Follow Joshua McCallum
Joshua McCallum is Head of Fixed Income Economics at UBS Global Asset Management, where he provides economic analysis to support and challenge portfolio managers. Before joining UBS in 2005, Joshua worked for the UK Treasury, dealing with an eclectic range of topics including international macroeconomics, the UK budget, economic reform in Europe, and post-conflict fiscal policy in Iraq.
Last week's equity sell-off was led by a drop in Chinese equities. Are the markets telling us something about the state of the global economy? It is likely that the equity markets are reflecting a growing pessimism about growth prospects for China, and its potential knock-on effects for the rest of the world. But equity markets also tend to overreact.
What are the implications for China's trading partners of the recent devaluation of China's currency? An ongoing devaluation could create problems for the Eurozone, and to a lesser extent the US. But falling commodity prices triggered by a slowing China could offset a lot of the damage.
China announced last week a change to its currency regime, allowing the market a greater determination in the exchange rate. Financial conditions have been too tight, and the CNY had become overvalued. The increase in flexibility not only helps with monetary policy, but also helps China in its arguments to have the CNY included in the IMF's SDR basket.
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