Charting the Markets: China's Plunge Again Rattles Global Markets
The 2016 global equity sell-off has entered its fourth day. $2.5 trillion of value disappeared from stocks in the first three trading days of the year. Look no further than China for what's behind today's move. The nation's central bank cut its yuan reference rate by the most since August, heightening speculation a slowdown in the world's second-biggest economy is deeper than official data suggest. Both Asian and European stocks slumped to a three-month low.
Trading in China lasted a mere 29 minutes today. For half of that time trade was suspended after the CSI 300 Index sank 5 percent, triggering automatic circuit breakers. Once the gauge sank 7 percent, trading was halted for a second day this week. Today's slide came after policy makers weakened the yuan for an eighth straight day, sending the onshore currency to a five-year low against the U.S. dollar. Billionaire George Soros, who made his name - and $1 billion - in 1992 when he bet the U.K. would be forced to devalue the pound, warned today that China is struggling to find a new growth model and its currency devaluation is transferring problems to the rest of the world.
Crude oil slumped for a fourth day, taking its decline this week to 13 percent. Both Brent oil and West Texas Intermediate traded below $33. Nomura warns Brent oil will slump to $30 in the next 10 days. UBS sees an oversupply pushing prices even lower. Concerns about China - the world's biggest commodity consumer - are exacerbating the selloff, which has sent WTI to the lowest since late 2003. Brent has sunk to the lowest since 2004. U.S. inventory data is also weighing on prices. Stockpiles at the largest oil storage hub in Cushing, Oklahoma, rose to a record. Crude slumped 30 percent in 2015 as OPEC countries effectively abandoned output limits.
U.S. 10-year government bonds are enjoying their longest winning streak in 13 months as China's economic worries prompt a flight to haven assets. The yield on the 10-year note has dropped 15 basis points since the Dec.29 close to 2.14 percent. That is below the level on Dec.16, when the Federal Reserve raised interest rates for the first time in almost a decade. The median view among analysts surveyed by Bloomberg is that yields will rise in 2016 - to 2.8 percent in the fourth quarter - as the Federal Reserve has indicated it'll raise interest rates as many as four times this year. Financial market turbulence in the first four trading days of 2016 has caused some to question how quickly policy makers will move again.