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Stocks rise, yuan weakens and Chinese exports increase

Stocks rise, yuan weakens and Chinese exports increase

Stock markets in Europe largely finished higher yesterday as sentiment remained a little on the optimistic side. 

 Bargain hunting and shorting covering might have assisted some of the major equity benchmarks, but trade concerns are still hanging over the markets – falling government bond yields highlights the fear factor.

Yesterday the Reserve Bank of New Zealand cut rates by 50 basis points, and door was left open to further rate cuts, and the possibility of negative interest rates were mentioned. The very mention of negative rates underlines the fear in relation to the state of the global economy. Central banks in India and Thailand also cut rates, and that adds to global view that monetary policy should be loosened to tackle the slowdown in growth.

Overnight, The Peoples Bank of China fixed the yuan above the 7 mark against the US dollar, and stock markets in Asia had a muted reaction to the news, as traders are getting used to the idea of a weaker Chinese currency. A couple of hours later, China posted the latest trade figures and US dollar denominated exports jumped by 3.3%, while the consensus estimate was for a drop of 2%. Imports fell by 5.6%, while traders were anticipating a fall of 8.3%. The softer yuan is helping exports, but the drop in imports highlights the falling domestic demand.                  

US stocks suffered during the middle of the session yesterday as some traders took their money out of equities and ploughed their funds into US government bonds, and in turn we saw further declines in US government bond yields. Last night, US stocks finished largely positive with the S&P posting fractional gains.

The US government accused the Chinese authorities of manipulating the yuan during the week, a claim that Beijing have denied, and yesterday, President Trump called for ‘bigger and faster’ rate cuts from the Fed. What started out as a US-China trade dispute, could turn into a global currency war.

Gold’s wining steak continued yesterday as the commodity racked up yet another six year high. The metal is being helped on two fronts, the side in the US dollar, and the risk-off attitude of traders. The perception the Fed will cut rates again later this is weighing on the US dollar, and that makes the metal relatively cheaper. The nerves in global equity markets has seen funds being poured into assets that are deemed to be lower risk, and gold has been on dealers shopping list.

Oil took a hit yesterday as trade concerns weighed on the energy. The oil market is often seen as a barometer for the health of the global economy, and fear that the trade spat between the US and China will drag on worldwide growth has dented the commodity. The Energy Information Administration report showed that oil and gasoline stockpiles jumped by 2.38 million barrels and 4.43 million barrels respectively, and the consensus was for a decline in inventories in both oil and gas.                                       

At 1.30pm (UK time), the US jobless claims report will be released and the reading is expected to come in unchanged at 215,000.    

EUR/USD – bounced back at the end of last week, and if the bullish move continues it might target 1.1300 – 200-day moving average. If the wider downward trend continues it might target the 1.1000 area.        

GBP/USD – has been driving lower since mid-March, and if the bearish move continues it might target the 1.2000 region. The 1.2400 area might act as resistance.

EUR/GBP – has rallied for over two months, and if it holds above 0.9089, it might bring 0.9300 into play. A move to the downside might put 0.9000 on the radar. 

USD/JPY – has been in a down trend since late April, and if the bearish move continues it might target the 104.63 region. Resistance might be found at the 50-day moving average at 108.09.

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