Stocks Regain Ground, Yuan Stabilizes
European stocks, U.S. futures rebound as investors bet on further rate cuts
• Chinese currency trades above 7 yuan to the dollar
• U.S. Treasury yields rise after hitting lowest since 2016
Stocks regained ground around the world and U.S. futures ticked higher after China’s central bank signaled it wouldn’t let the yuan fall much further, a day after escalating trade tensions triggered sharp declines on Wall Street.
Markets across Asia fell sharply early Tuesday after the U.S. Treasury labeled China a currency manipulator. But stocks pared losses and the yuan stabilized after the People’s Bank of China’s moves.
The Stoxx Europe 600 gauge was up 0.6%. Futures tied to the Dow Jones Industrial Average and S&P 500 were each 1% higher, a day after both indexes shed around 3%.
The trade tensions between the U.S. and China may prompt the Federal Reserve to step up interest-rate cuts to bolster economic growth in the world’s largest economy, some investors and analysts said.
“Across currencies and bond markets there’s clearly a greater anticipation for a Fed rate cut given recent developments,” said Geoffrey Yu, head of the U.K. investment office at UBS Wealth Management.
A speech by the Fed’s James Bullard later Tuesday is likely to be scrutinized closely for any further signals on likely actions by the central bank. Investors will also have a close eye on June data on U.S. jobs, an important indicator for the robustness of the labor market, later Tuesday.
The yield on U.S. 10-year Treasurys edged up to about 1.758% after earlier hitting its lowest since 2016. Bond yields fall as prices rise.
The rebound in some markets suggests a “temporary lull” in trade tensions, according to Oliver Jones, a senior markets economist at Capital Economics. “The prospects are only for more tensions and tariffs.”
Markets were roiled in the previous session as the yuan became the latest flashpoint in U.S.-China trade relations. President Trump took the devaluation as a deliberate shot at the U.S. after Beijing let the yuan depreciate beyond 7 to the dollar for the first time since 2008. A weaker yuan makes Chinese goods more competitive abroad, and U.S. products and other imports into China more expensive.
“Looking for a silver lining, it is worth bearing in mind that President Trump still pays attention to the stock market,” said Tai Hui, chief Asian market strategist at J.P. Morgan Asset Management. “The latest correction may persuade him to be more moderate on the protectionist rhetoric in the near future.”
In Asia, major benchmarks in Japan, Hong Kong and South Korea all posted declines.
However, the yuan stabilized after China’s central bank set the daily midpoint for onshore yuan trading at 6.9683, 0.7% weaker than the previous day. The People’s Bank of China also said it would issue 30 billion yuan ($4.25 billion) of central bank bills in Hong Kong—an act seen as limiting possible short selling of the currency—and Governor Yi Gang said China won’t engage in competitive devaluation.
With those two moves, the central bank “is sending signals that it would like to mitigate the yuan depreciation,” said Frances Cheung, head of macro strategy for Asia at Westpac Banking Corp.
The offshore yuan, which trades more freely, was trading at 7.0506 to the dollar.
Beijing has signaled willingness to tolerate a lingering trade battle, but letting the yuan drop below seven to the dollar was more a negotiation tactic than the precursor to a huge devaluation, according to Alex Wong, a director at Hong Kong-based hedge fund Ample Capital. He said stock prices had been buoyed partly by bargain hunting.
The Japanese yen, considered a haven currency, declined 0.6% and traded at 106.573 to the dollar.
The Hang Seng’s decline set it on course to turn negative for the year, joining South Korea’s Kospi.