PBOC offers additional support ahead of Chinese New Year

Tuesday, February 02, 2016

Jittery investors saw mixed trading during the Asian trading session as continued support by the PBOC saw mainland Chinese equity benchmarks rise against a backdrop of weaker stocks across the region. The Chinese central bank once again took considerable measures to ensure capital markets remained liquid with the auction of 100bn yuan ($15bn) of reverse repos on Tuesday. The overnight repo rate fell to a one week low of 1.94% as policymakers sought to boost interbank liquidity ahead of next week’s Chinese New Year celebrations. While market volatility has eased considerably over the past week after a very choppy start to the year, investors are approaching risk assets with caution and appetite may be limited this week as market participants unwind positions ahead of the week long Chinese New Year holiday. The offshore yuan exchange rate traded firmly around 6.6190 against the dollar during overnight trading after stabilising above 6.6000 towards the end of January. The central bank will most likely offer additional liquidity over the coming sessions to prevent any squeeze and subsequent spike in market volatility.

In a further sign of the cautious outlook adopted by many investors spot gold prices extended gains yesterday, rallying towards $1,130/oz yesterday on a combination of investment and physical demand. Mixed messages from the Fed last week as well as ongoing uncertainty regarding the outlook for the global economy prompted investors to pile into the safe haven, spurring a 6% year-to-date rally in the yellow metal so far. Trading activity during the Asian session and early on this morning has seen prices briefly test levels towards the 200 day moving average before paring some of yesterday gains, trading just under $1,125/oz at the time of writing. With global equity markets struggling for direction at the start of the year we could see a modest increase in buying over the coming sessions, however, some strategists view the recent market turmoil as a necessary correction and we could sooner see the floor fall from under gold prices as investors slowly return to higher yielding risk assets.

Front month Brent futures snapped a four day rally yesterday after briefly trading towards a four week high as investors took an opportunity to bank profits. Price have rebounded almost 30% since the late January trough as hopes of a meeting between OPEC members and Russia to discuss the potential for output cuts boosted sentiment, rallying towards $36.25/bbl early on. However, with such talks failing to materialise and hopes of any immediate output cuts fading investors took advantage of the recent profit taking opportunity with front month prices for the global benchmark trading just under $34/bbl at the time of writing.  

CNH remains stable ahead of Chinese New Year

CNH Curncy Offshore Deliverable 2016 02 02 08 12 09

Gold prices come up against resistance at the 200 day MA

XAU Curncy Gold Spot Oz D 2016 02 02 08 20 58

Brent futures snape recent rally on profit taking

CO1 Comdty Generic 1St CO Fut 2016 02 02 08 25 22

Events for today

0855

DE

Jan

Unemployment

0930

UK

Jan

Markit Construction PMI

1000

EZ

Dec

PPI

1000

EZ

Dec

Unemployment Rate

1445

US

Jan

ISM New York

Topics: Gold, Crude oil, Brent, PBOC
More from: Kash Kamal