Fragile Tone Persists

Overview: The positive impulse in the capital markets seen last week has faded. The gap higher opening ahead of the weekend by the S&P 500 was followed by a gap lower opening yesterday. The US threatened crackdown on Huawei disrupted equities in that sector, with as many as two dozen companies on the Shenzhen exchange that were limit down (10%). Most Asia Pacific equity markets, but Japan and South Korea moved lower. European equities are edging higher late in the morning session. US equities are little changed. Peripheral European bonds continue to outperform, even in Greece which is set sell 2 bln euros in new five-year bonds through syndication. The dollar is little changed but with a lower against the majors, and the emerging market currencies are mixed, with the volatile Turkish lira and South African rand among the weakest.  Gold moved above $1300 an ounce yesterday and is extending those gains today to trade at a new seven-month high.  

Asia Pacific

The US is set to bring extensive charges against China's Huawei, including allegedly paying employees for stealing technology secrets. Reports suggest that the exclusion of Huawei could set back the rolling out of 5G in Europe. Chip and equipment makers were sold. This is coinciding with the earnings season as well. Today Apple, AMD, and 3M report in the US. SAP already reported and although it met all the raised outlooks, the forward guidance was poor. Earlier TSMC reported its suppliers agreed to cut prices by 10% after the company reported weak revenue growth.

Separately, the economic slowdown in China, beyond what the official data imply, is taking a toll on corporate earnings from US, European and Japanese companies.  

The Chinese yuan has appreciated for five consecutive sessions through today. China does not confirm the weighting of the basket is tracks the yuan against (CFETS). Bloomberg's attempt to duplicate it finds that the yuan has appreciated against the basket after trading in a range recently. Some are linking the yuan's appreciation to optimism on the trade front. To the contrary, we see the yuan's appreciation as an effort by Chinese officials to ensure the trade talks are not distracted by short-term moves in the foreign exchange market. 

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Read more by Marc on his site Marc to Market.

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

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