On 11 August, 2015 – Global markets retreated after the People’s Bank of China devalued the yuan

Indices with companies that have exposure to China tumbled. Energy and materials shares also plummeted as commodity prices sank.
United States
US stocks fell sharply Tuesday, led by declines in energy and materials shares as commodity prices sank. Prices for oil and copper dropped sharply after China’s government lowered the value of its currency, suggesting weakness in the country’s economy. The Dow Jones industrials were down 1.2%, the S&P retreated 1.0% and the Nasdaq lost 1.3%.
In a surprise move, the People’s Bank of China devalued its currency, the yuan. The action sent stocks tumbling, especially those of companies with exposure to China. The bank set the value of yuan at 6.2298 per US dollar, 1.9% lower than Monday’s official fixing rate. In recent months, the yuan has strengthened along with the dollar as currencies of other developing countries have weakened, hurting Chinese exporters. The PBoC said market forces would be given a bigger role in setting the exchange rate, leaving open the possibility of more declines.
Google advanced after it announced a new structure for the company that included separating its Internet business from some of its more speculative research projects. A new holding company will be named Alphabet. American Airlines and Southwest Airlines gained as the prices of oil fell again. Fuel is one of the biggest expenses for airlines, and lower fuel costs typically mean higher profits for airlines. General Motors and Tiffany retreated. Apple declined. Commodity producers from Freeport-McMoRan to Dow Chemical sank amid concerns about China’s growth.
Yum! Brands and Wynn Resorts dropped to pace a slide in consumer discretionary shares. It is estimated that Yum derived 53% of its second quarter revenue from China, while 59% of Wynn’s quarterly sales came from its operations in Macau. Micron Technology retreated — sales from China comprised 41% of the chipmaker’s fiscal 2014 revenue. Apple sank — it reported that 27% of its sales in the June-ended quarter came from China.
Gold at the afternoon London fixing was up US$11.25 to US$1,108.25. Copper futures were down 2.6% to US$2.33. WTI spot crude was down US$1.57 to US$43.39. Dated Brent spot crude was up US$1.06 to US$49.35. The US dollar was up against the yen, pound, Swiss franc and the Canadian and Australian dollars. However, it declined against the euro. The Dollar Index was virtually unchanged. The yields on both the US Treasury 30 year bond and the 10 year note declined 9 basis points to 2.81% and 2.14% respectively.
Europe
Investors took fright after the PBoC’s move. The FTSE, which is heavy with miners, declined 1.1%. The CAC and DAX, where big exporters were punished, dropped 1.9% and 2.7%, respectively. The SMI lost a relatively mild 0.9%.
However, investors said they felt some relief after Greece early Tuesday reached an agreement with its creditors over the terms of the third bailout. There are minor details yet to be resolved. The deal will likely unlock around €86 billion loans for Greece. The agreement has to be passed by parliament this week.
Export stocks with exposure to China — mainly auto stocks and luxury goods — retreated in response to the move. A difficult trading session for Glencore was mirrored by declines in BHP Billiton, Rio Tinto and Antofagasta. BMW and Daimler tumbled. The carmakers have big business in China. Pernod Ricard dropped in Paris. Ferragamo, Coach and Tod all declined. Manz fell sharply after reporting first-half results. Prudential, which also reported first-half results declined. SIG, a distributor of specialist building products, declined after the company reported first-half results that showed a decline in revenues. Human resource provider Adecco was lower after reporting second quarter results. Swatch and Richemont were down. Julius Baer and UBS also retreated. Burberry, which sells extensively in China, also retreated. Prudential reversed an early fall to rally after posting a forecast beating 17% rise in first half operating profit.
German economic confidence deteriorated to a nine month low in August according to ZEW. Economic confidence dropped 4.7 points to a reading of 25.0 in August, the lowest score since November 2014.
Asia Pacific
Asian stocks declined Tuesday as investors mulled the impact of China’s abrupt devaluation of its currency on the global currency markets and the major economies. In an unexpected move to boost exports and make the exchange rate more market determined, the People’s Bank of China lowered the yuan’s fixing rate against the US dollar by 1.9% from the previous day. This is in contrast to the PBoC’s practice of setting a mid-point for the yuan’s exchange rate each morning, which could be 2% higher or lower from the previous session’s closing value. The surprise devaluation of the yuan sparked a tumble in emerging markets. The Shanghai Composite index ended a choppy session unchanged while the Hang Seng slipped 0.1%.
The Nikkei was down 0.4% as investors in Japan assessed the impact of yuan devaluation on the domestic economy and exports. Companies with exposure to China declined. Utility Kyushu Electric Power retreated after restarting its Sendai No.1 reactor. Rival Kansai Electric Power also declined. Dai-ichi Life Insurance was up after its quarterly net income jumped 68%.
Both the S&P/ASX and All Ordinaries shed 0.6%. Banks were mixed on concerns over new reserve requirements imposed by the Australian Prudential Regulatory Authority. Bionic ear maker Cochlear plummeted after its full-year profit rose 56%, missing estimates. Miners BHP Billiton, Rio Tinto and Fortescue Metals Group advanced after Dalian iron ore futures climbed more than 3%. Newcrest and Evolution Mining jumped after gold prices rose to a three-week high amid uncertainty over the timing of the Fed’s expected rate increases.
The Kospi average dropped 0.8%, closing below the 2,000 mark for the first time in nearly five months. The Sensex declined 0.8% after China devalued its currency. Concerns over poor monsoon rains and the logjam in Parliament also rattled investors.
Global Stock Market Recap

Please remember, the value of investments and the income from them can do down as well as up. Funds that invest in overseas markets may be subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.
Looking forward*
Japan releases the July producer price index. China reports July industrial production and retail sales. India releases July consumer prices and June industrial production. The UK reports July labour market report and the Eurozone posts June industrial production. In the US, June JOLTS and Treasury budget will be reported.
*Note — all releases are listed in local time.