Daily Agenda: China Jitters Rattle Global Markets

Emerging and frontier markets continue to see currency volatility; Valeant to acquire maker of new female libido drug.


Andrey Rudakov

In a statement released late yesterday, the International Monetary Fund announced that there would be no change in China’s special drawing rights basket until next month, despite hopes by Beijing policymakers that the People’s Bank of China move last week to liberalize the currency band mechanism would be a catalyst for the yuan’s inclusion. Chinese equities dipped sharply again in early trading on Thursday, with the Shanghai Composite index declining by nearly 3.5 percent in intraday trading. The slump comes on the heels of reports in Chinese media that a subsidiary of the nation’s sovereign wealth fund, China Investment Corporation, spent more than $3 billion in stock purchases yesterday, a potential explanation for the sharp recovery in share prices during the trading session. As regulators and central bank leaders struggle to restore confidence, consensus expectations continue to lessen, with Citigroup becoming the latest bank to lower GDP guidance, cutting forecasts for 2016 to an annualized 6.3 percent.

Emerging- and frontier-markets currencies continue to roil. In the latest salvo of the emerging-markets currency wars, the central bank of Kazakhstan today allowed the nation’s currency, the tenge, to float freely, tempting to defend its value in the face of oil’s sharp decline. The Central Asian nation’s key trading partners are Russia and China, two countries themselves wrangling with plunging commodities prices and currency volatility. Within hours, the tenge plunged by more than 25 percent in trading against the U.S. dollar. Separately, the South African rand today fell below 13 to the U.S. dollar for the first time in 14 years on weaker commodity demand signals.

Federal Reserve sends no string signals in leaked minutes. After Bloomberg inadvertently released the minutes from the Federal Open Market Committee’s July meeting 24 minutes before the 2 pm embargo lift, investors found that the Fed’s policymakers remain divided on the timing of a rate hike. In the minutes, FOMC members indicated that low inflation remains a factor as they wait for “some” additional improvement in employment.

U.K. retail sales slower than expected last month. According to data released by the U.K. National Office of Statistics this morning, the pace of activity at the cash register was weaker than expected in July, with total sales growth of 0.1 percent month-over-month versus consensus forecasts of 0.4 percent. Despite missing forecasts, the pace of spending, at 4.2 percent year-over-year, brings the nation to the longest consecutive string of monthly gains since 2008.

Austerity measures passed in Brazil. Brazilian President Dilma Rousseff, who faces a call for impeachment as the ever-widening Petrobras investigation implicates more members of her government, notched a victory yesterday with helping to push through corporate tax hike legislation. The plan is expected to boost government revenue by nearly $3 billion as the government struggles to shore up finances and avoid sovereign downgrades as oil revenues slump.

Valeant to acquire libido drug maker. The Wall Street Journal today reported that Quebec–based Valeant Pharmaceuticals International is nearing a $1 billion acquisition of Sprout Pharmaceuticals citing unnamed sources. Sprout recently received FDA approval for Addyi, a drug intended to boost the libido of female patients.