Global Markets Chinese turmoil leaves stain on global markets as ringgit slides

by **Cals** Fri 14 Aug 2015, 18:53

Global Markets
Chinese turmoil leaves stain on global markets as ringgit slides

(Aug 14): Financial turmoil triggered by China’s decision to weaken the yuan was slow to dissipate in global markets as Asian currencies fell, led by the biggest drop in the Malaysian ringgit since 1998. While European stocks rose, futures signaled U.S. shares will fall.
Currencies from Singapore to Russia weakened as investors reassessed their holdings of emerging-market assets amid China’s devaluation, tumbling oil prices and prospects the Federal Reserve will increase interest rates. Turkey’s lira weakened to a record low after talks to form a coalition government failed.
“It’s been quite a turbulent week,” said Benno Galliker, a trader at Luzerner Kantonalbank AG in Lucerne, Switzerland. “We need to find a new balance. It has much to do with data coming out of the U.S., and the focus will come back to what the Fed will do.”
The Bloomberg JPMorgan Asia Dollar Index fell 0.2 percent at 10.26 a.m. in London, heading for its worst week since 2011. Standard & Poor’s 500 Index futures slipped 0.2 percent. Oil headed for its seventh weekly decline amid signs a global glut will be prolonged, while iron ore headed for its longest run of weekly increases since July 2014 after explosions at the Chinese port of Tianjin disrupted shipments to the world’s largest buyer.
China’s yuan halted a three-day slide after the central bank raised its reference rate for the first time since Tuesday’s devaluation and said it will intervene to prevent excessive swings. The onshore spot rate was little changed at 6.3912 per dollar, after falling almost 3 percent this week.
Malaysia has borne the brunt of a selloff in emerging markets this week, with the ringgit plunging as much as 2.8 percent to the weakest since August 1998. Concern has grown the nation is running out of ammunition to defend its currency as oil declines and a political scandal involving Prime Minister Najib Razak grows.
Bank Negara Malaysia Governor Zeti Akhtar Aziz said Thursday the central bank will need to rebuild foreign-exchange reserves that have fallen below $100 billion for the first time since 2010.
Turkey’s lira weakened as the country faced the prospect of a second general election this year. Prime Minister Ahmet Davutoglu, who’s also head of the governing AK Party, said on Thursday that negotiations with the main opposition CHP to form a government had failed.
West Texas Intermediate oil fell 31 cents to $41.90 a barrel, heading for the longest run of weekly declines since January. The global surplus will last through 2016, the International Energy Agency said Wednesday, while OPEC reported that output climbed last month to the highest level in more than three years.
Iron ore futures on China’s Dalian Commodities Exchange are near the highest in more than a month. Ore with 62 percent content delivered to Qingdao, another Chinese port and a benchmark price, climbed to the highest in more than six weeks on Thursday, adding 1.3 percent to $57.02 a dry ton, according to Metal Bulletin Ltd. Prices have risen 1.1 percent since last Friday, set for a fifth week of gains.
Government bonds stabilized in developed markets after rallying earlier in the week. Germany’s 10-year bund yield was little changed at 0.62 percent, down from 0.66 percent at the end of last week. Britain’s 10-year gilt yield climbed one basis point to 1.85 percent. The yield on 10-year Treasury notes was at 2.18 percent.
The cost of insuring corporate debt held near the highest in a month. The Markit iTraxx Europe Index, which tracks credit- default swaps on investment-grade companies, was at 67 basis points. A gauge of junk-rated companies’ CDS dropped four basis points to 310 basis points.