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August 6, 2019

China blinks first. Now US stocks are bouncing back

By Anneken Tappe | CNN Business

The Dow and the broader stock market is rebounding Tuesday, after China took steps to ease the budding currency war with the United States.

China priced the yuan's reference rate at 6.9683 to the dollar on Tuesday, a hair above the key 7:1 ratio to the US dollar. Although that was the weakest level for the yuan in 11 years, many Wall Street investors feared China would price the yuan below that psychological 7:1 barrier.

The managed yuan continued to slide Tuesday, but the pace of its decline slowed. One dollar last bought $7.0200 yuan in China, and 7.0490 yuan in the offshore market, where the currency trades more freely.

Late Monday. the United States labeled China a currency manipulator.

But the sentiment is better nonetheless.

The Dow traded more than 200 points, or 0.8%, higher Tuesday morning, while the S&P 500 bounced 0.9% higher. The tech-heavy Nasdaq Composite, which was hit worst in Monday's selloff, traded 1.2% higher.

Stock investors also took comfort in the Chinese central bank announcing plans to issue central bank bills worth 30 billion yuan next week. That supported China's currency, which bounced back slightly against the dollar after the announcement.

"Also supporting the markets is probably bargain hunting of companies with good fundamentals and short-covering elsewhere," wrote Forex.com technical analyst Fawad Razaqzada in a note.

Asian stocks closed lower, while European stocks are recovering somewhat Tuesday.

China devalued its currency on Monday, leading it to fall below a key threshold that had last been breached during the financial crisis. Global stocks sold off in response and the Dow, S&P 500 and Nasdaq Composite log their worst day of 2019. The Nasdaq was the worst hit, because tech stocks would be hit particularly hard by an escalation in the trade war.

But now markets are calming down.

Investors feared the label would eliminate China's incentive to keep the yuan above the 7:1 ratio to the dollar, setting off a currency war with the United States. A further devaluation of the yuan could ease the burden of America's tariffs on China. Wall Street fears a steep drop in the yuan could escalate the trade war, prompting the United States to raise its tariffs on China or intervene in the value of the US dollar.

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1 Comments

Anonymous
August 6, 2019

The currency manipulators will have their fun,but not with my mun.

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