News & Analysis

Weekly Summary – It was all about the Yuan

Agosto 9, 2019

By Deepta Bolaky
 @DeeptaGOMarkets

Weekly Summary

 Trade disputes, currency wars, Brexit, and geopolitical tensions are the ongoing headlines that dominate the news cycle every day. After President Trump surprised the markets with more tariffs on China, investors were on edge waiting for retaliation from China. 

The Yuan Big Breach

There were big downward moves in the financial markets on Monday. The Chinese Yuan dropped below a significant psychological level of 7 to the US dollar for the first time in more than a decade. 

The People’s Bank of China sets Yuan reference rate at 6.9225 and blamed the tumble in the Yuan on the escalating trade tensions, but at the same time, they tried to downplay the 7 symbolic level.

Nonetheless, a “Currency War” dominated headlines at the start of the week and rattled the markets. Amid the chaos,    China announced plans to sell the bill issuance in Hong-Kong to absorb liquidity and prevent further depreciation of the offshore Yuan.

Even though the Yuan was still fixed at the lowest level seen in years, the fixing was stronger than expectations. 

Central Banks 

Economic uncertainty has risen significantly with heightened trade tensions between the US and China. Protectionism measures are forcing countries and regions to move away from globalisation. These trade disputes are posing a significant risk to the global economy and threatening the global trade system.

We saw more dovish tones in the Asia/Pacific region this week:

  • New Zealand: The bank set its Official Cash Rate (OCR) to a record low at 1.00%. While a quarter-point cut was expected, a 50-basis point interest rate cut surprised the markets. Its local currency plummeted to 63.77 US cents. 
  • India: The Monetary Policy Committee unanimously voted to reduce the policy repo rate. The RBI cut rates by 35 basis points for a fourth straight meeting this year against the backdrop of recent developments and incoming data.
  • Thailand: The decision of the Central Bank of Thailand at their meeting on the 7th of August came as a surprise. The Committee voted 5 to 2 to cut the policy rate by 0.25 percentage point from 1.75% to 1.5%.

Intensifying trade tensions are at the forefront of the interest rate cuts of the three countries, and the main takeaway is that central banks are signalling major concerns about the outlook for economic growth.

Central banks are using sharp monetary policy action to resist the downturn.

Markets Reactions

Equities Market – The Stock Meltdown

Trade tensions and the prospects of a currency war caused a swift move in the financial markets. Investors sought safety with havens assets and dropped riskier assets. Wall Street had its worst trading day of 2019 whereby S&P500 had a pullback of 3%.

The stock market was in a much greener space towards the end of the week, but sentiment remained dampened given the current uncertainties.


Source: Bloomberg Terminal

Forex Market – The Kiwi

It was a classic reaction where traders pilled up in haven currencies like the Japanese Yen at the start of the week. There were few currency slumps sparked by increasingly dovish central banks and trade tensions.


Source: Bloomberg Terminal

The Kiwi was the highlight. The Reserve Bank of New Zealand surprised the markets with a more significant rate cut than forecasted. The Kiwi dropped more than 150 pips against the US dollar. It emerged as the worst-performing currency among the G10 against the US dollar.

The Australian dollar also fell sharply when the RBNZ cut interest rates as there were growing expectations of more aggressive rate cuts from the RBA. The local currency dropped to a low of 66.77 US cents. However, the pair recovered its losses and edged higher to 68.10 US cents.

Reserve Bank governor Philip Lowe has declared that the Australian economy may have reached a “gentle turning point” which is providing further support to the pair on Friday.

AUDUSD (Daily Chart)


Source: GO MT4

Gold – At 6-Yr High 

Gold has been on a rally since May due to the rising geopolitical tensions, the US-China trade war, monetary easing policies and fears of a slowing global economy. The fall of the Yuan fuelled the demand for the yellow metal.

Gold soared by more than 2% on Wednesday and breached the US$ 1,500 level for the first time in six years. 


Source: Bloomberg Terminal

Oil Market – Brent Crude in Bear Market 

Trade wars, global growth concerns and tensions in the Gulf are taking oil prices on a volatile rollercoaster ride. Bearish oil reports did little to support the fall in oil prices. There was also news that Iran’s oil was shipped to China in defiance of the US sanctions.

A lot had happened this week to renew the selling pressure on oil prices, which forced Saudi Arabia to discuss options with other producers to halt the slide.

Brent Crude fell in a bear market territory earlier in the week to a low of $55.88.

A better Yuan fix and a probable intervention by oil producers helped oil prices to cushion the fall.

Cryptocurrencies – “Digital Gold 

Money was also flowing in the crypto market when investors turned risk-off. Bitcoin rallied during the rout in the equities markets and traded above the $12,000 mark. It rose by 25% since last week.


Source: Bloomberg Terminal

This week’s events have allowed us to monitor the so-called “safe-haven” status of Bitcoin. During periods of market turbulence, we are seeing digital assets acting more and more like safe-havens. Investors seem to be seeking refuge in cryptocurrencies.

Monday, 12 August 2019
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
0 5.9 0.502 0.028 0 0 0
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0 0 0 0 0 0 0


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