Yuan fixing - it's the new obsession for global traders

Investors monitoring stock market movements at a brokerage in Shanghai on Aug 13.
Investors monitoring stock market movements at a brokerage in Shanghai on Aug 13.PHOTO: AFP

MUMBAI (BLOOMBERG) - It's the new must-watch indicator for markets worldwide, with the power to move prices from Tokyo to London and Chicago.

The Chinese central bank's daily fixing for the yuan, long overlooked by investors outside the country, has transformed into a global market-moving event after a devaluation on Tuesday took almost everyone by surprise.

For the past three days, it has influenced everything from Asian currencies to commodities and US index futures, prompting traders around the world to change their schedules so they can react to the announcement that comes each day at 9:16 am Hong Kong time.

"We are waking up early and all my friends have the yuan on the top of their screens," said Dhiraj Bhutoria, a director at Varun Tradecom Pvt, a Kolkata-based securities brokerage.

After years as one of the least-volatile major currencies, the yuan tumbled the most since 1994 on Tuesday after China allowed market forces to have more influence. Where the currency goes from here will have an impact not only on growth prospects for Asia's largest economy, but also the Federal Reserve's interest rate policy and earnings for international companies from Apple Inc. to BMW AG.

The People's Bank of China cut its reference rate by 1.1 per cent at the fixing Thursday, spurring a drop of as much as 0.4 per cent in U.S. equity-index futures, a 1.2 per cent slide in copper, while Treasuries erased gains.

"Market volumes were extremely quiet heading into the fixing," said John Gorman, head of dollar interest-rate trading for Asia and the Pacific at Nomura Holdings in Tokyo. "As soon as the fixing took place, we saw an initial spike higher."

This week's plunge in the yuan spurred the biggest two-day selloff in Asian currencies since 1997 and drove a gauge of commodities to a 13-year low. The US dollar weakened as investors speculated the yuan's depreciation will sap inflation globally. Traders have pushed down the odds of a September rate increase by the Fed to about 40 per cent Wednesday, from 54 per cent as recently as Aug. 7, according to data compiled by Bloomberg.

Shares of BMW, which received about 19 per cent of its revenue from China in 2014, sank 7.8 per cent in Germany in the two days through Wednesday, while Apple slid to its lowest since January.

For Mark Matthews, head of Asia research and a managing director of Bank Julius Baer & Co. in Singapore, the obsession with the yuan - also known as the renminbi - will wane as volatility ebbs.

"A month ago, everybody was focused on the Shanghai stock market, and a month before that, everybody was focused on Greece," he said. "Absolutely, the first thing everybody looks at when they come in in the morning now is the renminbi. But will it be like that a month from now? I doubt it."