This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
It will be hard to gauge the long-term impact of China’s decision to intervene in the value of its currency, but that hasn’t stopped stock markets from moving southward with alacrity. One thing is clear, however, and that is the weak state of China’s economy, or at the very least concerns that things will get worse unless action is taken. Markets have become rather too accustomed to the idea that Chinese growth will decline gradually below the 7% level, but they may be in for a rude shock if the slowdown is more rapid than expected.
ZEW numbers from Germany were poor as well, providing little incentive to chase European indices higher; indeed, with the European recovery seemingly in stall mode, it looks like investors have run out of reasons to continue allocating funds to Europe.
Yet another plunge in oil prices has added to the general risk-off atmosphere this afternoon, with the usual August caveat that lower volumes will lead to more dramatic movements. Saudi Arabia’s cut in oil production seems to be just a symbolic act, as the long-running oversupply story comes into focus once again. This will only intensify as Iranian production hits the market, suggesting that energy firms will be at the forefront of any correction in equity prices.