Shares revived and bond yields rose in major markets yesterday after China’s central bank reassured investors there was no reason for its currency to keep falling.
Despite the calming markets, the yuan weakened for a third day and some forecast further declines in the face of a weak economy, even as People’s Bank of China (PBOC) vice-governor Yi Gang dismissed talk of a deeper devaluation.
The PBOC set its guidance rate at 6.4010 per dollar prior to the market opening, weaker than the previous fix of 6.3306. The gap between the guidance rate and the traded spot market rate narrowed sharply as banking sources said the PBOC had stepped up intervention in a bid to stabilise prices. It was lately traded at 6.4422 per dollar.
Traders remained cautious. Sources had told Reuters this week some powerful voices in the government were pushing for an even deeper yuan devaluation to help China’s struggling exporters. Still, major US and European stock indexes were higher and benchmark bond yields rose as investor fears of a currency war or substantial asset depreciation eased.
The pan-European FTSEurofirst index of leading 300 blue-chips rose 0.9 per cent, while the MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.5 per cent.
US equities, which had rebounded from steep losses on Wednesday, were higher at midday. The Dow Jones industrial average rose 29.76 points, or 0.17 per cent, to 17,432.27, the S&P 500 gained 2.5 points, or 0.12 per cent, to 2,088.55 and the Nasdaq Composite added 14.30 points, or 0.28 per cent, to 5,058.69.
Oil prices neared their nadir for 2015 after refinery outages and data showing inventory builds revived concerns about oversupply.
US crude fell 2.7 per cent to $42.15 a barrel, not far from the year’s low of $42.03, hit in March. Brent crude slipped 1.4 per cent to $48.96.
The recovery in equities dimmed the allure of safe-haven government debt, pushing up US and European bond yields.
German 10-year bond yields were three basis points higher at 0.63 per cent while benchmark US 10-year yields were up five basis points at 2.1783 per cent, following a lacklustre auction on Wednesday.
The dollar, which had also suffered as investors pared back bets that the US Federal Reserve’s long-awaited interest rate hike would come as early as its September 16-17 meeting, rebounded yesterday.
The dollar index was up 0.2 per cent at 96.47, rebounding from a one-month low of 95.926 hit on Wednesday. US retail sales rebounded in July as households boosted purchases of automobiles and a range of other goods, suggesting solid momentum in the economy.
The euro edged down about 0.1 per cent at $1.1142 after scaling a one-month peak of $1.1215 on Wednesday, helped by the unwinding of euro-funded carry trades in the yuan and other emerging market currencies.
Spot gold was down about 0.7 per cent at $1,117.80 an ounce after logging its fifth straight session of gains.