People’s Bank of China Forced to Intervene in Markets
The coronavirus crisis in the People’s Republic of China has caused a rush from investors to sell shares as Chinese stock markets opened for the first time since the outbreak began. Markets were closed for the lunar new year holidays, but officials extended the public holiday by three days to try and contain the spread of the virus. Chinese Stock markets had their worst opening day in 13 years, with the benchmark CSI 300 falling by nearly 8%.
This was all despite the central bank in Peking providing over $170 billion in additional liquidity (through short-term reverse repurchase agreements) to financial markets to negate the effects on investor confidence. Whilst it may be said that these actions by the central bank have limited market panic to a certain extent, it does not bode well for the world's second largest economy. Official statistics had shown Chinese growth at a 29-year low, mainly due to a bruising trade war with the United States. With this latest health emergency sending the country into effective shutdown, it is likely to hit producer output and consumer demand even further.
Knock-on effects have not been as profound in other international markets as in China, but it should be noted that these markets have been operating as normal over the last 10 days. Neighbouring countries and regions such as Mongolia, Hong Kong and Russia have already severely restricted border crossings with mainland China and the United States, Australia and Singapore have banned entry to those who have recently been in China. Gold has been volatile over the last week in US dollars, fluctuating between $1.563.45 and $1,591.45 per troy ounce. It is now currently trading at $1,569.65 per ounce, which is a fall of 0.52% over the last week.
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