Global equity markets sold off considerably this week. Renewed volatility in energy, tremors in high-yield debt and widespread expectations of tightening monetary policy from the Fed next week were all contributing factors.
OPEC’s decision to keep with current production levels continued to wreak havoc on energy markets this week. Poor Chinese macro data contributed to the selloff. Crude oil dipped back into the $30s for both WTI and Brent.
China cut the yuan’s reference rate to its lowest level since August 2011 earlier this week. The currency had been falling slowly over the past week but was cut noticeably on Tuesday. Some commentators suspect China made the move to get ahead of the Fed’s tightening while others are concerned about general weakness and capital outflows.
South Africa’s currency, the Rand, fell to an all time low this week after the surprise dismissal of the Finance Minister by President Jacob Zuma. The minister was dismissed after openly criticizing the President for fiscal mismanagement as well as other economic troubles.
Leveraged loans and high-yield debt have been drawing more scrutiny from investors this week ahead of the Fed meeting. Their poor performance for much of the year has fixed-income analysts questioning the health of markets in general.
Giant M&A activity continued this week as Dow Chemical and Dupont announced intentions to merge and then split into three separate companies. Both firms had been under pressure from activist investors over the past few years. The deal is expected to garner considerable regulatory scrutiny.
The Canadian dollar hit an eleven year low this week. Canada’s economy has been under pressure with the drop in oil prices but Central Bank Governor Stephen Poloz left the option open to negative interest rates in the future, further pressuring the currency.