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- China’s major stock indexes opened higher on Friday after Beijing ditched a circuit breaker mechanism that halted trading twice this week when share prices tumbled and had been blamed for exacerbating the market sell-offs. The People’s Bank of China also raised its guidance rate for the yuan for the first time in nine trading days, having allowed the currency’s biggest fall in five months on Thursday, sending shivers through regional currencies and global stock markets as investors feared it would trigger competitive devaluations. Chinese markets have had a turbulent start to 2016, buffeted by the PBOC’s lower yuan fixings against the dollar, two days of stock exchange suspensions, weak factory and service sector surveys and worries about looming share sales by major stakeholders once a ban on such sales expires. The circuit breaker, which only came into effect on Jan. 4, came under fire for kicking in too soon with its initial pause in trading and then encouraging a rush to sell before a second trigger halted the day’s trade permanently. China regulator orders banks in some hubs to limit dollar buying this month: sources The yuan firmed in early trade, with dealers suspecting that the central bank intervened through state-run banks to support its currency, which could help allay fears that any depreciation would be allowed to continue at pace. Markets will remain wary of China’s currency goals, as mixed messages come from the central bank, which has repeatedly said it sees no basis for the currency to depreciate, while steering it gradually lower. A flurry of Chinese economic data in the coming weeks is likely to show activity in the world’s second-largest economy continued to slow in December, adding to concerns about its economic outlook for 2016. Exports and imports are likely to have declined at a more rapid rate, a Reuters poll showed, while industrial output growth is expected to remain near recent lows.
- Fewer Japanese households expect prices to raise in coming years compared with three months ago, a Bank of Japan survey showed, and suggesting growing skepticism about the bank’s stand that its massive money printing will help accelerate inflation to its 2 percent target. Households were also less optimistic about the economy than three months ago, the survey showed on Friday, underscoring the fragile nature of Japan’s recovery. The ratio of households that expect prices to rise a year from now stood at 77.6 percent in December, down from 81.9 percent in September, according to the survey. The survey also showed the ratio of households projecting prices to rise five years ahead fell to 80.1 percent from 83.7 percent, a sign that slumping energy and commodity prices were hurting inflation expectations. An index measuring households’ sentiment worsened 2.1 points from September to minus 17.3, the survey showed. Under a stimulus program deployed in 2013, the BOJ aims to accelerate inflation to 2 percent on hope its massive money printing will change public perceptions that deflation will persist and encourage households to spend now rather than save.
- Oil prices rose more than 2 percent on Friday, following China shares higher after Beijing deactivated a circuit breaker mechanism that was blamed for aggravating equity market crashes, although a persistent global crude surplus kept a lid on gains. Oil prices plunged to 12-year lows in the previous session after China allowed its yuan currency to slip, sending stock markets tumbling globally. Beijing then suspended equities trading as the sharp falls triggered the circuit-breaking mechanism for a second time since its introduction this week. OPEC’s smallest member Ecuador, which has increased debt and reduced investments due to the oil price plunge, said it would continue to press for production cuts at the cartel’s next meeting scheduled for June. Natixis said in a note that global demand should rise by 1.1 million barrels per day (bpd) versus 1.7 million bpd in 2015. According to chart-watching oil analysts, if prices do not rally hard on Friday, they seem doomed to drop below $30 for the first time since 2003.