible for 40% of world oil supplies, raised output by 101K barrels a day
to 31.5M last month, the group said in its monthly report. This increase came even as Saudi Arabia, which
often curbs output toward the end of peak summer demand, told OPEC it
cut production by the most in almost a year. Oil prices slumped to a 6-month low last week as rising supplies, resilient US production &
concerns over Chinese demand prolong a global glut. Iran may further
expand output after reaching an accord with world powers will ease sanctions on oil exports later this year in return for curbs
on its nuclear activity.
Greece reached an accord with creditors on the terms of a 3rd
bailout, paving the way for national parliaments to vote on the deal
before an Aug 20 payment falls due to the ECB. The 4 institutions
representing Greece’s creditors forged an initial agreement on measures from pension
changes to taxes that will unlock about €85B ($94B)
in funds. The Greek gov needs a quick
release of about €20B to create a buffer for its banks & make loan payments. Before that can happen, agreement on the
technical aspects of the deal must be followed with a “political
agreement.” Greece’s parliament must now pass a
package of reforms agreed on with creditors before a meeting of
euro-area finance ministers tentatively scheduled for Fri. A draft of understanding contains 35 measures including steps to
clamp down on early retirement, opening up energy & pharmaceuticals
markets, & changes to taxes for shipping firms among others. The deal will voted on Thurs. Officials in Germany, which is among the euro-area countries that
must vote on the agreement, reacted cautiously to the 3-year deal in
the absence of details.
The preliminary Greek debt deal should have been bullish for the stock market, allowing stocks to extend yesterday's rally. However China got in the way. The Chinese economy is huge & exports are a major driver. The effects of devaluation of the currency are unclear. The gut reaction is that it's a negative, but longer term implications are always difficult to understand. Big picture, Dow has a dreary chart & today's sell-off did not help matters.
...1.50 
No comments:
Post a Comment