By Lorcan Roche Kelly
Chinese policy makers tried to calm global worries by fixing the yuan stronger than expected. While the new level is (just) weaker than 7 to the dollar for the first time since 2008, the strength compared to market estimates was seen as a signal that Beijing is seeking stability. Global assets are calmer in the wake of the Chinese move. It seems that the President Donald Trump’s hopes of weakening the dollar will be less successful, as his trade position increases foreign bids for haven Treasuries which also boosts secular demand for the U.S. currency.
Yesterday’s session saw crude drop to a seven-month low as it was hit by the risk-off sentiment in markets and a larger-than-expected expansion in U.S. inventories. That slide started to turn around in late trading, a move which continued this morning, after the Saudis said they were phoning other oil producers to discuss responses to the sudden drop. A barrel of West Texas Intermediate oil for September delivery was trading at $52.21 by 5:50 a.m. Eastern Time, still more than a $1 below Wednesday’s opening level.
While there’s some selling across the sovereign bond market this morning, the stand-out underperformer is Italy, where once again the governing coalition looks close to collapse. The spread between the country’s 10-year bond and that of Germany climbed to the widest in a month after reports Deputy Prime Minister Matteo Salvini gave Prime Minister Giuseppe Conte until Monday to give in to his demands for a cabinet shake-up. Finance Minister Giovanni Tria is among the people Salvini wants to replace.
Overnight, the MSCI Asia Pacific Index climbed 0.4% while Japan’s Topix index closed 0.1% lower amid continued yen strength against the dollar. In Europe, the Stoxx 600 Index was 0.9% higher at 5:50 a.m. as investors reacted to China’s attempts to reduce tensions with the U.S. S&P 500 futures pointed to a gain at the open, the 10-year Treasury yield was at 1.734% and gold slipped below $1,500 an ounce.
The latest weekly jobless claims number lands at 8:30 a.m., while wholesale inventories data is published at 10:00 a.m. After all the recent action in the bond market, today’s sale of $19 billion of 30-year bonds by the U.S. Treasury at 1:00 p.m. may be worth keeping an eye on. In earnings today, Uber Technologies Inc. will be one to watch as the company tries to convince investors it might someday make a profit. Kraft Heinz Co., Dropbox Inc. and News Corp. are among the other other companies announcing results later.