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Apart from some renewed weakness in oil prices, with key resistance levels cited to be holding back further gains, looming Fed meeting also weighs.
Investors cut down on their trades, which probably saw the recent rally run out of steam. S&P still maintained above the psychological 2000 mark, while Stoxx Europe 600 lost -1.1% on Tuesday but remained on an uptrend since hitting the 16-month lows on 11 February.
Oil prices fell twice in a row in the first two days of the week, as hopes that major oil producers will meet to discuss a production freeze hit a roadblock. Russian Energy Minister Alexander Novak said that Iran is unlikely to join the meeting to limit output. Early Asia trade however saw crude futures rallying ahead of the Energy Information Authority (EIA) weekly report, where an increase of 3.2 million barrels is expected.
Asia is likely to track cautious performance from the overnight markets. The PBOC fixed a higher USD/CNY midpoint rate at 6.51720, making it the third higher fix this week, pointing towards further depreciation in the yuan. The Chinese central bank seems keen to keep USD/CNY supported above 6.5000, with only two midpoint fixes below this level so far this year.
Chinese mulls tax on speculative FX trades
Beijing is mulling over a plan to impose a tax on currency trading, the so-called Tobin tax, to curb currency speculations in the Chinese renminbi that distorts exchange rate values and complicates economic policies. The proposal suggested keeping the initial levy at zero to allow time for the authorities to fine-tune the rules. Moreover, the tax would not be imposed on genuine FX transactions such as hedging needs undertaken by companies. The Tobin tax may also help slow the outflow of capital from China which has reached a record $1 trillion last year. The hope is that this tax will curb FX speculating activity while keeping the yuan movements more in line with economic fundamentals. Moreover, not only would such a tax possibly help to reduce the need for costly FX intervention, it could also increase tax revenue.
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