China And Hong Kong Pressures Are Having Limited Knock-on Effects

Overview: The S&P 500 gapped higher yesterday, above the recent ceiling and above the 200-day moving average for the first time since early March. The momentum faltered, and it finished below the opening level and near session lows. The spill-over into today's activity has been minor. The heightened tensions weighed on China and Hong Kong markets, but Japan, South Korea, Taiwan, and Indian equity markets rose.

Europe's Dow Jones Stoxx 600 is higher for the third consecutive session, the longest streak this month. US shares are also trading higher, and the S&P 500 looks poised to rechallenge yesterday's high, leaving yesterday's opening gap unfilled. Benchmark bond yields are a little lower, and the US 10-year is hovering around 68 bp. The greenback is bid against most of the major and emerging market currencies.

Among the majors, the yen, the Canadian dollar, and New Zealand dollar are steady to higher, while the European complex, led by the Swiss franc, is nursing small losses. Turkey, Hungary, and South Africa led the losers among emerging market currencies. The Chinese yuan (onshore and offshore) fell to its lowest level of the year.

Gold drifted to two-week lows a little above $1700, while July WTI is consolidating in $33.50-$34.30 range as Russia seems to be balking at extending the maximum output cuts beyond next month.    

Asia Pacific

President Trump is threatening "very interesting" action against China by the end of the week. Apparently, under consideration are a new set of sanctions against officials, businesses, and financial firms over the effort to crack down on dissent in Hong Kong. There are actions the  US could take, including limiting transactions and freezing assets.  The US could suspend Hong Kong's special trade privileges, but this seems potentially too disruptive for US companies and would punish Hong Kong more than China.   Meanwhile, demonstrations and conflict with police have escalated in Hong Kong.  

Pressure on the Hong Kong dollar is evident in the forward market. The 12-month forward points increased by almost 60 to 670. A week ago, they stood at 256. The 3-month forward points increased by almost 20 today to about 167. A week ago, they stood at 75. Separately, the PBOC set the dollar's reference rate at CNY7.1092, while the bank models implied CNY7.1144.

1 2 3 4
View single page >> |

Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.