· The Chinese yuan strengthened and demand for safe haven currencies like the Japanese yen and Swiss franc fell on Tuesday as China appeared to take steps to stabilize its currency, after the yuan on Monday breached a key level and sparked broad risk aversion.
Stocks and emerging market currencies plunged on Monday and safe havens jumped after Chinese authorities allowed the yuan to break through the psychologically important level of 7 per dollar, its lowest level since the 2008 financial crisis.
Risk appetite improved on Tuesday after the People’s Bank of China fixed the daily reference rate for the onshore Chinese yuan at 6.9683, firmer than the expected 6.9871, and below the key 7 rate. The central bank also said it was selling yuan-denominated bills in Hong Kong, a move seen as curtailing short selling of the currency.
· China’s central bank set the official midpoint reference for the yuan at 6.9996 — stronger than 7 per dollar on Wednesday — two days after Washington labeled Beijing a currency manipulator.
· The dollar fell against the yen as Japanese stocks opened lower on Wednesday in a sign markets remain nervous about U.S.-China trade frictions following major foreign exchange volatility in the previous session.
The dollar fell 0.3% to 106.16 yen JPY=EBS in early Asian trading. On Tuesday, the dollar rallied from a low of 105.51 yen to as high as 107.07 yen in a volatile session sparked by worries about China's currency policy.
The offshore yuan CNH=D3 was unchanged at 7.0531 per dollar, holding on to gains after rallying from 7.1397, the lowest since international trading in the currency began in 2010.
The dollar index =USD, which measures the greenback against six major currencies, rose 0.37% to 97.581.
The euro stood at $1.1202 EUR=EBS, flat so far in Asian trading.
· The yield on the benchmark 10-year Treasury note held steady Tuesday morning after breaking under 1.7% earlier in the session for the first time since the fall of 2016.
At around 3:58 p.m. ET, the yield on the benchmark 10-year Treasury note was slightly lower at 1.716%, off a low of 1.672% hit in overnight trading. The yield on the 30-year Treasury bond was also slightly lower at 2.246%.
· China’s central bank has firmly rejected the U.S. Treasury’s designation of Beijing as a currency manipulator, saying the accusation has “seriously” undermined the international financial order and risked further market turmoil.
The response from the People’s Bank of China comes at a time of rapidly intensifying trade tensions between the world’s two largest economies.
· Agriculture has been a weapon of choice in the escalating trade war between the world’s two largest economies.
With China officially pulling out of buying U.S. agricultural products, American farmers are losing one of their biggest customers. It could be a devastating blow in an already tough year for crops and commodity prices. It may also dent U.S. gross domestic product and hurt companies like Deere, whose business is directly tied to farming in the Heartland.
“Sales have already been lower this crop year because of the existing tariffs. If we went all the way to no China exports whatsoever, that would of course result in even larger market and price impacts,” said Pat Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri. “Cutting China completely out of the market would be a very big deal.”
China made up $5.9 billion in U.S. farm product exports in 2018, according to the U.S. Census. It’s the world’s top buyer of soybeans and purchased roughly 60 percent of U.S. soybean exports last year. Westhoff estimated that soybean prices have already dropped 9% since the trade war began last July.
· North Korean leader Kim Jong Un said the launch of tactical guided missiles on Tuesday were a warning to the U.S. and South Korea’s joint military drills, state media KCNA said on Wednesday.
U.S. national security adviser John Bolton reminded North Korea on Tuesday of its leader’s pledge to President Donald Trump not to resume launches of intercontinental-range missiles after Pyongyang conducted its fourth short-range missile test in less than two weeks and warned it might pursue “a new road.”
Kim said the military action was “an occasion to send an adequate warning to the joint military drill now underway by the U.S. and south Korean authorities,” according to KCNA.
· Oil prices fell slightly on Tuesday, with Brent crude remaining near seven-month lows just below $60 a barrel because of increasing 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.
International benchmark Brent futures fell 58 cents to $59.23 a barrel by 2:25 p.m. EDT 1/81825 GMT 3/8, having dipped earlier in the session to their lowest since Jan. 14 at $59.07.
West Texas Intermediate crude futures were down 78 cents a barrel at $53.92.
Reference: CNBC, Reuters
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