Saturday, January 16, 2016

World Stocks Drop But Europe Shrugs off Oil Slide, China Money Market Surge

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World Stocks Dropped – Fall in Oil Prices/Rush in Chinese Yuan Deposit Rate


World stocks, on Tuesday fell for the fifth straight day anchoring near its lowest level in over two years making investors upset due to the fall in oil prices as well as a rush in offshore Chinese Yuan deposit rates. However, the European stocks recovered from initial weakness due to a rally in the retail segment. Strong seasonal updates had been posted by British companies in particular, lifting the FTSEuroFirst 300 up from three month low.

According to analyst, the People’s Bank of China had earlier compelled overnight, deposit rates in Hong Kong to 66.8% in order to overcome the heavy downward pressure on the Yuan, which was a severe measure essential in cooling the Chinese market volatility Deflation cautious investors in Asia avoided equities and pushed the value of the safe-haven Japanese yen, as oil slipped closer to dropping below $30 a barrel for the first time in 12 years.

Chief market analyst at Avatrade in London, Naeem Aslam informed that `investors in Europe are shrugging off some of the anguish around the Chinese market sell-off and showing some resilience today despite the up and down swings in Asia.

Slowdown in Global Economy/Volatile Chinese Markets


The FTSEuroFirst 300 was up 0.6% at 1,342 points, at 0900 GMT, only its second rise this year while Britain’s FTSE 100 was up 0.5%, Germany’s DAX was up 1.1% and France’s CAC 40 rose by 0.8%. The shares in Morrison’s rushed 12%, while Debenhams climbed 15% and Tesco rose 5%. The broadest gauge of world stocks of MSCI was however down 0.2% and had not risen since Dec 29. MCSI’s broadest index of the shares of Asia-Pacific outside Japan was 0.4% lesser just cautious of its lowest level in 4 years.

 Since the beginning of 2016, it is down more than 9%. Japan’s Nikkei had closed at 2.7 lower at its lowest level in about a year while U.S. futures aimed to a fall of about 0.3% at the open on Wall Street. With the investors still recovering from last year’s drop in global community prices together with sharp sell-off in Chinese markets, 2016 seems to have brought more pain for investments portfolios by way of developing slowdown in the global economy together with volatile Chinese markets. Beijing by setting another firm fix for its currency has eliminated the gap between offshore and onshore Yuan exchange rates.

China Continues to Inspire Degree of Stability


This was intended to encourage state banks in buying up Yuan in Hong Kong, driving up the overnight deposit rate fixing to 66.8%. According to Mitul Kotecha, currency strategist at Barclays in Singapore, `China continues to inspire a degree of stability after the sharp volatility at the start of the month by announcing stable to firmer fixings.

 Tighter liquidity had contributed to a squeeze on long USD/CNH positions and would mean investors tend to be guarded of shorting CNH in the near term’. Weakness in the commodity market from the start of the year had showed no indication of easing though as Brent and U.S. crude futures had fallen around 2% to new 12-year lows and both played with a break below $30 a barrel.

Money market futures are beginning to price out this year, the opportunity of multiple hikes in rates by the Federal Reserve, with just around 50% chance of a second hike price. Futures had been fully pricing in two rate increases at the beginning of the year.

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