Yuan cut clobbers markets, rekindles fear of forex war

Tue Aug 11, 2015 4:37pm EDT
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By Noel Randewich

SAN FRANCISCO (Reuters) - China's 2 percent devaluation of the yuan hit global equities and U.S. oil prices on Tuesday with investors fearing a new currency war as well as declining Chinese economic momentum.

Wall Street ended lower as investors contemplated the implications of a move designed to support China's slowing economy and exports. The MSCI All World Index .MIWD00000PUS of global shares fell 1 percent.

"What is good for growth in China is unfortunately bad for everybody else," said Bill McQuaker, co-head of the multi-asset team at Henderson Global Investors.

The Dow Jones industrial average .DJI fell 1.21 percent to finish at 17,402.84 and the S&P 500 .SPX moved 0.96 percent lower to 2,084.07. The Nasdaq Composite .IXIC dropped 1.27 percent to 5,036.79.

Oil prices declined as dollar-priced commodities became more expensive, weighing on demand. U.S. crude CLc1 lost more than 4 percent to $43.08 a barrel, its lowest settlement since March 2009.

"It's time to sell any and all rallies," said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow in New York, who believes oil prices are heading lower.

Companies that sell to China were hit hard, with heavy equipment maker Caterpillar (CAT.N: Quote) losing 2.65 percent. Natural resource company Freeport-McMoRan (FCX.N: Quote) dropped 12.27 percent.

The pan-European FTSEurofirst 300 index .FTEU3 lost 1.68 percent, led lower by car makers and luxury goods companies, whose products are now more expensive for Chinese consumers.   Continued...

A bank clerk counts U.S. dollar banknotes on bundles of 100 Chinese yuan banknotes at a branch of a bank in Huaibei, Anhui province April 26, 2012.  REUTERS/Stringer