PBoC devalued the Yuan, will currency war reignite?

Yesterday’s markets

12th August 2015

  • German ZEW Economic Sentiment: 25.0
  • EUR ZEW Economic Sentiment: 47.6
  • US Prelim Unit Labor Costs q/q: 0.5%
  • US Prelim Nonfarm Productivity: 1.3%
  • JPY Monetary Policy Meeting Minutes

There were two market grabbing stories yesterday, China devaluing the Yuan and a Greek bailout deal agreed 'in principle'.

Starting with China, the central bank devalued the Yuan, to its lowest rate against the US Dollar in almost three years and stated the move was a "one-off depreciation". It comes after a string of weak economic data from the nation. Over the weekend, China reported a sharp fall in exports and a slide in producer prices to a near six-year low in July. It is hoped that a weaker currency will reignite growth. Overnight the Yuan fell close to another two percent which is the sharpest two day slide in the currency in two decades.  The question marks now arise as to whether we will see a rise in currency wars across the globe.

Meanwhile, Greece has agreed a bailout deal "in principle" with its creditors. Greek Prime Minister Alexis Tsipras has asked parliament to convene so that MPs can debate the details on Wednesday before a vote on Thursday. The  €85bn three-year agreement is needed to keep Greece in the Eurozone and avert bankruptcy. It looks likely that the deal will go ahead which involves several fiscal measures but it could also be a case of déjà vu. The news gave the Euro a boost in yesterday morning’s trading session.

Data from Germany on the whole has been positive, however yesterday’s ZEW economic sentiment unexpectedly deteriorated in August, hitting its lowest level since November last year. This could be a sign that Europe’s largest economy is losing momentum.

Today’s markets

11th August 2015

  • CNY Industrial Production y/y
  • CNY Fixed Asset Investment ytd/y
  • UK Average Earnings Index 3m/y
  • UK Claimant Count Change
  • UK Unemployment Rate
  • Greek Gov Debt Crisis Vote

After last week’s surprisingly dovish ‘super Thursday’, the market pushed back expectations for a Bank of England rate rise, with the consensus now for the end of Q1 2016. Wednesday’s raft of high tier labor data if bullish, could put an earlier than forecast rate hike back on the table. In the afternoon, the US release a piece of key labour data of their own, in the form of the JOLTS job openings.