Análisis de mercado diario

Investors in Asia woke up on Monday to a sea of red in equity and currency markets. Japan and South Korea’s stock indices fell more than 2%, while Hong Kong’s equities faced an even steeper fall of more than 3% with political tensions continuing to escalate further. Treasury bonds, Gold, and the Japanese Yen are where investors are taking refuge in what seems to be a never-ending trade dispute between the world’s two largest economies.

Markets have not been expecting the latest US-China trade talks to conclude with any significant breakthrough last week, but very few expected President Trump to slap 10% tariffs on $300 billion worth of Chinese goods. China’s commerce ministry vowed to retaliate with the necessary countermeasures, but no further details were announced.

China still has a few tools to respond to the latest US tariffs, whether it’s through halting imports of American agricultural products, prohibiting exports of rare-earth materials, stopping the purchase of US debt, or further increasing tariffs on US goods. However, none of these tactics are enough to offset the impact of the additional tariffs on more than $500 billion worth of Chinese goods. 

Is Currency the new option?

The Renminbi broke above Rmb7 per USD this morning after the People’s Bank of China (PBoC) set the midpoint at 6.9225. This is the first time since May 2008 that the Chinese currency trades above the key psychological level of 7. The PBoC has spent hundreds of billions of Dollars over the past couple of years to prevent their currency from breaching this key level, but now that doesn’t seem to be the case. In fact, the currency tool may be very effective as it significantly offsets the impact of US tariffs. If the Chinese currency falls by another 8% from the current level, the 10% tariffs paid by US importers will be offset by the Renminbi’s weakness.

While currency depreciation also has a negative effect such as the risk of capital outflow, as long as the decline is orderly, volatility is contained, and speculation activities are controlled, the risks will be minimized.

No one knows when this trade war will end, but it is becoming more likely that it will be after the US 2020 elections. We don’t think that this trade war will do any good to President Trump in the upcoming election, especially given the several swing states that are already hurt by the current trade dispute.

Until then expect volatility to return to global financial markets with safe haven assets to be the main beneficiaries. Out of all safe haven assets, Gold will be our favorite, especially if this trade war gets out of hand.

Exención de responsabilidad: El contenido de este artículo incluye opiniones personales, y no debe ser interpretado como asesoramiento sobre inversión personal y/o de otro tipo y/o una oferta y/o solicitud de ninguna transacción con instrumentos financieros y/o garantías y/o pronóstico de rendimiento futuro. ForexTime (FXTM), sus afiliados, agentes, directores, responsables y empleados no garantizan la precisión, validez, puntualidad o compleción de ninguna información o dato disponible, y no asume ninguna responsabilidad por cualquier pérdida que resulte de cualquier inversión realizada en base a ellos.

Meeting expectations is no longer enough to influence a currency direction. This was the response of currency traders to Reserve Bank of New Zealand which is struggling to meet its inflation rate target band of 1 to 3%. The Kiwi rallied by more than 1% to trade at one-year high despite the central bank cutting its official cash rate by 25 basis points to a record low of 2%, indicating further policy easing in the near future.

 Traditional monetary policy tools are clearly no longer working anymore and governor Graeme Wheeler was not surprised by the financial markets’ reaction. When we see that stimulus abroad has sent 10-year government bond yields in Japan and Germany into negative territory, and that in UK gilts continue to post record lows, and the same applying to the periphery of Europe, this justifies financial markets behavior where investors are struggling to find yields. Expectations of Fed keeping rates on hold for 2016 is another reason to blame as markets lowered their forecast for a rate hike in 2016 to less than 40% with chances for September now standing at 9%.

 In other currency news, People’s Bank of China has set the midpoint for Yuan 0.4% higher against the U.S. dollar to mark the anniversary of the one-year devaluation which sent equity markets tumbling across the globe. Since then the Chinese currency depreciated by 6.5% against the U.S. dollar, but has shown some signs of stabilisation most recently. I still believe that policy makers will continue to push the currency lower to support the weakening economy, but will not repeat the same mistake they did one year ago.

 Asian equity markets were mostly in red following the drop in Wall Street on Wednesday. It seems markets are taking its cue from crude prices which fell 2.5% yesterday after data from EIA showed crude inventories rose by 1.06-million-barrel against expectations of a 1-million-barrel drop. OPEC’s monthly report showed that Saudi Arabia’s oil production hita record high last month didn’t help either as renewed fears of supply glut is likely to persist into 2017. But as long as oil holds above $40 the impact on equities should be insignificant.  

Exención de responsabilidad: El contenido de este artículo incluye opiniones personales, y no debe ser interpretado como asesoramiento sobre inversión personal y/o de otro tipo y/o una oferta y/o solicitud de ninguna transacción con instrumentos financieros y/o garantías y/o pronóstico de rendimiento futuro. ForexTime (FXTM), sus afiliados, agentes, directores, responsables y empleados no garantizan la precisión, validez, puntualidad o compleción de ninguna información o dato disponible, y no asume ninguna responsabilidad por cualquier pérdida que resulte de cualquier inversión realizada en base a ellos.

There was a brief return to the headlines for the China markets yesterday, following the resumption of an agressive sell-off in the Shanghai Composite Index. The major market declined heavily and recorded its worst sell-off in nearly two months, in what was quite a stange reaction from the markets and was thought to have followed comments from the People's Bank of China (PBoC) that the central bank will not be easing monetary policy anytime soon.

These comments come directly in line with what we were telling the Chinese media during a recent media tour to China at the end of Q1, where myself and our local analyst (Yue Zhong) expressed our opinion that the PBoC are set to maintain a more stable monetary policy outlook over the upcoming quarter or so in comparison to the regular stimulus moves that the markets have become accustomed too over the previous year. This view might take some unexpectedly when you consider that economic growth in China is continuing to slow, but there are a view reasons to support the idea that the PBoC might now be looking to introduce a more stable monetary policy outlook.

Firstly, the central bank have been incredibly active and at some times even innovative to combat weaker growth but this has still not really led to a real upturn in economic data. Secondly, it is also noticeable that members of the PBoC were publically declaring at intention for stability in the RMB over the next period and this suggests that perhaps the Pboc are now directing a bit more of their attention towards ensuring their is a reduction in the amount of capital outflows leaving China and this would also reduce the speed at which the Pboc are using forex reserves.

While there are some concerns that the resumption of selling in the Shanghai Composite following a prolonged pause in volatility might encourage a return to extensive selling, i would personally not be too concerned right now. In essence, the Pboc were extremely active when it comes to unleashing more stimulus throughout 2015 and have likely come to the conclusion of what they can really do to combat weaker growth. This is quite similar to what ECB President Mario Draghi is likely to repeat during his press conference later today.

Exención de responsabilidad: El contenido de este artículo incluye opiniones personales, y no debe ser interpretado como asesoramiento sobre inversión personal y/o de otro tipo y/o una oferta y/o solicitud de ninguna transacción con instrumentos financieros y/o garantías y/o pronóstico de rendimiento futuro. ForexTime (FXTM), sus afiliados, agentes, directores, responsables y empleados no garantizan la precisión, validez, puntualidad o compleción de ninguna información o dato disponible, y no asume ninguna responsabilidad por cualquier pérdida que resulte de cualquier inversión realizada en base a ellos.