Sentiment Remains Weak as Yuan Finds Stability

Stock markets look set for another disappointing start to the week on Monday following another rough session in China which came despite the Yuan showing some signs of stability. The People’s Bank of China fixed the mid-point higher at 6.5626 today, which, along with other rumoured measures to slow the decline, appears to have brought an end to the sharp declines seen last week.

The fact that we’ve still seen significant declines in equity markets – the effect of which is weighing heavily on markets throughout Asia – suggests that sentiment remains very weak despite this stabilisation in the Yuan and more may need to be done to bring about a similar response. The removal of the circuit breakers – which were ironically installed to shield against rapid market sell-offs but instead encouraged them – does appear to have brought some calm back but as we’ve seen over night, investors still clearly have no confidence in the markets and remain bearish.

The ongoing decline in commodity prices is doing little to instil confidence in investors. Oil suffered considerable losses last week and have got off to another bad start today, as the oversupply story is once again being compounded by concerns over Chinese growth and demand. China is one of the world’s largest consumers of oil so any slowdown in the country leading to a fall in demand will only apply further downward pressure to prices at the worst possible time. It seems that oil in the low 20’s, which would have been unthinkable a couple of years ago, is now a real possibility.

Once again we’re seeing the negativity around China feeding through into European markets this morning, with futures pointing to large declines. We’ll get the latest Sentix investor confidence reading from the eurozone this morning, which is expected to decline to 12.2 for January from 15.7 in December. This will be followed this afternoon by the labour market conditions index from the U.S. for December.

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.