China’s retaliation has kicked capital markets

Financial crisis

USA-China Trade War, USD/CNY, S&P 500, VIX, DJI, gold

US-China trade war has escalated again. Depreciation of Chinese yuan against US dollar below the psychological level of 7 USD/CNY (11 – year low) has braced volatility across capital and forex markets.

Immediately after weakening of Chinese currency, the S&P 500 declined for almost 3 percent, the biggest one-day decline since December 4 this year. So-called Fear Index (VIX), which measures capital market volatility, and its value is derived from the implicit volatility of the S&P 500, increased by 38 percent. The European stock index Eurostoxx50 fell by almost by 3 percent (the lowest value in the last 2 months). The US Dow Jones Index (DJI) fell by about 2.5 percent. On the other hand, the value of gold rose by approximately 1.3 percent.

Thus, the beginning of the week meant shift of investors towards “safer heavens.” In particular, investor’s shift to bonds, precious metals or Japanese yen can be expected.


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