Hey Equities…“Yuan-na” go for a ride?

BMO Global Asset Management – Market Commentary
Reposted with permission BMO

It was a tough week for global equities, with the MSCI World Index (local currencies) falling 7.2% following the three days of yuan devaluation which saw a roughly 3% weakening of the Chinese currency vs the U.S. dollar. This was taken as a double threat by markets: a) a signal that Chinese economic growth is in much poorer condition than previously indicated by Chinese authorities, and b) the beginning of a currency war that also pulled other Emerging Market (EM) currencies lower over the week in anticipation of similar central bank moves from other countries. Commodity prices reflected this fear as well, with oil falling back to the $40 dollar level, as the still surging oil production was compounded with the prospects of falling demand.

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