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Compared to the previous two days, today has been uneventful. A third successive intervention by the PBoC has had much less impact on risk appetite, and while European markets move higher, the FTSE and US indices remain fairly quiet. In part, markets have been calmed by China’s suggestion that the renminbi will now trade in a more stable fashion, although this still shows that China calls the tune.
Given the evidence of the past week, if more readjustment is deemed necessary, then it will take place, with little regard for the sentiment of investors in other parts of the world. The relaxation in tensions is being seen in gold, as the metal goes through a bout of profit-taking after its strongest move higher in a number of weeks.
The much-feared ‘death cross’ on the Dow Jones has not, so far, generated the wave of selling that some of its adherents would expect, but it is perhaps a suggestion that we may be in for a more sustained pullback than that seen over the past two days. Much now hangs on any hints on policy from Fed members. The current thesis is that China’s move has reduced the chance of a September move, but equities could sell off rapidly from here if the PBoC’s moves have left the Fed’s policy path unaffected. It is all still to play for.