Futures Fade Gains As Yuan Tumbles On Latest Chinese Data

Traders were unfazed by Friday the 13th, and instead Asian and European stock markets burst higher out of the gate, riding on the Thursday US market gains which came as the U.S. and China signaled they were open to restarting talks over trade after days of exchanging threats, although Treasury Secretary Mnuchin said Beijing must commit to deeper economic reforms.

However, US S&P futures promptly faded all gains and were traded unchanged, just below 2800, following the latest economic data from China, which showed posted a modest slowdown as reported earlier, but most importantly, showed that China’s trade surplus with America hit a new all-time high...

...serving as a stark reminder that trade tensions aren’t going away, even as investors’ focus shifted to second-quarter earnings. The result was a roundtrip in the E-mini which was hugging the unchanged line.

Earlier, the Stoxx Europe 600 Index edged higher, amid subdued volume as commodity producers underperformed on Chinese fears. Meanwhile, stocks in Asia were set for a first weekly advance in five as benchmarks in Japan, Hong Kong, and South Korea gained.

The latest Chinese credit creation data did not help sentiment, with Total Social Financing once again badly missing consensus amid a broad crackdown on shadow lending, which in turn pushed China's M2 to a new all-time low.

A report that China’s $941 billion sovereign wealth fund may move money home weighed on the gauges.

While Chinese stocks trod water...

The Chinese news catalyzed a sharp reversal in the offshore Yuan, which slumped from 6.67 back to 6.72 and back below the 6.7000 levels that prompted intervention not so long ago, both verbal and physical, but no official or unofficial ‘action’ seen so far to leave conspiracy theorists thinking about devaluation in the US-China trade dispute rather than counter import tariff measures.

As a result of the Yuan weakness, the Bloomberg Dollar Spot Index rises 0.3%, extending its advance this week to 1% even as volumes in major currencies are relatively muted ahead of the start of earnings season.

In other FX news, the pound slipped as much as 0.8% to 1.3103, set for its biggest weekly drop since May, weakening after Trump said Theresa May’s soft Brexit plans may kill off a trade deal with the U.S.

Meanwhile, the yen is headed for its worst week since September as a rally in equities supported risk-taking even amid U.S.-China trade tensions.

In rates, the US 10Y yield is unchanged, while European bonds edge higher across the curve with core markets leading gains.

Investors will feel some relief as earnings season gets underway in earnest, allowing attention to pivot away from trade relations. The latter seemed to ease somewhat, with officials in Beijing appearing to moderate their responses to Trump’s tariff threats amid a slowing economy, falling stock market and weakening currency. Still, China’s monthly trade surplus with the U.S. rose to a record in June and exports to the nation also soared, underlining the cause of the escalating trade war.

For those who missed the big overnight news, late on Thursday President Trump warned UK PM May that a soft Brexit would probably kill a potential future trade deal between UK and US as they would be dealing with the EU instead of the UK. This also comes amid reports that UK PM May could suffer the defeat of a crucial Brexit bill as early as Monday after Eurosceptics reacted angrily to the white paper she published yesterday. 

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