Beijing sent tremors through global markets on Tuesday with the devaluation of the state-controlled yuan to pep up its struggling exporters, as well as announcing plans to allow market forces a bigger say in setting its value.
The move hit commodity and oil prices — crude had its worst week since January — amid worries China’s voracious appetite for raw materials will slacken.
Goldman said the devaluation “has been important for commodity markets and we believe it signals that global macro conditions have changed”. It added: “Even China has now joined the negative feedback loop that is running between commodity deflation, growth and deleveraging trends… (and) we believe the net commodity market effects are bearish.”
The investment bank also believes continued spending by the Chinese government is vital to support prices as infrastructure investment accounts for around 25% of steel and 15% of copper demand in the world’s second- biggest economy.
“Removal of fiscal support and a more rapid deleveraging would result in a rapid decline in steel and copper demand,” the bank warned.
Full article: China’s currency move will be a global hit, warns Goldman Sachs (The Independent)