Markets lick their wounds from Chinese selloff

Fears that China may demand less oil drive market indecision, as the eurozone feels the blues over Greece again and the US consumer sentiment survey contradicts strong retails sales – yet good times are coming.

St Paul's Cathedral, London
Source: Bloomberg

It has been a very indecisive end to the week as investors try to gauge exactly how much impact this week’s yuan devaluation will have upon the Federal Reserve’s thinking, just a month before the all-important September meeting. Yuan devaluation is here to stay, with the IMF providing the Chinese all the encouragement they need, as it seeks to both raise the chances of its SDR inclusion while boosting its economic prospects.

The Chinese are by no means proponents of a free market, as seen by their action in the face of the stock market rout. However, when they know the direction the markets will take should they loosen their grip, it allows for the benefits of devaluation under the guise of  a more laissez-faire approach.

US light crude today pulled back from the six-year low seen overnight, as the worries over both demand and supply continue to rout the commodity space. Chinese yuan devaluation against the dollar means that all dollar denominated purchases of oil just became 3.6% more expensive and even if that means a very minimal fall in demand, it is not good news for oil prices.

The eurozone recovery stuttered once more today, following a fall in growth across the single currency region. The indecision surrounding a potential Grexit and the implications for the project as a whole, no doubt, will have suffocated investment. As such, with the new bailout deal likely to be signed off in the near future, I would expect eurozone growth to look a lot healthier in the forthcoming quarters.

US consumer sentiment fell in August, coming just a day after US retail sales portrayed a somewhat robust trend of spending patterns. Janet Yellen is known to be particularly keen on consumer sentiment and spending as an indicator of economic health. Thus, today’s surprise fall in the University of Michigan survey could add a small question mark into the mindset of Yellen at a very sensitive time for rate expectations.

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