Publication date: 5 September 2015 | Covering: August 2015
Monthly Briefing
- China shock: yuan devalued 1.9% August 11; People’s Bank switches to market-oriented fixing; currency war fears erupt
- “Black Monday” August 24: Shanghai falls 8.5%; S&P 500 falls 3.9%; Dow drops 1,000 points at open; global equities in freefall
- Fed July 28–29: Holds 0–0.25%; says “some” further improvement needed; liftoff “appearing” — September hike in doubt
- Greece: third bailout €86bn agreed August 14; Tsipras capitulates; capital controls partially lifted
- Oil falls below US$45/barrel; commodity rout deepens; Venezuela and other oil exporters in severe stress
- BOJ easing; Jamaica IMF EFF; NHT J$6.5 million ceiling; rates 0, 2, 4 per cent
China’s August Shock: Yuan Devaluation and Black Monday
August 2015 will be remembered primarily for the shock delivered by China’s currency authorities and the market meltdown that followed. On 11 August, the People’s Bank of China announced a 1.9 per cent devaluation of the yuan against the US dollar and a reform to the daily fixing mechanism that would henceforth be based more closely on the previous day’s market close rather than a purely administratively set rate. The PBoC described the move as a step toward making the yuan more market-determined — consistent with its long-stated reform goals — but markets reacted with alarm: the change was interpreted as a signal that China was willing to allow the currency to fall further to support an economy growing more slowly than official figures might suggest. The yuan fell by a further 1.6 per cent on 12 August and 1.1 per cent on 13 August before the PBoC intervened to stabilise it. The shock to global risk appetite was severe and immediate. The currency shock interacted with already elevated concerns about Chinese growth and the commodity price rout to produce one of the most dramatic market dislocations since the global financial crisis. On 24 August — “Black Monday” — the Shanghai Composite fell 8.5 per cent in a single session. The S&P 500 fell 3.9 per cent and the Dow Jones Industrial Average dropped almost 1,000 points in the first minutes of trading — its largest intraday point fall in history at the time. Global equity markets fell by 5 to 10 per cent over the week, commodity indices hit multi-year lows, and emerging market currencies came under severe pressure.
Fed July Statement: ‘Approaching’ Liftoff
The Federal Reserve’s July 28 to 29 meeting had held rates steady at 0 to 0.25 per cent and characterised the labour market as approaching conditions that would be appropriate for liftoff, while noting that “some” further improvement was still needed. The tone of the July statement was broadly consistent with the prevailing market expectation that the first rate hike would occur in September 2015, which had been the dominant market view following Chair Yellen’s June remarks. The intervening August China shock, however, significantly complicated the September calculus: the financial conditions tightening that accompanied the China-driven global sell-off was in effect doing some of the Fed’s tightening work for it, and the uncertainty about the global growth outlook made a September hike less clear-cut. By the end of August, market pricing for September had fallen from around 50 per cent to below 30 per cent. The question of whether China’s slowdown represented a temporary correction or a more fundamental deceleration in global growth was the central uncertainty facing monetary policymakers globally.
Greece Capitulates; Third Bailout Agreed
Following the extraordinary Greek drama of July — the missed IMF payment of 30 June, the snap referendum on 5 July in which voters rejected the creditors’ terms by 61 per cent, and the subsequent reversal by Prime Minister Tsipras who accepted a programme even harsher than the one rejected — Greece agreed a third bailout of €86 billion from the European Stability Mechanism on 14 August. The deal was approved by the Greek parliament and by multiple eurozone member parliaments through August, and funds began to be disbursed. Capital controls that had been imposed in late June were partially lifted. Greece’s banking system, recapitalisation of which was a central plank of the new programme, received emergency liquidity support. The immediate crisis of a Greek eurozone exit had passed, though the underlying debt sustainability questions remained unresolved, and the IMF publicly stated that it could not participate in the programme without a commitment to debt relief from European creditors — a commitment they were unwilling to make explicitly.
Jamaica Mortgage Market in August
Jamaica’s mortgage market navigated August’s extraordinary global volatility with relative stability, underpinned by the BOJ’s domestic easing policy and the IMF programme framework. Oil prices below US$45 per barrel were a direct benefit to Jamaica’s petroleum import bill, supporting lower consumer price inflation and reducing the cost of energy for households and businesses. The NHT’s J$6.5 million individual ceiling and tiered rates of 0, 2, and 4 per cent continued to anchor affordable housing finance. The summer diaspora engagement period generated property market interest from overseas-based Jamaicans, and the broader economic environment — supported by strong tourism performance and remittance inflows — provided a solid foundation for gradual mortgage market recovery.
Looking Ahead
The Federal Reserve’s September 16 to 17 meeting is the next major central bank event, and the decision on whether to begin the first rate hike in nine years is now genuinely uncertain in a way it was not a month ago. The China situation and global financial conditions will be decisive. For Jamaica, the IMF programme review and the new fiscal year budget planning cycle are the primary domestic considerations. The approaching peak of the Atlantic hurricane season through September and October is the perennial seasonal risk for the Caribbean property and tourism sectors. The mortgage market is expected to see a seasonal pick-up in applications after the summer holiday period concludes.
Mortgage & Housing Finance Disclaimer: This publication is for general information only and does not constitute mortgage, financial, legal or investment advice. Mortgage products, lending criteria, interest rates and borrowing costs vary between lenders and may change without notice. Readers should obtain independent advice from a qualified mortgage adviser, financial adviser or legal professional before making financial or property decisions.
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