Yen and bond bulls charge on; Argentina braces for mauling

Marco Green
August 13, 2019

-China trade war, which has reduced demand for commodities such as crude.

MSCI's gauge of stock performance in 47 countries fell 0.46% while Wall Street also fell.

The earlier gains had been aided by Chinese shares rallying from the previous week's losses.

That was despite a more than 1 per cent rally for Chinese stocks after the yuan had avoided further drama and financial regulators there had relaxed margin financing rules late on Friday. That was weaker than Friday's setting but stronger than market expectations.

Uncertainty about USA trade policy could lead state-side companies to reduce their capital expenditures, hire fewer workers and produce less.

One week ago, China allowed the yuan to break through the key 7-per-dollar level for the first time since 2008, prompting Washington to label Beijing a currency manipulator and sparking market ructions.

The U.S. dollar index was roughly flat on Monday and sterling and the euro saw a modest rise as the foreign exchange market fell into an August lull, a traditionally quiet trading period with many investors and traders on vacation.

The International Monetary Fund said on Friday that it stood by its assessment that the value of China's yuan was largely in line with economic fundamentals.

Concerns that a trade deal would not be reached before the 2020 US presidential election grew after Goldman Sachs on Sunday became the latest to cut its USA growth outlook and warn a trade stand-off would fester past the election. The S&P 500 lost 35.96 points, or 1.23%, to 2,882.69 and the Nasdaq Composite dropped 95.73 points, or 1.2 per cent, to 7,863.41.

White House trade adviser Peter Navarro subsequently said that the United States was still planning to hold another round of trade talks with Chinese negotiators. Goldman Sachs grew to become the latest to cut its U.S. growth forecast on the weekend, warning that a U.S. China commerce deal now seemed unlikely before the 2020 U.S. presidential election. I don't think there's any particular super-positive news behind that.

The pound reached two-year lows against the dollar on Friday after data showed the United Kingdom economy unexpectedly contracted in the second quarter, only adding to the bearishness over Brexit and the chance of a no-deal exit. All of that raised global recession fears as the escalating Sino-U.S tariff war took a toll on trade and investment.

Analysts said that trading could be subdued as many investors are off for summer holidays.

The yen rose to its highest in more than a year and a half versus the dollar on the prospect the Japanese currency could gain more in the case of a drawn-out US-Sino trade conflict. Spot gold added 1.1 per cent to US$1,512.51 an ounce.

The dollar index, which tracks the greenback against a basket of six major rivals, was down a touch at 97.479.

"The market took the higher (yuan) fixings in its stride and will now focus on establishing a new equilibrium for USD/CNY. -China trade war. The longer the trade war drags on, the more likely it would weigh (on) the global outlook and crimp the world economy, a negative for market morale", said Joe Manimbo, senior market analyst at Western Union Business Solutions.

In commodities, oil prices also reflected the concerns about global growth and trade, having risen sharply on Friday on a drop in European inventories and production cuts by the Organization of the Petroleum Exporting Countries.

Global benchmark Brent crude futures were at $58.16 a barrel by 0829 GMT, down 37 cents from their previous settlement.

Other reports by Click Lancashire

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