Wednesday, August 12, 2015

Economic Journal - Wednesday, 8/12/2015



(As of 7:25 am PST)

The global equity markets continued to face pressure Wednesday after a second consecutive day of surprising currency intervention from China’s central bank. On Tuesday, the People’s Bank of China sparked panic throughout the world’s stock markets as it devalued the Chinese Yuan by 1.9% - the biggest single-day decline in more than two decades. In another surprise move overnight, China once again let its currency slip, this time by 1.6%, creating more strain between China and the rest of the world. A declining Yuan is good for Chinese exporters, but bad for international companies that export to China. An already strong US dollar is making it more difficult for US based companies to ship goods overseas. Weakening exports in the US ultimately trickle down to a lower GDP figure. An example of this can be seen in Apple’s stock yesterday, which plummeted 5%. As China continues to devalue its currency, Apple’s products become more expensive to Chinese consumers, thus cutting into Apple’s sales to the world’s second largest economy. The implications of what China is doing are significant and the selloff in the past two days throughout Europe and the US, reflect the concern market participants have. Throw in a technical move that the Dow made yesterday known as ‘the death cross’ and you have the ingredients for what could be a volatile August. Gold prices are up 1% on the perceived safe-haven play while oil prices are also heading up ahead of a report on crude inventories. Interest rates are down as investors sought the safety of the US treasury.

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