China’s yuan led the biggest two-day slide in Asian currencies since 2008, fueling concern that financial-market volatility will curb global economic growth. Stocks fell around the world, while Treasuries rose with gold.
The yuan slid 1 percent in onshore trading even as people familiar with the matter said the People’s Bank of China intervened to stem losses after setting the currency’s reference rate 1.6 percent lower. The turmoil sent European stocks down to a one-month low, dimmed the outlook for U.S. inflation and caused investors to reduce bets on higher Federal Reserve interest rates. That in turn weakened the dollar against the euro and the yen.
“China is a big growth driver around the world, so there’s a certain risk to global growth,” said Otto Waser, chief investment officer at R&A Research & Asset Management AG in Zurich. “If the world economy turns out to be weaker, the Fed will keep an eye on the dollar.”
The MSCI All-Country World Index of equities dropped 0.5 percent at 8:44 a.m. in New York. The Bloomberg JPMorgan Asia Dollar Index extended its two-day slide to 2.1 percent while the yield on 10-year Treasuries fell three basis points to 2.11 percent and the rate on two-year German notes dropped as low as minus 0.29 percent.
China’s decision on Tuesday to devalue the yuan and shift to a more market-determined rate sparked concern that the world’s second-largest economy is faltering. Vietnam widened the trading band on its currency Wednesday, underscoring the risk of competitive devaluations that’s dragging down emerging-market exchange rates from Brazil to South Korea.
Options Volumes
The yuan dropped 2 percent in offshore trading and has returned to levels last seen in January 2011. There’s no economic or financial “basis” for the exchange rate to fall continuously, the PBOC said. Data Wednesday showed fixed-asset investment grew at the slowest pace since December 2000 in July, while the rate of expansion for retail sales and industrial production also weakened.
Malaysia’s ringgit weakened to more than 4 per dollar for the first time since the 1998 Asian financial crisis, while the Indonesian rupiah also traded at the weakest in 17 years.
Developing-nation stocks extended declines in a bear market, with the MSCI Emerging Markets Index losing 1.2 percent.
The Stoxx Europe 600 Index fell 2 percent, led by a slump in commodity producers and automakers. Standard & Poor’s 500 Index futures lost 0.7 percent.
Alibaba Buyback
Alibaba Group Holding Ltd. declined 5.6 percent in premarket trading, paring earlier losses, after saying it will buy back as much as $4 billion of stock as it tries to revive a share price battered by concerns about China’s economy.
European currencies led developed-market gains in foreign-exchange markets as the Bloomberg Dollar Spot Index reversed an earlier advance to drop 0.7 percent.
The euro jumped 1 percent to $1.1153, rising for a sixth day and reaching its highest level since July 13. The yen strengthened 0.8 percent to 124.16 per dollar amid speculation the Bank of Japan doesn’t want it to weaken much further.
U.S. government debt is getting a boost from a drop in the inflation outlook, with the 10-year break-even rate sliding as low as 1.62 percentage points, the lowest since March.
Fed Bets
Traders are pricing in a 40 percent chance the Fed will raise borrowing costs at its September meeting, based on the assumption that the benchmark rate will average 0.375 percent following the increase, data compiled by Bloomberg show. That’s down from 54 percent on Aug. 7.
Gold rose for a fifth day, the longest stretch since May, as China’s devaluation spurred demand for haven assets. Bullion advanced 0.9 percent to $1,118.25 an ounce.
Most industrial metals fell as nickel plunged to the lowest level since 2008, while copper and aluminum traded near six-year lows. Nickel fell as much as 15 percent on the London Metal Exchange to $9,100 a metric ton before paring losses to 2.1 percent. The drop was the biggest since 2011.
Oil rebounded from the lowest close in six years. West Texas Intermediate rose 1.5 percent to $43.73 a barrel. Crude has fallen about 30 percent since this year’s peak closing price in June amid speculation the global surplus that drove prices into a bear market will persist.
source: Bloomberg
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