Circuit breakers triggered after half an hour as CSI 300 drops 7%

Thursday, January 07, 2016

Chinese equity markets were shuttered barely half an hour after opening as circuit breakers were once again triggered after a precipitous 7% drop in the CSI 300 benchmark index. It’s been a bizarre week so far for Chinese markets and the Chinese central bank were once again spurred into action, reducing the daily reference rate for the yuan by the most since August last year. Offshore yuan whipsawed to a fresh multi-year low against the dollar, trading as high as 6.7618 against the greenback before recovering throughout the session and posting some modest strength as it headed back below 6.7000. 

With policymakers at the PBOC stepping up intervention and expressing their willingness to allow the currency to materially weaken we will likely see further currency volatility as confused market participants slowly lose confidence in the central bank’s ability to shore up capital markets. What will be key in the coming weeks and months is how the PBOC communicates its policies to the market, in this respect it may be prudent to learn from Janet Yellen’s and Mark Carney’s early stumbles and prime markets accordingly. Forward guidance would be wishful thinking but everyone would benefit from a more transparent communication process.

The World Bank has cut its global growth forecast to 2.9% for 2016 from its previous forecast in June of 3.3%. Citing a significant cooling of the Chinese economy and headwinds facing the Russian and Brazilian economies the organization expressed its concern regarding emerging markets as well as the global demand outlook for commodities. The projections for US economic growth were also pared with the bank forecasting a 2.7% expansion this year down from its previous forecast of 2.8% with a stronger dollar expected to curb exports. What will be key to any sustained rebound in fortunes for the global economy will be how China transitions from an export driven economy to one driven by consumption and services.

CSI 300 has lost over 11% so far this week

SHSZ300 Index Shanghai Shenzhen 2016 01 07 08 09 45

Offshore yuan whipsaws as investors are confused by PBOC action

CNH Curncy Offshore Deliverable 2016 01 07 07 56 05

Events for today

0700

DE

Nov

Factory Orders

0830

DE

Dec

Markit Construction PMI

1000

EZ

Nov

Unemployment

1000

EZ

Nov

Retail Sales

1230

US

Dec

Challenger Job Cuts

1330

US

w/e

Initial Jobless Claims

1445

US

w/e

Bloomberg Consumer Comfort

Topics: GDP, PBOC, CNH
More from: Kash Kamal