(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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