Stock markets enjoyed a rally yesterday as the Peoples Bank of China (PBoC) fixed the yuan marginally above the 7 mark against the US dollar, but the fixing was lower than expected so it didn’t rock the boat. 

Central banks weakening their currency to adjust to the slowing of their economies isn’t anything new, and in the grand scheme of things the yuan hasn’t undergone a major devaluation in recent months.

To a lesser extent, the Chinese trade data gave a lift to global sentiment too. Exports increased by 3.3%, while economists were expecting were expecting a drop of 2%. Imports declined by 5.6%, which underlines the weakness in the domestic demand, but it was better than the -8.3% that traders were expecting. With the softer yuan, it is no surprise that exports increased.

Last night, the PBoC fixed the yuan fractionally higher than the 7 mark again, and there was a muted reaction to the move. Overnight, China posted the latest CPI figures, and the CPI rate was 2.8%, while economists were expecting it to remain on hold at 2.7%. The move higher in the cost of living was attributed to the rise in food prices on account of the swine fever crisis, as non-food inflation only rose by 1.3%. The PPI update was released at the same time, and the reading came in at -0.3%, and traders were expecting the rate to be -0.1%, and the last update was 0.0%. The dip in PPI might pave the way for weakness in CPI in the medium-term. Stocks in China are a little in the red.

In the second-quarter, Japan’s GDP grew by 1.8% on an annualised basis, and the forecast was 0.4%, and that gave a lift to equities.  

The rally in the S&P 500 last night was enough to turn the index positive on the week, and that highlights how much sentiment has changed in the past couple of days. The sharp turnaround in US stocks coincided with a rebound in US government bond yields. It would appear that the latest battle in the trade war has come to an end.

Oil rallied yesterday too as Saudi Arabia, the defacto leader of OPEC, called on other oil producing nations to try and stop the aggressive drop in the oil market. On Wednesday, the Energy Information Administration inventory report showed that oil and gasoline stockpiles jumped, and that triggered a fresh wave a selling. The remarks from the Saudi’s provided a lift, but the group aren’t always the best at acting in a coordinated fashion, so the production cuts might be come to fruition.

Gold retreated a little yesterday, and the volatility was low by recent standards. The move higher in stocks, and government bond yields pointed to a risk-on mood, and gold was caught up in the move too. The wider bullish trend is still in place, but in the trader tensions continue to cool, the metal might see some sideways trading, or even some pullbacks.               

At 7am (UK time), the German trade balance will be in focus, and dealers are expecting a trade surplus of €18.6 billion, which would be a slight decline from the €18.7 surplus in May. Traders will be keeping an eye on the exports figures as it will give an indication of global demand for German goods.

At 9.30pm (UK time) the UK will release a number of economic reports, the GDP report for June is expected to come in at 1.2% on an annual basis, and that compares with the previous report of 1.5%. Industrial production, manufacturing production and construction output will be released at the same time, and on monthly basis, they are expected to come in at -0.2%, -0.1%, and -0.4% respectively.

At 1.30pm (UK time), the US PPI and core PPI reports will be released, and the consensus estimate is 1.7% and 2.4% respectively. The readings should give us an indication of demand at the factory level, and it could be an indication of future CPI.  Canadian jobs data, will be released at the same time, unemployment is tipped to hold steady at 5.5%, and the employment change is expected to increase by 12,500.    

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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