Global shares are under heavy selling pressure on Thursday with the Chinese Shanghai Composite Index dropping over 7 percent before it was halted for the second time in four days following news that China’s central bank decided to devalue the yuan to help revive growth in a slowing economy.
The People’s Bank of China devalued the yuan to the lowest level since March 2011 at 6.5646 yuan per dollar, knocking the currency down 0.5 percent from yesterday.
Investors remain concerned about ripple effects that could result with emerging market currencies, the potential for currency wars, and the impact of dollar pricing with commodities now that the yuan is depreciated yet again.
The yield on the U.S. 10 year Treasury has dipped .03 basis points to 2.14 percent (-1.18) and the yield on the 10 Year German Bund is trading down .02 basis points to .049 (-3.45 percent) as investors seek refuge in a sea of declining stock prices.
U.S WTI and Brent Crude are both under selling pressure today, dropping over 5 percent to 2004 levels after sinking over 5 percent yesterday.
Currently, February (NYMEX) WTI is trading -4.80 percent lower at $32.34.
Global investors are on edge about how policymakers in Beijing are driving the world’s second largest economy after 6 interest rate cuts in 2015 and a previous yuan devaluation in August failed to jumpstart economic growth.
A string of weak economic reports out of China in recent days has also spooked investors, leading to more concerns about what direction the Chinese economy is headed in 2016 which comes after its 3rd quarter 2015 GDP dropped below 7 percent for the first time since 1990 and global headwinds, including a sharp decline in commodities and crude oil prices still linger in the market.
Over the week-end, Chinese PMI for December was in contraction for the fifth consecutive month and came in barely above a 3 year low.
On Sunday a Markit Caixin manufacturing report of small to medium size companies showed a monthly decline, marking the seventh time in the past eight months that production has fallen in China and contrasts with stabilization in November.
Yesterday a report was released that showed China’s service activity grew at a slower pace in December and the World Bank cut its global growth forecast for 2016 to 2.9 percent, down from 3.3 percent in June.
Added into the negative mix is a rise in a wave of geopolitical tension after North Korea tested a bomb underground on Tuesday, claiming was a hydrogen bomb, and Saudi Arabia cut ties with Iran over the week-end following an embassy attack in Tehran.
U.S. Stock futures are sharply lower for Thursday.
European equities are currently trading down with the FTSE 100 dropping -1.88 percent, the DAX -2.54 percent, and the French CAC 40 erasing – 2.31 percent.