Asian markets see stability return overnight

Thursday, August 13, 2015

Asian stocks saw some semblance of calm overnight as major benchmark indices across the region pushed into positive territory. The stability after heavy losses towards the beginning of the week was welcome by investors across all asset classes but continued intervention by the PBOC suggest we’re not out of the woods just yet. The central bank once again lowered the daily yuan reference rate, this time to 6.401, by 1.1% following Wednesday’s 1.65 cut in the rate.

We could see an increase of dynamic intervention by the PBOC as it seeks to clarify how its sets the reference rate, now taking into account the previous day’s close as well as current supply and demand when it sets the fixings for the coming session. Most market participants had greeted the move to lower the reference rate on Tuesday with surprise and had broadly viewed it as a one off but in another unusual move from the Chinese central bank, a press conference was held in Beijing where officials sought to explain its recent decisions. Looking to reassure investors PBOC vice governor Yi Gang stated there was no further basis for a continued depreciation in the yuan and that steps would be taken to improve their pricing mechanism. The yuan traded towards 6.4500 against the dollar on Wednesday before strengthening back towards 6.3858 at the close but activity overnight on Thursday has seen weakness return with the yuan trading back towards 6.4175 against the dollar.

An explosion at a northern Chinese port has left 44 dead and hundreds injured according to early reports. Disruptions to one of the world’s busiest ports in Tianjin, a gateway for bulk commodities into northern China, are expected as the largest explosion which may have been triggered by a chemical fire was equivalent to a 2.9 magnitude earthquake. A spokesman for the Tianjin Maritime Safety Administration said that some shipments would be disrupted and as of the latest update vessels were not being allowed into the northern terminal of the port near the epicentre of the blast. We’ll be watching iron ore, coking coal and crude oil destined for Tianjin very closely over the coming sessions to see if the disruption has any short term implications on the import price.

Spot gold prices posted gains for a fifth straight day yesterday as the yellow metal found firm support around the previous sessions close and pushed higher towards $1,125/oz. Having added over 3.7% over the past five sessions gold prices have hit a three and a half week high as investors position themselves ahead of a string of central bank announcements today, specifically from South Korea and the Philippines. If officials decide to cut interest rates in an effort to weaken their currencies further, something which seems to be a growing trend among Asian central bankers as they look to boost their competitiveness, we could see further gold price gains as weaker Asian currencies increase deflationary pressures which could potentially put the Fed on hold for the meantime.      

Yuan weakness continues

CNY Curncy China Renminbi Spot 2015 08 13 07 44 34

Gold extends rally

XAU Curncy Gold Spot Oz D 2015 08 13 07 54 58

Events for today

0001

UK

Jul

RICS House Prices

0700

DE

Jul

CPI

1230

EZ

Aug

ECB Policy Meeting

1330

US

Jul

Retail Sales

1330

US

w/e

Jobless Claims

1500

US

Jun

Business Inventories

1530

US

w/e

EIA Nat Gas

Topics: Gold, CNY, Iron Ore, PBOC
More from: Kash Kamal