China and Emerging Markets

Panic gave way to simple anxiety on Wall Street last night as the only news of any consequence was a fall in the oil price.

Global inflation levels have been held in check during the emerging markets boom as China in particular has exported deflation. Will it be different now?

Skyrocketing food prices pushed China’s monthly inflation rate to the highest level in a decade in July.

Last night the ECB made a startling move by injecting E95bn into the banking system as BNP Paribas froze three hedge funds through lack of liquidity. The Dow fell 387 points.

The Dow rose 153 points last night, but it wasn’t all smooth sailing.

A slowing economy on the back of the sub-prime crisis means the US no longer leads the world in base metal consumption, but an expected pick-up in coming months keeps Barclays positive on the sector.

As the US deals with a credit crunch, it would not be a good time for China to start dumping US Treasuries. But it is threatening to do so if the protectionist groundswell is not addressed.

I was the biggest up-tick since October 2002, but traders remained unconvinced of the integrity of last night’s rally. Oil finally tipped over.

Weak jobs data set the market off again as a US mortgage lender went under and Bear Stearns fuelled the pessimism.

Wall Street traders could be forgiven for feeling nauseous at day’s end following a session dominated by extreme volatility, culminating in a strong rally in the final twenty minutes.