February 3, 2020
The Chinese stock market re-opened overnight, after being closed for a week, for the Lunar New Year. That holiday week just happened to coincide with the outbreak of the coronavirus.
So, heading into what was promising to be a disastrous day for Chinese stocks, the Chinese government got in front of it with large intervention — injecting $174 billion into the markets (adding to bank liquidity). That gave the banks a deluge of cash with which they undoubtedly became buyers of stocks — helping that effort, the Chinese government suspended short selling. And we got this big 9% gap down on the open, and drift higher.
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Meanwhile, the Chinese government moved the value of the yuan back above 7 yuan per dollar (the orange line rising represents a weaker yuan, stronger dollar). |
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These two spots (stocks and the yuan) will likely dictate the sentiment in global markets in the coming days, unless there is new news on the trajectory of the pandemic threat. The extent to which the Chinese government walks down the value of the yuan will be a good gauge as to how economically damaging (and uncertain) they perceive this health crisis to be. Because of this chart … |
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China's economy, the second largest in the world, has already been running at recession-like economic activity, before the outbreak. It's hard to imagine that number not plunging considerably in Q1, despite the massive liquidity injection. CNBC said half of China is shut down, and those parts accounted for more than 80% of national GDP last year.
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