European markets continued their recovery on Wednesday as the price of crude oil recovered and Chinese exports fell less than expected.
Fears over China’s imminent implosion were reined in a little further following the better than expected export data. The positive reaction in markets is probably just relief over the Chinese economy rather than any implication from the data that authorities will now slowdown the devaluation of the yuan. The yuan devaluation seems to have helped Chinese exports so, if anything could encourage authorities to continue the strategy.
In the meantime, the PBOC intervening to buy offshore yuan to reduce the gap with the tightly-controlled onshore rate has put off investors selling the yuan in anticipation of a quicker depreciation.
The reaction inside China was another round of selling but with European markets rising, it has become increasingly clear that developed markets have not been reacting to the fall in Chinese stocks so much as the depreciating yuan. Even if Chinese stocks dropped another 20% but the yuan holds its value, the negative impact on international markets could be minimal.
The rise in oil is both a technical bounce from just beneath $30 per barrel in US crude and a reaction to the draw in US inventories according to the API.
The FTSE 100 regained 6000 led by resource companies thanks to the higher oil price and a better China outlook.
Shares of Sainsbury’s were active after the supermarket topped sales estimates and released a strategic plan for its proposed takeover of Argos-owner Home Retail Group. Sainsbury’s CFO John Rogers has said “it’s not a must do deal.” If Sainsbury’s does want to pull it off then it may have to pay almost half again as much as its first offer. An extra £500m on top of the purchase price would make a deal much more risky for shareholders at a time when the supermarket is leading the fight back against discounters Aldi and Lidl.
US stocks look set for a higher open on Wednesday, matching the positive sentiment in European and Asian markets outside of China as CSX Corp reported better than expected earnings but missed on revenues.
USA pre-opening levels
S&P 500: 7 points higher at 1,945
Dow Jones: 44 points higher at 16,560
Nasdaq 100: 20 points higher at 4,353
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