China's devaluation and CBA's capital raising set a nervous tone for this morning's trading
CBA’s $5bn capital raising does not come as a surprise; however investors will be anxious about its impact on the banking sector this morning. A key issue for the short term will be the extent to which other bank stocks might be sold to make way for an increased allocation to CBA in investor portfolios.
China’s surprise devaluation yesterday has seen both commodities and commodity currencies such as the Aussie dollar sold. To some extent this simply reflects and adjustment to valuations against the $US. The fact that the Yuan is now lower against the $US makes it appropriate for the Aussie to fall against $US and other currencies to maintain an appropriate valuation against the currency of its largest export customer, China.
Weakness in both commodities and commodity currencies also reflects the possibility that there will be further devaluation of China’s currency against the $US. There are also concerns that this move may signal deepening pessimism about growth in China’s economy. This will heighten market focus on this afternoon’s release of China’s retail sales and industrial production data for the month of July.
Ironically, the initial reaction to the announcement of other forms of stimulus by China has tended to be positive whereas the currency devaluation has created concerns about why authorities consider it necessary. However, to the extent that the currency to depreciation against the $US removes the need for other more “commodity friendly” forms of stimulus such as infrastructure spending, it may be a future negative for commodity demand.
For further comment from CMC Markets please call 02 8221 2137.
Frequently Asked Questions about this Article…
CBA's $5 billion capital raising is causing anxiety among investors as it may lead to the selling of other bank stocks to make room for increased allocations to CBA in investor portfolios. This could impact the overall banking sector in the short term.
China's surprise devaluation of its currency has led to a sell-off in commodities and commodity currencies, including the Australian dollar. This adjustment reflects a need to maintain appropriate valuations against the US dollar, given China's status as Australia's largest export customer.
There is concern about further devaluation of China's currency because it may indicate deepening pessimism about China's economic growth. This uncertainty is causing market focus on upcoming economic data releases from China.
In the long term, China's currency devaluation might reduce the need for other forms of stimulus, such as infrastructure spending, which are more commodity-friendly. This could negatively impact commodity demand in the future.
Markets have generally reacted positively to other forms of economic stimulus from China. However, the currency devaluation has raised concerns about the underlying reasons for such a move, creating a more cautious market sentiment.
Investors should pay close attention to China's retail sales and industrial production data for July, as these figures will provide insights into the country's economic health and potential future currency movements.
The Australian dollar is considered a commodity currency because Australia's economy is heavily reliant on the export of commodities. Changes in commodity prices and demand can significantly impact the value of the Australian dollar.
Investors seeking further commentary on these developments can contact CMC Markets at 02 8221 2137 for more insights and analysis.
Call 1300 880 160
Start a chat
Schedule a call
