On 12 August, 2015 – European markets plunged as the Chinese currency was devalued once again

Stocks plunged in Asia Pacific and in Europe as the Chinese currency once again declined. Stocks in the US however, after following global stocks lower, rebounded, erasing virtually all of their losses.
United States
US stocks managed to erase losses incurred earlier in the day, unlike stocks in Europe and the Asia Pacific. Strategists point out that the US economy is better insulated to a slowing China than the Eurozone. The US is less trade dependent than other major economies and as a result, weaker growth would benefit the US relative to the rest of the world. The Dow Jones industrials were virtually unchanged (down 0.33 point), the S&P added 0.1% and the Nasdaq edged up 0.2%.
Making exports from China cheaper, The People’s Bank of China has slashed the value of the yuan by the most in decades. It is a move designed to prop up the slowing Chinese economy at the expense of international competitors. The decision is seen as a signal that Beijing is seriously concerned about slowing economic growth in China, with people inside the government pushing for an even lower exchange rate to help the country’s struggling exporters.
Apple rallied, reversing an earlier drop. Intel advanced to pace gains among technology companies. Exxon Mobil and Chevron advanced to lead energy shares higher. Macy’s tumbled after its quarterly profit missed estimates. Tiffany and Coach declined amid concerns of slower growth in China.
China’s unexpected currency move has bolstered speculation the Federal Reserve may have to delay raising interest rates. The threat of a slowdown in China could harm global growth, while lower commodity prices dampen inflation. The probability of a rate increase in September slipped to 40% from 54% Monday according to futures trading data compiled by Bloomberg.
Gold at the afternoon London fixing was up US$10.75 to US$1,119.00. Copper futures were up 0.7% to US$2.35. WTI spot crude was up 34 US cents to US$43.42. Dated Brent spot crude was up 58 US cents to US$49.76. The US dollar was down against all of its major counterparts including the euro, yen, pound, Swiss franc and the Canadian and Australian dollars. The US currency was up 1.0% against the yuan. The Dollar Index dropped 1.2%. The yield on US Treasury 30 year bond was up 3 basis points to 2.84% while the yield on the 10 year note added 1 basis point to 2.15%.
Europe
European stocks were pummeled, extending steep weekly losses after China doubled down on Tuesday’s shock yuan devaluation. The move in the yuan has hit European companies who rely on Chinese demand for their products particularly hard. The FTSE was down 1.4%, the CAC retreated 3.4%, the DAX dropped 3.3% and the SMI declined 2.6%.
Henkel plunged after reporting second quarter results. E.ON was down after management warned about falling profits. Daimler, BMW, Volkswagen, Peugeot and Fiat Chrysler dropped. Luxury good makers Burberry Group, LVMH, Hermes and Christian Dior retreated. Heidelberger Druckmaschinen was down after reporting first quarter data. Credit Suisse Group was down after it was reported to be in talks to settle allegations related to its “dark pool” trading venue. Geberit declined after reporting lower profit for the first half of the year. Unilever retreated after a broker downgrade. Randgold advanced as the devaluation of the yuan supported gold prices.
Asia Pacific
Stocks tumbled for the second day running as China let its currency fall sharply for a second straight day in an attempt to revive exports and jump start the nation’s economy. The People’s Bank of China set the yuan fixing at 6.3306 against the U.S. dollar, 1.6% weaker than the previous day’s level, sending shock waves through global equity and commodity markets.
There are fears that other countries that rely on exports to China will seek to devalue their currencies to compete in a world of slower growth. While Vietnam widened the dong’s trading band to allow the currency to weaken, Indonesia’s rupiah and Malaysia’s ringgit hit 17-year lows. China’s yuan hit a four-year low, pushing the US dollar higher and heightening concerns about a global currency war. The US currency fell against a basket of currencies as Treasury yields dropped on expectations that China’s devaluation of the yuan could delay the Federal Reserve’s fed funds increase.
The Shanghai Composite was down 1.1% thanks to a raft of weak data on industrial production and retail sales which stirred concerns that the Chinese economy is in much worse shape than currently believed. The Hang Seng dropped 2.4%. July industrial production was up an annual 6.0%, which was below expectations for a 6.6% increase and was down from 6.8% in June. Retail sales grew an annual 10.5%, slightly down from 10.6% growth in June.
The Nikkei retreated 1.6% as renewed worries about the strength of China’s economy overshadowed news of a technical agreement in Greece’s bailout deal. Export related shares closed broadly lower. Companies that have heavy exposure to China including Komatsu, Hitachi Construction Machinery and JFE Holdings plunged. The yen remained weak as the Bank of Japan released minutes of its July 14 and 15 meeting and a decline in the July corporate goods price index cast shadow on hopes for sustained inflationary improvement.
The S&P/ASX closed down 1.7% while the All Ordinaries lost 1.6%. BHP Billiton, Rio Tinto and Fortescue Metals Group slumped amid a commodity price collapse that reflects concerns about China’s shrinking growth. Oil Search, Woodside Petroleum and Santos retreated as crude oil prices tumbled to a six-year low on worries that China’s economy may grow at a much slower pace in the second half of the year than projected by the government. The Kospi was down 0.6% on foreign fund selling. The Sensex lost 1.3%.
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 reports June machine orders. France and Germany release July consumer prices. The European Central Bank releases minutes from its July 16 governing council meeting. In the US, July retail sales and import/export prices along with June business inventories and weekly jobless claims, money supply and Fed balance sheet will be released.
*Note — all releases are listed in local time.