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China chaos continues despite best efforts

China chaos continues despite best efforts

Asian shares struggled on last night as investors feared fresh cuts in China’s interest rate would not be able to stabilise a slowing economy or stop a further breakdown in Chinese stocks that is currently causing havoc in worldwide markets. There has been an overall 20% plunge in stock prices over three days.  

The People’s Bank of China also cut interest rates late Tuesday and dropped the quantity of reserves that banks must hold in a much-anticipated move that economists had long been waiting for. This move was cheered by the world’s markets initially, although it wasn’t to last long as investors quickly reset their sights on the worsening outlook for China and the impact on the world’s economy.

The net effect against the Greenback has also broadly lost steam as the market unwound large carry trades that had built up on higher yielding assets and instead moved into safe-haven currencies such as Euro and Yen.

Yesterday saw the strong price action from the Euro reverse and take steps to find stability versus its most traded counterparts. From an economic perspective, German GDP figures were in-line with consensus yesterday. This would have provided some sense of stability given the unstable nature of the German economy for much of this year. In similar fashion, German IFO data was released which exceeded expectations.

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