Risk creeps back as yuan stabilises

Risk appetite appeared to have improved somewhat, with some hard struggle seen in the S&P 500 index these two sessions

Source: Bloomberg

Coincidentally, the yuan fixing has stabilised lately, and the Chinese authorities also have made offshore yuan borrowing ridiculously expensive by having state-own banks mopping up the CNH, reducing the spread between the onshore and offshore RMB.

Following the PBOC’s aggressive intervention, the Hong Kong interbank CNY reference rate overnight soared to 65% on Tuesday, from 4.2% last Friday, putting on a hefty 52 basis points just yesterday. The CNH was trading at an over 2% discount over the CNY last Friday, reflecting international investors’ views that the Chinese yuan will weaken further. However this yawning gap was closed in short order by Tuesday to a tiny 0.2%, in line with historical difference.

While the daily CNY midpoint fixing will still continue to hold the attention of global market participants, the effect may fade as CNY stabilises. PBOC kept yuan reference rate little changed for the fourth day at 6.5630 today. Meanwhile, we will also look out for Chinese trade data for December due shortly at 10:00 SGT. The consensus is for exports and imports to remain in decline at -8% and -11% on an annual basis. Trade surplus should come in steady at the USD50 billion-plus region.

I expect to see buyers filtering through Asia today to support the downsides, based on the positive leads from the Street. However, the upside space remains limited as there are few good news or data to cheer about. Admittedly, we could see energy-related stocks facing selling pressure after world oil prices took another hit overnight.



  • WTI and Brent fell -3.1% and -2.2% yesterday. US oil dipped below $30 yesterday but managed to rebound in early Asia, as a report from the American Petroleum Institute (API) showed that US crude supplies fell 3.9 million last week. In contrast, the median estimate from a Bloomberg survey is a 2 million increase ahead of the official Energy Information Administration (EIA) report tonight.


  • S&P 500 bulls managed to score a victory on Tuesday, overwhelming sellers, to clock a 0.8% gain, as the 1900 handle proves resilient. The Dow also managed to close at +0.7%. Likewise, European indices ended higher.


  • Australia and Japan started Wednesday on a positive tone, although the ASX 200 remains below key 5000. The Nikkei 225 maintained above 17500 at last check.


*For more timely quips, you may wish to follow me on twitter at https://twitter.com/BernardAw_IG

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.