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 On another rollercoaster day in Asia, Chinese shares plunged again
before ending higher, Vietnam devalued its currency and Japan's
Nikkei index took its biggest fall in more than a month.
European shares fell and index futures suggested the downbeat tone
would carry over to Wall Street.
In Germany, lawmakers overwhelmingly voted in favor of a third Greek
bailout, increasing the likelihood Athens would be able to make a
loan repayment to the European Central Bank later this week.
The main European equity markets were down between 0.7 and 1.2
percent and safe-haven government bonds were back in favor.
The dollar weakened broadly pending the Fed's minutes and U.S.
inflation data that could signal whether the central bank is on
track to raise interest rates next month.
It would be the first rise in almost a decade, but rocky emerging
markets and a renewed slump in commodity prices that will drag on
inflation are raising doubts about the timing.
Any mention of the slowdown in China or worries about oil prices
trading near six-year lows could be seen as a sign the Fed is
prepared to wait longer.
"The thing everybody is watching on a day-to-day basis is the whole
EM complex. There are all sorts of wobbles going on in China and the
market is all over the place," Gavin Friend at National Australia
Bank in London.
The Shanghai and Shenzhen markets fell more than 4 percent early on,
but state-backed buyers moved in later in the day, enabling both to
finish up more than 1.2 percent.
It is a pattern that has been repeated several times since Beijing's
"national team", a coalition of state-backed financial institutions
and regulators, went into action early last month with instructions
to halt a crash in share prices.
After last week's devaluation, spot yuan closed at 6.3955 per
dollar, slightly weaker than Tuesday's close of 6.3938.
"We think yesterday's stock market crash (in China) reinforced yuan
depreciation sentiment, which will encourage more capital outflows,
necessitating more open market operations and ultimately a reserve
requirement ratio cut in the current quarter," strategists at ING
wrote.
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GOOD AS GOLD
Oil was still weak after its brief bounce on Tuesday, weighed down
by prospects of U.S. demand weakening in autumn and the slowdown in
Asia's leading economies.
U.S. crude futures were down 0.5 percent at $42.39 per barrel,
edging back towards a 6-1/2-year low of $41.35 struck on Friday.
Brent crude was three cents higher at $48.84 a barrel, but still in
reach of 6-1/2-month troughs.
But copper prices, which had slid to a six-year low of $4,983 a
tonne, breaking the psychological $5,000 level, recovered to $5,013.
Gold, one of the few metals to benefit from the EM turmoil, was up a
tick at $1,121 an ounce.
The euro, helped by the dollar's dip, traded at $1.1037, having hit
a one-week low of $1.1016 on Tuesday. Sterling was steady at 1.5660
while the yen inched up to 124.35 to the dollar.
"The market will be most interested in where U.S. inflation comes
in, because this is something that will determine not just when the
Fed begins to normalize policy but also the pace at which they
tighten, going forward," said Barclays FX strategist Hamish Pepper
in London.
(Additional reporting by Samuel Shen and Pete Sweeney in Shanghai,
Ayai Tomisawa in Tokyo and Nigel Stephenson in London; Editing by
Ruth Pitchford and Andrew Heavens)
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