Asian shares hit four-year lows on Monday while U.S. stock futures were seen broadly lower on Sunday indicating that the rough start to 2016 is not yet over. The People's Bank of China surprised (and confused) analysts by guiding the yuan's midpoint rate significantly stronger, a move that called into question Beijing's long term intent for its currency policy. The People's Bank set the mid-point fix at 6.5626 against the dollar. Though once hoping for an annual growth of 6.5 percent in 2016, Chinese officials have admitted that this goal may not be realized.
On January 7th the yuan had its biggest one-day drop in guidance rate in five months, and Monday's move was clearly an attempt to reverse this move. The move comes only two days before Wednesday's report of Chinese data that is expected to highlight declines in both imports and exports and to shed light on a weakened global trade flow.
The Shanghai Composite lost 9.97 percent last week, erasing all of its 2015 gains in only five trading days. The index fell another 3.85 percent during Monday's trading while the Shenzen Composite lost 5.2 percent.
Japan as a Safe Haven
Though Japanese markets were closed on Monday the yen remained strong, with the U.S. dollar falling near a five-month low of 116.70 yen before climbing back to 117.22.
The South African rand (ZAR) collapsed to record lows before reversing and Japanese traders were selling rands for dollars and then trading dollars for yen.
IG Markets analysts are calling for European indices including the DAX, FTSE and CAC to open broadly lower on Monday as well.