Spreadex Market Update
Reassuring words from PBOC leads to strong European open, Shanghai Composite still unsteady
Firstly the world leaders at the weekend’s G20 summit backed the mid-August yuan devaluation as a necessary, if unpleasant, step if China wants to move towards a more market-driven currency. Then the governor of the People’s Bank of China, Zhou Xiaochuan, assured investors that the ‘correction in the stock market is almost done’, with more stability on the horizon. Finally, the NDRC claimed that China’s economic outlook in August looked strong, even if the National Bureau of Statistics cut the country’s 2014 growth from 7.4% to 7.3%.
Yet the Shanghai Composite still spent its return lurching between losses and gains, eventually closing down by around 2.5%. This suggests that, whilst Xiaochuan might be confident (at least publically) that the worst is over, investors aren’t fully convinced there won’t be more losses to come. It doesn’t help that the PBOC’s actions in the past few weeks have hardly eased the situation, meaning whatever assurances the central bank provides hardly carry the previously perceived omnipotent force of the Chinese government, a perception that was perhaps irrevocably damaged across August.
Still, the European sessions opened with some pretty healthy gains, the FTSE, DAX and CAC all up over a percent. However, with little on the horizon for the rest of the day, it will be interesting to see how long the European indices can remain in the green, and whether this morning’s positive open is more due to a correction of the US-inspired losses of last Friday than any renewed faith in China.
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