August 8, 2019
Asian equities advance as China sets yuan at lowest level since 2008
Asia’s shares traded higher on Thursday, August 8, as Chinese customs data showed a surprising increase in the country’s exports in July, despite the prolonged trade war with the United States. Investors are also watching the yuan, which has once again surpassed the psychologically important level of 7 yuan per dollar.
Mainland Chinese stocks rose, with Shanghai compound up 0.91% and Shenzhen compound up 1.04%. In Japan, the Nikkei 225 rose slightly. In South Korea, the Kospi appreciated by 0.98%. Australia’s S&P/ASX 200 recorded a very slight increase.
U.S. equities fell sharply on Wednesday, adding to the month’s heavy losses. The fall in global bond yields raised concerns about the slowdown in the economy.
The yen held steady on Thursday as world central banks surprised markets with sharp interest rate cuts. In addition, threats of a global economic slowdown continue, increasing the appeal of the Japanese yen as a safe-haven.
The New Zealand dollar and the Australian dollar recovered some of their strong losses from the previous session. On Wednesday, both currencies fell sharply after the Reserve Bank of New Zealand surprised the markets with a higher-than-expected interest rate cut and signaled the possibility of interest rates could become negative.
A growing list of central banks has softened monetary policy in an attempt to avoid the negative effects of the global growth slowdown, while falling yields have caused currencies to fall. Rising expectations of global monetary easing now weigh on currencies such as the dollar and the euro.
Oil futures rose more than $1 a barrel on Thursday, recovering half of the losses of almost 5% from the previous session. Expectations remain that the fall in prices could lead to cuts in production. Analysts maintain that crude oil prices are rising due to expectations that Saudi Arabia, the world’s largest oil exporter, and other producers from the Organization of Petroleum Exporting Countries could take steps to support the market by reducing supply.
U.S. crude oil inventories surprised investors. Oil reserves totalled 2.4 million barrels when a decline of 2.7 million was expected.
Gold rose again during the Asian session, after breaking the $1,500 mark in the previous session. It benefits from the fear of a global recession, anticipated by the monetary policies of central banks and by the reversal of the yield curve in the United States.
European markets are expected to open up Thursday’s session.
Uncertainty continues on Wall Street
Dow drops more than 300 points as uncertainty continues on Wall Street.
U.S. equities fell sharply on Wednesday, August 7, adding to the month’s heavy losses. The fall in global bond yields raised concerns about the slowdown in the economy.
Investors returned to safe havens such as gold, as they did on Monday, when stocks fell as high as a single day throughout the year.
Gold reached its highest point in more than six years while bond yields are collapsing.
Bank stocks, including JP Morgan Chase and Bank of America, led the falls. JP Morgan shares fell 2.8% while Bank of America shares fell 3.3%.
The banking sector has the most to lose from the fall in interest rates.
European equities abandon earnings as trade concerns persist and bond yields plummet
On Wednesday, August 7, the European stock market lost ground, as falling bond yields raised concerns about the global economic slowdown.
The Stoxx 600 pan-European index lost almost 1%, trading just below the flat line. Travel and leisure stocks were up 0.9%, while banks led losses with a fall of 0.8%.
The exact reason for the declines is unclear, but it occurred when bond yields reached all-time lows in Germany and while US Treasury yields plummeted and investors returned to safe havens.
Economic data was also in the spotlight, as Wednesday’s figures revealed that German industrial production fell at a much faster pace than expected in June. This fuels fears that Europe’s largest economy is headed for recession.
Trade war leads to sale of 6 billion in emerging country stocks and bonds
The escalation of trade tensions between the United States and China has led to the outflow of $6.8 billion in stocks and bonds from emerging economies.
So far this week the outflow of capital from emerging economies is around 3,000 million dollars, after China responded to American pressures by dropping the yuan against the dollar to lows since 2008.
The president of the United States announced on Thursday that the American country will impose a new tariff of 10% on 300,000 million dollars of imports of products from China from next September 1.
This levy will be applied on the percentage of exports that are still exempt from tariffs, while the remaining 250 billion dollars will continue to be subject to a 25% tariff.
Will history repeat itself after the July rate cut?
Last week the Fed announced its first rate cut in ten years. This fact was widely discounted by the market.
President Powell has invited it to be seen as an adjustment of the cycle and not as the beginning of a new phase of cuts. Traders have not seen these statements as very credible.
Ultra expansive monetary policy, together with continuous buyback operations and the use of debt in a practically unsustainable way have been the factors that have allowed the creation of a prolonged bull market.
Although Powell is between a rock and a hard place, due to the very clear political pressures of President Trump, who wants a weak dollar to maintain a competitive economy, the above statements can be justified with the expectation of a slowdown in the economy from the middle of next year.
Mortgages rise in the face of a sharp drop in interest rates
Homeowners are quick to take advantage of a significant drop in mortgage interest rates.
The total volume of mortgage applications increased 5.3% over the previous week, and was 46.5% higher than a year ago, when rates were significantly higher.
The average interest rate on 30-year fixed-rate mortgage contracts declined from 4.08% to 4.01%.
For most Americans, a home is their largest investment and buying one is an emotionally charged decision. Getting potential buyers launched requires confidence in the financial future.
New missile tests by North Korea
North Korea said leader Kim Jong Un supervised a live-fire demonstration of short-range ballistic missiles.
These missiles have recently been developed with the intention of sending a warning to the United States and South Korea about their joint military exercises.
Korea’s Central News Agency said two missiles launched from a western airfield flew across the country and over the area surrounding the capital, Pyongyang, before accurately reaching a target off its eastern coast.
Its four rounds of weapons demonstrations in two weeks come during a stalemate in nuclear negotiations.
KCNA said Tuesday’s launches verified the reliability and combat capability of the new types of tactical guided missiles.
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