Asia stocks at 17-month low as China lets yuan slip

Asian shares hit 17-month lows on Tuesday as China allowed its currency to slip past a psychological bulwark amid sharp losses in domestic share markets, a shift that pressured other emerging currencies to depreciate to stay competitive.

The IMF added to the malaise by cutting forecasts of global growth for both this year and next, including downgrades to the outlook for the United States, China and Europe.

“Risk sentiment is in a foul mood and stocks are sinking everywhere,” said analysts at JPMorgan in a note.

“With Chinese economic momentum continuing to weaken alongside increasing pressure from the U.S., currency weakness is the obvious release valve,” they warned. “A lurch through the 7.0 level by year end is possible.”

China’s central bank on Tuesday fixed its yuan at 6.9019 per dollar, so breaching the 6.9000 barrier and leading speculators to push the dollar up to 6.9320 in the spot market.

The drop should be a positive for exporters and did help Shanghai blue chips briefly edge up 0.1 percent in early trade before trading almost flat. Yet that follows a 4.3 percent slide on Monday which was the largest daily drop since early 2016.

MSCI’s broadest index of Asia-Pacific shares outside Japan eased another 0.2 percent after ending Monday at its lowest point since May last year.

Japan’s Nikkei fell 1.2 percent, hurt in part by a rise in the safe-harbor yen.

On Monday, a senior U.S. Treasury official expressed concern at the fall in the yuan, adding that it was unclear whether Treasury Secretary Steven Mnuchin would meet with any Chinese officials this week.

On Wall Street, the tech-heavy Nasdaq had fallen for the third straight day on Monday and growth stocks were pressured by worries rising bond yields might ultimately hobble the economy.

The S&P 500 lost 0.04 percent and the Nasdaq Composite 0.67 percent, while the Dow rose 0.15 percent as defensive stocks found buyers.