Friday flight to quality

The final trading day of this week saw a flight to quality across the markets anid Chinese growth concerns. This followed comments from China’s Central Bank, that they are willing to let the currency weaken further.

This came a week after the IMF announced that the Yuan will be included in special basket of global currencies. They also emphasised that people should look at the Yuan’s value to all trading partners, not just the dollar. So they would need to let the Yuan depreciate more to match its trading partners in Asia and Europe. All this re-ignited Chinese growth concerns from a couple of months ago. The Chinese are worried about their export competitiveness, hence the reason for their statements today.

This news caused the Dollar to weaken, the Dollar index was almost a point down on the day at its lows. If China seeks to rebalance its foreign currency reserves to better match its trading basket, it would need to sell a significant amount of its Dollar holdings. Despite the weaker dollar, Oil continued to fall to further lows as there seems to be no end to the supply glut. Stocks were hit hard, with all major indicies trading down over 1% and the DAX was down over 200 points on the day. The flight to quality saw a strong performance in Bonds, with US 10 year yields having their biggest weekly decline since October. Driven by the continue commodity slump, causing low inflation and therefore a belief that the Fed will increase rates gradually over the coming years. Resulting in a flattening of the curve in America.

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Reuters: Business News