– This is the script of CNBC's news report for China's CCTV on August 12, Wednesday.
Welcome to CNBC Business Daily, I'm Qian Chen.
Investors around the world were taken by surprise on Tuesday after the People's Bank of China (PBoC) devalued the yuan by almost 2 percent against the U.S. dollar, causing the currency to suffer its biggest fall in over two decades.
The central bank cut the renminbi's daily peg against the U.S. dollar to 6.2298 renminbi, down from 6.1162 on Monday, describing the unexpected move as a "one-off depreciation". But market watchers have widely interpreted it as the first of many moves to help restore competitiveness in the Chinese economy by weakening the currency.
"The new mechanism for determining the central parity of the Renminbi announced by the PBC appears a welcome step as it should allow market forces to have a greater role in determining the exchange rate," said IMF in a statement. "The announced change has no direct implications for the criteria used in determining the composition of the basket. Nevertheless, a more market-determined exchange rate would facilitate SDR operations in case the Renminbi were included in the currency basket going forward"
China has been moving carefully towards RMB's globalization since 2005.
18 May 2007: Trading band widened to 0.5% from 0.3%
July 2008 - June 2010: Financial crisis, effectively pegged
15 March 2014 - -Trading band widened to 2% from 1%
27 May 2015 - IMF: yuan no longer undervalued
11 August 2015 - Mid-point benchmarked against interbank rates
[Alex Wong, Director - Asset Management, Ample Capital] "I think eventually floating is better, but we had a system which has been fixed for too long. so right now the renminbi is overvalued by too much I think. So this is a very difficult situation, because if we devalue renminbi too fast, I think that will cause a lot of chaos in China."
The move has also prompted fresh talk of global "currency wars" additional monetary easing elsewhere, and even speculation that the U.S. Federal Reserve will be slower to raise interest rates. However, David Dietze, President & Chief Investment Strategist, Point View Wealth Management says the talk of globaly "currency wars" is overdone, but believes there will be winners and losers.
[David Dietze, President & Chief Investment Strategist, Point View Wealth Management] "there's gonna be winners and theres gonna be losers. we saw a lot of losers on Wall street today. If you are getting a lot of earnings from China or even overseas, you are in trouble. If you are luxury good maker, or auto maker trying to sell to China, you are having trouble. If you are trying to sell commodities to China, if you are commodity producer, you are in trouble. But here's a lot of winner too. Let's start with US consumer, verything we are importing is now cheaper."
The move sent shockwaves through markets, as currencies with heavy trade exposure to China hit lows against the U.S. dollar and equities on both sides of the Atlantic tanked. Commodities were hit hardest, as oil and industrial metals faced severe selling.
Currencies among the most severely hit were the Australian and New Zealand dollars which tumbled 1.3 percent and 1 percent against the greenback respectively. Japan's Yen also fell to a two-month low.
"The next couple of days will be watched closely. We believe PBoC will let the fix adjust further to market forces, albeit more gradually. Meanwhile, the central bank could also smooth the upside in onshore dollar-yuan (USD-CNY) spot to prevent it from overshooting and ensure market order. Eventually, USD-CNY should gradually settle at a new equilibrium level," head of global emerging markets FX research at HSBC, Paul Mackel said.
CNBC's Qian Chen, reporting from Singapore.
Oil Analysts SOT
[Barnabas Gan] "Well, I would think that the world is still in oversupply territory right now. When we look at the US, when we look at OPEC. OPEC has been overproducing, as you have correctly pointed out. And the oversupply climate right now is likely to put downward pressure on crude oil prices. If the sentiments actually fall further, we wld not be surprised to see crude oil prices fall below $40."
Marked: ALEX CCTV FEED 2 in/out
"Indeed. I think if we just look at what Iran has said actually, most importantly, what we have actually seen is that when Iran announced that it can actually lift about 500,000 barrels a day, within two weeks of xxxx xxxx, the oil markets actually reacted very drastically. It actually fell way below $50 when the news happened. So, I think just taking this as reference, it's most important to note that the markets will likely be looking at whatever rhetoric the major oil players are going to say. What I say about major oil players I'm actually referring to what the U.S. are going to say, what the OPEC is going to say, and most importantly, what Iran is going to say. Going forward for the next six months, well if you just see what OPEC has said actually, just overnight the OPEC has actually announced that it has still over-produced at 21 barrels a day in June, and in July. So, really, the old supply climate is likely here to stay."
FEED: SG-CC GUEST 1200H WED
[David Hewitt] "So I think that you know Iran has probably made a difficult but a necessary decision and it's going to play by the rules this time and come back into the international community. It's probably going to largely perform to the verification period and only come back and xxxx that period. Now, is that the end of the year, is is very early next year, is that four or five hundred thousand barrels a day. Initially, it will be that order of magnitude and really what will matter at that point is how demand momentum has continued to support that incremental supply coming through. I think that Iran is coming back. I think the question is how quickly and then some of the medium and long term effects, positive or negative, form increased supply coming through."
Marked: david cctv feed 4 in/out
"I really don't. I think this week is a meeting for fifteen different fractions in Libya trying to be brought together. Libya has said that it could go back up from the 370 thousand barrels a day at the moment to something like a million barrels. Now, a negative scenario would be fourth quarter, we see Iran come back, and we see Libya ramp. That would be a very negative fourth quarter for the markets. Always impossible to call Libya and I don't really think there's a lot of credibility in the view that it's coming back anytime soon."