Date: August 7, 2019
Bonds Jump as Central Banks Ease; U.S. Futures Dip: Markets Wrap
“Bonds rallied globally in the wake of a series of dovish central-bank surprises that underscored growing concern over the outlook for growth. U.S. equity-index futures reversed a gain. The 30-year Treasury yield closed in on an all-time low and the 10-year yield dropped through 1.7%. New Zealand’s dollar tumbled after a bigger-than-expected rate cut, and Australia’s dollar dropped to a decade-low on speculation its central bank will follow suit. The yuan dipped after China set its reference rate slightly weaker than expected. India’s rupee fluctuated and the Thai baht slipped after policy makers in both countries lowered borrowing costs. German rates dropped to a record after industrial production in the euro-region’s biggest economy registered the biggest annual decline in almost a decade. The pound weakened and the U.S. dollar was steady, while the yen gained and gold rallied toward $1,500 an ounce. Contracts on all three major U.S. equity benchmarks turned lower following a surge in the underlying gauges on Tuesday. The Stoxx Europe 600 index pared an advance but was still on course to post the first gain in four days, led by technology stocks after Microchip’s upbeat demand outlook. Chemicals producers advanced after Bayer and Lanxess agreed to sell their stakes in Currenta, while Glencore fell after its profits missed estimates. Shares were mixed but calmer in Asia, with Japanese stocks closing barely changed while equities in Shanghai declined. The dovish moves by three Asian central banks showed that policy makers still have some power to surprise, and underscore the global shift toward easier policy even after the Federal Reserve‘s unexpectedly hawkish stance last week. Disappointing data may push the European Central Bank to turn toward easier monetary policies when it meets next month. Traders remain on tenterhooks after moves early this week, which included the biggest one-day plunge in global equities since February 2018. An escalation in the trade war between the world’s two biggest economies continues to unnerve investors, even after China said recent yuan depreciation was decided by the market, not Beijing. “We’re likely to see perhaps another shoe drop as the week progresses because this is not getting fixed,” Kristina Hooper, the Atlanta-based chief global market strategist at Invesco Ltd., told Bloomberg TV. “There really is the potential for it to get worse from here.” ”
U.K. House Prices Slide for a Second Month in July, Halifax Says
“U.K. house prices fell for a second month in July as the market continued to “tread water” amid economic uncertainty, mortgage lender Halifax said. Prices declined 0.2% to an average of 236,120 pounds ($288,000), after dropping 0.4% in June, Halifax said Wednesday. In the three months to July, values rose 4.1% from a year earlier against a backdrop of low growth in the same period in 2018. The U.K. property market has been suffering from political turmoil over the departure from the European Union, but recent figures have suggested signs of resilience. Strong wage growth and low borrowing costs are underpinning values, Halifax said. “While economic uncertainty continues to weigh on the market, the overall trend actually remains one of comparative stability,” said Russell Galley, managing director at Halifax. “There is unlikely to be a step change in market activity until buyers and sellers see some form of resolution to the current economic uncertainty.” ”
China’s Yuan Fix Is Unmissable These Days for Currency Traders
“China’s central bank is under pressure to issue its weakest currency fixing in more than a decade, a move that risks spurring more losses in the yuan. The People’s Bank of China set its daily currency reference rate only marginally stronger than 7 a dollar on Wednesday. That leaves it little headroom if it wants to track the spot rate, which fell 0.3% to 7.0463. While the yuan breached the key 7 level this week for the first time since May 2008, the fixing hasn’t. At stake is the risk that markets will see Thursday’s reference rate as a signal on policy, as a string of fixings on the weaker side of 7 could exacerbate concerns around further yuan depreciation and capital flight. The central bank has already taken some steps this week to limit declines after the yuan sank the most in four years, including reassuring foreign companies that the currency won’t weaken significantly. “Policy makers’ priority now is to limit the risks of capital outflows,” said Xing Zhaopeng, a markets economist at ANZ Bank China Co. He expects the PBOC will keep the rate stronger than 7 to maintain stability. The fixing is published every trading day at 9:15 a.m., after a group of 14 lenders submit their rates. The yuan is then allowed to move 2% in either direction. The rates are calculated with formulas that take into account factors such as the previous day’s official close at 4:30 p.m, the yuan’s move against a basket of currencies and the moves in other major exchange rates. The mechanism has been used to manage volatility after China removed the yuan’s peg to the greenback in 2005. Until at least 2015, traders weren’t able to offer prices that diverged from the fix by more than the allowed range. The last time the yuan tested the band was in February 2015, when it closed 1.99% weaker than the reference rate. The trading system was upgraded after the shock devaluation in August that year. The yuan’s slump this week means the currency is once again taking the spotlight in China’s trade dispute with the U.S., stoking criticism Beijing is depreciating its currency to soften the impact of U.S. tariffs. Donald Trump’s administration labeled China a currency manipulator, a formal designation which may prompt counteractive measures. The PBOC rejected the accusation.”
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