Is Ray Dalio hinting at this?
According to the head researcher of the Chinese central bank, it wasn’t China’s slowing economy or the commodity sell off that led to the global market meltdown of the last few sessions, the equity market crash was actually caused by the expectation/fear of a Fed rate hike in September.
The chief of the People’s Bank of China’s Research Institute of Finance, Yao Yudong, commented to China’s state news agency Xinhua on Tuesday that the anticipation of the looming U.S. Fed rate hike had been the “trigger” for the extreme market volatility. He argues that analysts all across the globe were concerned that a Fed rate hike could lead to a plunge in U.S. stocks, which could precipitate a sell-off of financial assets worldwide or even a new global credit freeze up and financial crisis.
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Advice from PBOC head researcher: Fed should hold off on rate hike
In his comments, Yao went on to suggest the U.S. Federal Reserve should remain “patient” until U.S. inflation reaches its target of 2%.
A number of analysts in various countries have suggested over the last few days that the devaluation of China’s yuan was the primary factor in causing the stock market crash and the sell off in commodities and currencies in other countries.
The Shanghai Composite Index (the benchmark for China’s stock markets) dropped another 7.63% to close at 2,964.97 points on Tuesday. The index is down a stunning 26% over the last six trading days.
On Monday, the U.S. Dow Jones Industrial average fell a shocking 588 points (3.58 percent) to 15,871. The DJIA was actually down over 1,000 points (6.1%) in the first few minutes of trading on Monday. European and U.S. markets moved up on Tuesday, with most Euro markets up close to 3% and the DJIA was up 325 points (2.1%) as of 1 PM ET.
Li Qilin, a research analyst with Minsheng Securities, commented that the relatively small devaluation of Renminbi could have had some impact on equity markets, but it could not possibly explain the heart-stopping global stock sell off. Li argued the perception of a growing liquidity crunch was actually the main cause of the market meltdown.