It is certainly a rocky moment for financial markets. Suddenly it seems as though risk appetite is beholden to the outlook of the People’s Bank of China. Every day the PBoC sets the mid-point for the Dollar/Yuan rate around which the yuan can fluctuate 2%. USD/CNH (offshore yuan) breaching 7.00 was seen as a crucial watershed. The PBoC is yet to set the mid-point above 7.00 but got remarkably close to it today at 6.9996. This was worse than the previous session and seems to have stopped an attempted rally on risk that had been threatening yesterday. Once more the safe havens are strengthening, with gold pushing ever further multi-year highs, the yen gaining ground, whilst the US 10 year yield is back below 1.70% again. Add in the feeling of concern that a surprise 50 basis point rate cut from the Reserve Bank of New Zealand back to 1.00% (-25bps cut expected to +1.25%, from +1.50% in June). The Kiwi has been smashed and the Aussie is falling in sympathy. Right now, equities are only marginally lower in the European session, but this all does very little to help settle the nerves of markets rattled by the escalation of the trade dispute.
Wall Street closed with a decent retracement bounce of +1.2% on the Dow and +1.3% on the S&P 500 (to 2882). However, US futures have fallen back early today and are currently -0.4%. Asian markets have been cautious today, with the Nikkei -0.3% and Shanghai Composite +0.1%. European markets are similarly mixed, with FTSE futures around flat and DAX futures +0.2%. In forex, JPY is back as an outperformer whilst the commodity currencies are struggling. The big mover is a huge sell-off on NZD which has fallen by -1.8% on the -50bps rate cut from the RBNZ, whilst AUD is -0.7% too. In commodities, gold continues to pull higher, another +1.0% and eyeing $1500 now, whilst oil is marginally lower again.
It is another quiet day for the economic calendar, leaving the EIA oil inventories at 1530BST the only major release. Crude stocks are