Markets find their mojo as currency war fears calm


A semblance of positive sentiment is once again in the air this morning, with Asian markets rising and European stock upbeat at open.

Nerves could have taken things either way yesterday, but what started out as a hammering for US indices turned neutral after Wall Street mounted a dramatic recovery to close flat.

This time yesterday, traders’ minds were focused on a slew of rate cuts from central banks in New Zealand, Thailand and India. But what some feared could have become a flock of doves stayed as a trio, and fears of a full-blown currency war appeared to be premature — for the moment, at least.

Meanwhile, poor factory data from Germany wasn’t enough to upset a narrow rally in Europe, which one analyst said was feeling a ‘dead cat bounce’ after a series of successive falls.

China has set its daily reference rate for the yuan, which sank weaker than 7 to the dollar on Monday morning, at 7.0039 per dollar. It’s the first time Chinese currency has been pegged to such a weak level since 2008, but is stronger than the 7.0156 predicted by a group of analysts and traders polled by Bloomberg — likely to further soothe nerves.

Into the vacuum

Today has the potential to be very quiet: there’s little economic news to focus on, so unless big talk comes out of the US or China, we might expect to see another day of steady recovery.

There are plenty of signs to keep an eye on on, however. The global bond market has continued its paroxysm in recent days amid an investors rush for safety, even if that means buying coupons with negative yields.

China and the US have both signalled they expect trade talks to resume in September, so August may stretch ahead as a nervous patch, inflected by the occasional Donald Trump Twitter rant. I’ll bring you the latest news as it happens.

In the diary today…

Trading statement: AA, Bellway

Economics: RICS house price balance, Jobless claims (US)

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