August 7, 2019
Asian equities are mixed with China fixing the yuan exchange rate slightly lower than expected
On Wednesday, August 7, the Asia-Pacific stock market showed a mixed tone, as investors were watching the Chinese yuan amid the intensifying U.S.-China trade dispute.
The People’s Bank of China set the official benchmark for the yuan at 6.9996 per dollar, which was slightly lower than market expectations. China’s central bank allows the exchange rate to rise or fall by 2% from that benchmark.
Mainland Chinese equities changed little at the end of the session. Japan’s Nikkei 225 index fell slightly, while robot manufacturer Fanuc lost 1.72%. South Korean Kospi traded slightly lower, with shares of chip maker SK Hynix up 2.64%. In Australia, the S&P/ASX 200 was up 0.77%.
In Hong Kong, the Hang Seng index fell slightly. Shares of Hong Kong-listed Chinese electric vehicle manufacturer BYD fell by 4.88% after the Company reported that its July sales volume fell by about 17% compared to the previous year.
U.S. equities rose on Tuesday, August 6, after the Central Bank of China indicated it wanted its currency to trade at a higher than expected level against the dollar. This alleviates fears that China will use its currency as a weapon in the trade war.
China responded on Monday to increases in U.S. tariffs by allowing its currency to weaken beyond the line of seven yuan per dollar. This fact led Washington to call Beijing a ‘currency manipulator’. Market sentiment deteriorated sharply, benefiting the yen as a safe haven currency and accelerating the yuan’s decline as there does not appear to be a solution to the conflict at the moment.
Risk sentiment was hit again after the Reserve Bank of New Zealand surprised traders by cutting interest rates more than expected. This underscores the growing concern of policy-makers for the global economy.
The dollar fell against the yen and the yuan weakened, indicating that investors continue to fear that China’s monetary policy has become a new turning point in its trade war with the United States. The EUR remains at $1.1202, unchanged during the Asian market.
Oil prices stabilized on Wednesday after falling at the start of the session. Potential damage to the world economy and fuel demand remains a concern. Oil prices remain under pressure as investors face the impact of the trade dispute.
During Wednesday’s Asian session gold peaked more than six years ago, while the China-U.S. trade war shows no signs of resolution. This increases the attractiveness of safe-haven assets. Trade wars are the catalyst for the latest developments. Goldman Sachs said he no longer expects a trade agreement before the 2020 U.S. presidential election.
European markets are expected to open up Wednesday’s session.
China stabilizes its currency
U.S. Stocks rebound from the worst day of the year after China stabilizes its currency.
U.S. equities rose on Tuesday, August 6, after the Central Bank of China indicated it wanted its currency to trade higher than expected against the dollar. This alleviates fears that China will use its currency as a weapon in the trade war.
The stabilization of the trade war between the United States and China is now the most important key to a better balance in global markets.
If the escalation continues there will be further setbacks, independent of central banks. A further 25 to 50 basis points of Fed interest rate cuts are unlikely to offset the effects of a prolonged and growing trade war.
European equities remain stable after the strengthening of the Chinese currency
European equities changed little on Tuesday, August 6, after the Central Bank of China returned the yuan’s official benchmark to a higher level than expected.
The Stoxx 600 pan-European index hovered over the flat line during the afternoon trade, with household goods stocks covering the luxury sector exposed to China leading the winners. The luxury brands LVMH, Christian Dior and Hugo Boss saw their shares listed on positive territory.
Tuesday’s German industrial data also brought some relief. Industrial new orders rose 2.5% m-o-m in June. Nonetheless, they are still down 3.6% for the year.
PMI (Purchasing Managers’ Index) data from the July construction for Germany stood at 49.5. It is below June’s 50.0 and falls into contraction territory for the first time since October 2018.
China fires the biggest warning so far in the trade war
Now it’s up to Trump to decide how far he wants to go.
China has added its currency to the weapons it is willing to use in the trade war against the United States.
The American president’s latest move in the trade war brought what strategists say is China’s strongest response to date.
Investors are now leaving the risk markets and rushing into safe securities such as Treasury bonds.
The risks of a global recession are now greater than before.
Investors are watching the currency market closely for more moves from the Chinese.
As far as the trade war is concerned, the next moves will have to be given by the US, which labelled China as a ‘currency manipulator’.
Former Federal Reserve presidents call for independent central bank
Volcker, Greenspan, Bernanke and Yellen, the four former Federal Reserve presidents, called for an independent central bank in the face of repeated attacks by President Donald Trump.
‘We are united in the conviction that the Federal Reserve and its chairman should be allowed to act independently and in the best interests of the economy, free from short-term political pressures and, in particular, without the threat of impeachment or degradation of their leaders for political reasons.’
Former Fed leaders emphasized that the Fed’s powers are adequately controlled by Congress.
The U.S. president has repeatedly attacked the central bank and its current president, Jerome Powell, alleging that rising interest rates are holding back his economic plans.
This is where to hide in the midst of an increasingly intense trade war
The trade war between the United States and China has led many stovks to a free fall, in the face of surprise tariffs and currency devaluations.
The S&P 500 has fallen more than 5% since Trump imposed additional tariffs on China. The sale deepened after China retaliated by allowing its currency to fall to 7 yuan against the dollar.
For investors seeking refuge, there are stock exchanges that have done well during the market’s major setbacks in the past.
The 20-year iShares Treasury Bond ETF managed to earn more than 7% on average, while the SPDR Gold Trust rose more than 5% on average.
Utilities have been the best sector of the S&P 500 when the market has been in crisis.
Bond and gold funds stand out as the most profitable, as a major stock sale always triggers a move towards security.
Senators demand Google move temporary contracts to permanent after six months of activity
Ten U.S. senators are asking Google to take immediate steps to convert its growing number of temporary employees to permanent ones.
The lawsuit follows a New York Times report that said Google has 121,000 temporary workers and 102,000 permanent workers.
Temporary workers are, by definition, intended for short-term work and non-essential jobs. Senators urge Google to stop any abuse and treat all its workers equally.
The research covered in this report should not be considered as a recommendation to operate. Opinions, news, research, analysis, prices or other information are provided as general market comments and not as investment advice.