"Oil Or Yuan Depreciation: Which Is Greater Global Risk?"

From Barron's Emerging Markets Daily blog:

In the near term, pressured oil prices may trump the prospect of a sharp depreciation in the Chinese yuan (CNY) as the biggest risk to financial markets, Barclays says. 

Oil is flying higher today, with the U.S. price up 10% to a recent $29.98 per barrel, and the international Brent benchmark is up 9% to roughly $32.60. That’s lifting all markets, commodities-driven companies and emerging market funds. Petroleo Brasileiro (PBR), Brazil’s state-controlled oil producer, was up 8% in recent trading, Brazil mining giant Vale (VALE) was up 9%, Argentina energy producer YPF (YPF) was up 7%, and PetroChina (PTR) was up more than 5%. With headlines that a ceasefire in Syria, even if temporary, could bring together factions in the Middle East, the SPDR S&P Emerging Middle East & Africa exchange-traded fund (GAF) was up 3.4%, while the iShares MSCI Emerging Market ETF (EEM) and the iShares MSCI China Large-Cap ETF (FXI) were up 1% apiece. 

Researchers Ajay Rajadhyaksha and Jeffrey Meli write: 

“The three main issues facing financial markets are pressure on senior liabilities of European financials, a new decline in oil prices and related spill-over effects, and further weakness in the Chinese economy and currency. We believe that imminent solvency fears related to European financials are overdone and likely to fade, even as concerns persist about lower profitability, continued legal risks, and exposure to energy and emerging markets. 

Over the medium term, the prospect of a sharp depreciation in the CNY is a big risk to financial markets. Over the near term, the issue that could most pressure markets is a further decline in oil, with the related spill-over into high yield and emerging market energy exporters. While the risk-off move has been violent and seems too extreme relative to economic fundamentals, we are closely watching for any spill-over from financial volatility into the real economy. We do not expect a sudden turnaround in risk sentiment, with Chinese equity markets set to open after a week and the prospect of heavy downgrades in U.S. energy credits looming … Unlike in past risk-off episodes, investors cannot look to the Fed to improve near-term sentiment ...MORE

Also at Emerging Markets Daily:
Oil Output Cut In March, As Saudis, Russia, US & Turkey Talk Syria Ceasefire?