China has a message for currency speculators: the free lunch is over.
China's central bank has suspended at least three foreign banks from conducting some foreign exchange business until the end of March. Included among the suspended services are liquidation of spot positions for clients and some other activities related to cross-border, onshore and offshore businesses.
By closing loopholes in its regulations, China is trying to stabilize the yuan after a surprising revamp of its currency-valuation system in August led to capital outflows and prompted policy makers to tap $213 billion of foreign reserves to support the yuan. The risk is that discouraging arbitrage will cause the exchange rates to diverge further, undermining the goal of unifying the two markets.
Today [Monday 4-Jan-2106] China suspends trading after shares slide 7%.
Trading on the Shanghai and Shenzhen stock exchanges was ended early on Monday, the first trading day of 2016 after shares fell 7 per cent, the first time China's new "circuit breaker" intervened to curb market volatility. The drop in the CSI300 index, which covers both bourses, for the first time triggered an automatic early closure under the new system, after an initial 15-minute trading halt failed to stem the declines.
The falls followed poor data from official and private surveys of manufacturing in the world's second-largest economy. In addition, measures introduced to curb China's mid-2015 share slump are about to expire.
Naturally all the worlds stock markets have and will follow suit with substantial drops on opening. It really does not bode well for the year.