Central bank lowers guidance rate as new economic data disappoints 8.07am BST As forecast the latest Chinese moves to devalue its currency have sent European markets lower.The FTSE 100 is down 71 points or just over 1%, with commodity companies under particular pressure. Fears of a slowdown in China - a key consumer of commodities - have pushed the likes of Glencore, Rio Tinto and BNP Billiton down around 3% after hefty falls on Tuesday. 8.04am BST One of the problems with the Greek economy which needs to be tackled as part of its reforms is the issue of tax evasion. But this is no simple matter according to the government. Greek newspaper Kathimerini reports:Alternate Finance Minister Tryfon Alexiadis has described the issue of tax evasion in Greece as complex in an interview with the Belgian newspaper L’Echo, while stressing that he will be judged on his ability to collect taxes.Asked why collecting taxes seems so hard in Greece, Alexiadis pointed to a lack of political will to ensure a working system and interventions by politicians and others.After five years of tax rises, Alexiadis noted that the situation is tense. Last week tax collectors on Rhodes were roughed up by business owners and citizens while conducting spot checks.“These reactions are the start of fascism,” he said. “Citizens cannot attack officials for doing their job.” 7.54am BST Back with China, and the central bank moves seem to be having the desired effect:Message sent, received and understood. Chinese yuan spot rate -1.95% today, down even more than yesterday's fall pic.twitter.com/As8EhY5bQu#China Yuan drops in ‘vicious cycle.’ Sets for biggest 2day drop since 1994. http://t.co/bMUCu63bR4 pic.twitter.com/VeFKY7kA7OCapital economics says china not declaring a "currency war", move about reform pic.twitter.com/v9NzIqfFSWThe renminbi has been one of the most highly controlled currencies in foreign exchange and had a quasi-peg against the dollar for some time, but just as we saw from the Swiss National Bank earlier in the year, when economic conditions shift, action has to be taken to adjust the value of a currency to take it to a fairer value. Such moves are usually in the interest of your own domestic economy and since China has been slowing rapidly for years against the backdrop of a slower global economy, it’s little wonder the data has been disappointing and the PBOC has been upping the ante on the monetary stimulus front.These fundamentals would cause any free floating currency to fall in value, so it should not come as a surprise to see the devaluation occurring and further weakness could follow as China attempts to give provide its exporters with a more competitive environment. This move is impacting risk assets due to the unpredictability of the PBOC’s action and as it will have a knock on deflationary impact for China’s big trading partners. 7.51am BST In the UK there are unemployment and average earnings figures due later. Economics editor Larry Elliott says:Fresh jobs and wages data for the UK will be closely scrutinised by the Bank of England and the City for evidence that the surprise jump in unemployment reported last month was a blip.With the economy growing strongly in the second quarter, the latest figures for the labour market are expected to show a modest improvement in employment and annual earnings growth running close to 3%. Related: Employment figures expected to show slight improvement The unemployment rate is expected to stay at 5.6%, while the increase in average earnings of 3.2% that we saw in May is expected to moderate slightly to 2.8%, still well above the headline and core rates of CPI inflation. 7.44am BST Elsewhere today, Greek parliamentary committees are due to discuss the proposed third bailout deal which will give the beleaguered country access to around €85bn of new funds, ahead of a 20 August deadline to make a €3.2bn payment to the European Central Bank.Greek prime minister Alexis Tsipras wants lawmakers to examine the proposals, with a view to a vote in parliament on Thursday. 7.39am BST Here are IG’s opening calls for European markets:Our European opening calls: $FTSE 6627 down 38 $DAX 11175 down 119 $CAC 5065 down 34 $IBEX 11061 down 91 $MIB 23523 down 176 7.35am BST Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.A day after the Chinese authorities surprised markets by devaluing the country’s currency, the People’s Bank of China lowered its guidance rate for the yuan by 1.6% compared to the previous close. The move reinforced fears about the country’s slowing economy, and sparked further fears of a currency war.The output number is bad. This kind of data will only accentuate the negative outlook that everyone has about the economy. Many people were expecting an improvement and there is no improvement.In retrospect they probably saw this data before yesterday’s devaluation. I’m not suggesting the data triggered yesterday’s move but it could have been a factor. Continue reading...
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