Tuesday August 6th

6-08-2019

Dow set to rebound by 170 points at the open after China stabilizes its currency

U.S. stock index futures rebounded on Tuesday after China’s central bank indicated it wanted its currency to trade at a higher level than expected against the dollar, easing tensions about the nation using its currency as a weapon in the trade war. The bounce came after Wall Street saw its worst trading day of 2019 in the previous session. Around 7:45 a.m. ET, Dow futures recovered to indicate a positive open of about 179 points, after tanking in after-hours trading Monday evening. Futures on the S&P and Nasdaq were also higher Tuesday morning. “Going forward, stabilization in the U.S./China trade war is now the most important key to broader market stabilization,” said Tom Essaye, founder of The Sevens Report, in a note. “If the escalation continues, that will cause a further pull-back, regardless of what the [Federal Reserve] is going to do. And, I say that because another 25 or 50 basis points of easing by the Fed won’t materially offset a protracted and escalating trade war.” Overnight, China’s central bank set the yuan’s official reference point at stronger than the key 7 yuan-to-the-dollar point on Tuesday. The move calmed currency markets, initially rocked by fears the U.S.-China trade war was devolving into a currency war. Shares of companies whose future prospects hang in the balance because of the trade war led the rebound in premarket trading. Caterpillar, Apple and Micron all traded higher in early trading. Ford rose after an upgrade by Morgan Stanley. U.S. equity markets saw their worst trading day of 2019 on Monday. The sell-off had began last week when President Donald Trump announced new tariffs on Chinese goods. However, market reaction became even more negative when Chinese authorities let the yuan break to its lowest level against the dollar in more than 10 years on Monday. Also on Monday, the Treasury Department designated China a currency manipulator, a move that has not been seen since the Clinton administration. Beforehand, Trump took to Twitter to voice his opinion on the currency move. “China dropped the price of their currency to an almost a historic low. It’s called ‘currency manipulation.’ Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!,” he tweeted. Meanwhile, the People’s Bank of China (PBOC) set the midpoint for the yuan at a level stronger than what markets were expecting on Tuesday. The Chinese central bank sets a daily rate for the currency, allowing it to trade in a band against the greenback within 2% of the midpoint value, also known as the onshore yuan. Its offshore counterpart is used by foreign investors and banks. China also confirmed earlier reports that it was suspending the purchases of U.S. agricultural products.The U.S.-China trade war has been going on since last year, dimming sentiment and the outlook for corporate profits and economic growth. Asia markets pared earlier losses but still saw declines on Tuesday as the U.S.-China trade war intensified, after Beijing confirmed it is suspending agricultural product purchases in response to new American tariffs. President Donald Trump said last week the U.S. is putting 10% tariffs on another $300 billion worth of Chinese goods starting Sept. 1. Shares in mainland China slipped on the day: The Shanghai composite shed 1.56% to about 2,777.56 while the Shenzhen component fell 1.39% to 8,859.47. The Shenzhen composite tumbled 1.777% to approximately 1,490.30. In Hong Kong, the Hang Seng index slipped 0.67% to close at 25,976.24, after earlier dropping more than 2%. Japan’s Nikkei 225 fell 0.65% on the day to 20,585.31 while the Topix index declined 0.44% to end its trading day at 1,499.23. In South Korea, the Kospi shed 1.51% to close at 1,917.50. Oil prices rebounded slightly on Tuesday from big falls in recent sessions, but Brent crude remained near seven-month lows around $60 a barrel due to escalating trade tensions between China and the United States. Brent prices have lost more than 9% in the past week, with U.S. President Donald Trump vowing to impose new tariffs on Chinese imports and China making further moves against U.S. agricultural cargoes. The United States also responded to a decline in China’s yuan on Monday by branding the country a currency manipulator. International benchmark Brent futures were up 0.59% at $60.14 a barrel, having dipped earlier in the session to their lowest since Jan. 14 at $59.07. West Texas Intermediate crude futures rose 0.75% to $55.10 per barrel. Gold steadied on Tuesday after touching a six-year high as simmering tensions between Washington and Beijing propelled investors towards safe-haven assets. Spot gold was up 0.1% at $1,462.17 an ounce after hitting its highest since May 2013 at $1,474.81. Prices had jumped as much as 2% in the previous session. U.S. gold futures were flat at $1,477.2.