US Presidential elections, China economy setting tone for markets

By Staff Writer

Mar 14, 2016 04:15 AM EDT

China's economy growth rate and the US Presidential race are clouding over stock markets. After witnessing a rebound in February, the global markets are looking to US elections and stimulus plans on China's economy for further cues. 

S&P 500 index started recovering in February 2016 and ended the month on positive note. Despite witnessing some selloff, bonds have outperformed stocks as an asset class this year so far. Along with declining of S&P500 index, Chinese currency Yuan also fell and this is impacting the foreign trade.

People's Bank of China (PBOC) is facing multiple challenges such as slowing down of economy, drop in foreign currency reserves, capital outflow and Yuan volatility. Soon after S&P 500 index tumbling by 10 percent, China devalued its currency Yuan in August 2015. Subsequently, Chinese central bank further devalued Yuan in January amid continued drop of S&P 500 index. Global markets are dancing to the tunes of Chinese economy, as reported by See It Market.

If one more devaluation takes place in China's Yuan, then this will be a knee-jerk reaction in US equities. However, China has massive foreign currency reserves. Chinese officials say that some economists are underestimating the world's second largest economy's resilience. Chinese government is confident of balancing growth and reforms.

Foreign exchange market volatility has been impacting global financial markets of late. Foreign exchange volatility is considered to be deeper problem in the economy. Chinese central bank chief Zhou Xiaochuan sees normality is returning to rationality and fundamentals. Renminbi rose to its strongest this year so fat to 6.4881 against the US dollar, as reported by Financial Times.

Xiao Yaqing, head of the State-owned Assets Supervision and Administration Commission, said "Protecting workers' interests is an important factor throughout the next stage of (SOE) reform. We'll use mergers, acquisitions and restructuring largely and minimize bankruptcy as much as possible."

Meanwhile, Asian markets extending Friday's gains rose further on Monday as traders turned positive to monetary policy decision taken by European Central Bank (ECB). Japan's Nikkei-225 index rose 2.08 percent. South Korea's Kospi added 0.16 percent. Hong Kong's Hang Seng index added 1.23 percent. Australia's S&P/ ASX 200 rose 0.66 percent. Shanghai Composite index rose two percent and Shenzhen Composite gained 3.2 percent, according to CNBC.

Some economists raise doubts  whether China tackles long-term challenges of restructuring economy. Major challenges such as overcapacity and loss making zombie companies are impacting economy growth. Some top Chinese officials say that government may not embrace radical restructuring at the expense of social stability. 

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