The announcement that the People’s Bank of China had lowered the daily fix around which the currency trades against the dollar by 1.6% on Wednesday pushed markets around the world in to the red with miners among the hardest hit.
In London, Lonmin fell 6.5% by midday, Glencore was down more than 5%, while BHP was 1.2% lower and Anglo American was 1% down. Rio Tinto, however, bucked the trend up a marginal 0.2%.
In Australia, the decline was even more noticeable; the S&P ASX 200 Resources index was down almost 4% on the day.
Some other notable losers in London were automotive distribution play Inchcape and branded consumer goods play Unilever
In broader terms the move was strictly risk off with commodities continuing their slump and developed market bonds getting a slight boost on the news, as IG senior market analyst, Chris Beauchamp, pointed out in a morning market report: “When such moves are on the cards, the logical reaction from investors is to seek shelter in bonds, which is exactly what is happening now.
“A weakening yuan hits US exports to China, putting the brakes on US economic growth, and thus potentially causing the Fed to stay its hand. September’s rate hike looks much less likely this morning than it did just 48 hours ago,” he said.
Sterling was also weaker in morning trade, dropping to a one month low against the euro as the weaker data from the office for national statistics on the UK’s labour market was seen to marginally weakened the case for a rate hike in the UK.
David Stubbs, J.P. Morgan Asset Management global market strategist acknowledged that while the labour report showed some near-term weakness, in particular the slowdown in average weekly earnings growth from 3.2% to 2.4%, the details suggested reasons to be more positive on the long-term outlook.
“The details of the report: suggest this is a temporary blip in an otherwise improving picture that will eventually support the case for an increase in interest rates next year.”
