China central banker says currency slide under observation

Ivan Schwartz
July 6, 2018

Punishing U.S. tariffs on some Chinese imports are due to take effect Friday, with China planning tariffs on an equal amount of U.S. exports.

"With these stories coming out, you have a sector which has been very oversold meeting some potential good news on the trade war front", said Bank of America Merrill Lynch European equity strategist James Barty.

The dollar bull continues to run over one weak currency after another so after shortened holiday week inspired USD correction lower, given that near-term long dollar positions are a bit cleaner, what's the next currency that falls under the greenback crosshairs.?

Other Asian currencies weakened, especially those such as the Indonesian rupiah that are doubly exposed - to trade and oil prices approaching $80 a barrel.

On Wall Street, the Dow Jones Industrial Average rose 181.92 points, or 0.75 percent, to 24,356.74, the S&P 500 gained 23.39 points, or 0.86 percent, to 2,736.61 and the Nasdaq Composite added 83.75 points, or 1.12 percent, to 7,586.43.

Elsewhere in currency markets, the euro, which had been pressured by political uncertainty in Germany, pared losses after Chancellor Angela Merkel's conservatives settled a row over migration that threatened to topple her governing coalition after interior minister Horst Seehofer dropped his threat to quit.

MSCI's broad index of shares in Asia Pacific excluding Japan edged down by 0.69 percent, but it remained above the nine-month lows it touched last week.

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Support: 6.6263 (session high), 6.6046 (previous day's low), 6.60 (psychological support). Gains of around 1 per cent in tech firms such as Microsoft and Apple offset concerns about trade and its impact on growth.

Investors look at an electronic board showing stock information at a brokerage house in Shanghai, China June 20, 2018. They are seen delivering another set of robust quarterly earnings.

While U.S. growth and company earnings seem unassailable, tit-for-tat tariffs from China and Europe may ultimately prove detrimental for American businesses and jobs.

"The recent intensification of global trade tensions imply the probability of trade conflict has risen to levels that could result in significant pain in financial markets and a sizable drop in output and employment", Deutsche Bank wrote.

Bonds started July on a stronger note, with the yield on 10-year government debt falling 1 basis point to 3.47 per cent, its lowest level since April 2017.

Asian markets struggled on Tuesday, with Hong Kong briefly tumbling more than three percent, as investors fret over looming China-US trade tariffs that bring a potential trade war a step closer.

Speculation was rife China's central bank was intervening in the currency market to staunch losses and prevent a potentially destabilizing sell-off in the yuan, while stocks came off a searing sell-off in the morning.

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