China takes heavy-hand to settle market

China's Shanghai A-Share exchange has fallen roughly 28% since hitting a peak on June 12th, after having risen 152% over the previous year. This is a classic case of a frothy stock market that is coming back down to earth, and it partly reflects the immaturity of markets in China in general.

For all its losses over recent weeks, the Shanghai index is still up roughly 52% since November 2014. Volatility will likely persist, but given how aggressive the authorities appear to be in trying to restore market order, further large scale declines are increasingly unlikely. While it is too early to assess the exact impact on China's economy, the rout poses an additional downside risk to GDP growth, according to TD Economics notes on Thursday.

The potential impacts for the rest of the world are mainly through commodity markets and trade channels.

In the case of Canada, lower oil prices at a time of otherwise sluggish economic growth are another downside risk facing the economy.

For the U.S. whose economy is only modestly dependent on international trade, the economic impact is limited. However, substantial fallout from the rout on China's economy does add a potential hurdle for a September rate hike, added TD Economics.