Unexpected CNY devaluation signals Beijing in crisis mood

In a surprise move, the PBoC effectively devalued the CNY today. The official explanation was the adoption of a market-based approach on setting the fixing rate, but the rising growth concerns played a bigger role. 

"The devaluation is growth positive but insufficient to ensure 7% growth. More stimuli are needed. The global impacts would depend on whether the CNY weakness is prolonged", says Nordea Bank.

Tuesday morning the People's Bank of China (PBoC) caught most people off guard by devaluing the CNY. The central bank fixing rate, set by the PBoC every morning, was weakened by 1.9% from 6.1162 to 6.2298. 

Not surprisingly, it spread to the spot CNY and CNH, which at the time of writing lost 1.8 and 2.2% vs the USD, respectively. For the spot CNY, it was the largest daily loss since January 1994. The fixing rate, introduced in November 2005, has never seen a bigger one-day move. 

Despite the pro-growth move, Chinese equities offer a mixed performance, with Shanghai composite index down and Shenzhen slightly up.