The Tuesday Market Minute
- Global stocks steady after China pegs its currency at a firmer-than-expected level against the U.S dollar Tuesday, easing tensions between the world's two biggest economies.
- PBOC allows the yuan to fall below the 7 mark against the dollar for the second time since May 2008, but sets the mid-point at $6.9683 after the U.S. Treasury Department labels Beijing a currency manipulator for the first time since 1994.
- Asia shares extend declines on concerns for deeper trade retaliation, but European stocks find firmer footing as risk sentiment improves following China's currency peg.
- Global oil prices rebound from seven months lows as bargain-hunting traders snap up cheap crude, but concerns for end demand continue to keep oil grounded over the month of August.
- Wall Street futures, fresh off their worst session of the year, suggest a flat open Tuesday ahead of Redbook retail sales data at 8:55 am Eastern time and JOLTs job openings at 10:00 Eastern time.
U.S. equity futures bounced higher Tuesday after China pegged its yuan inside the $7 mark following the Treasury Department's decision to label the country a currency manipulator, a move seen as an attempt to ease tensions between the world's two biggest economies as their ongoing trade dispute threatens global growth prospects.
The People's Bank of China set the mid-point of its daily yuan pricing at $6.9683, still one of the lowest levels since 2008 but under the $7 threshold that triggered global market turmoil and the biggest sell-off of the year for U.S. stocks. The firmer-than-expected fixing came only hours after the Treasury had deemed China a currency manipulator -- the first such designation for any country since 1994 -- and suggested Beijing is prepared to cool tensions for the time being despite the threat of fresh tariffs on China-made goods kicking in on September 1.
China's currency -- in both the tightly-controlled onshore market as well as the looser offshore one -- is still trading under the $7 threshold, however, and state-controlled media is doubling-down on its efforts to criticize the U.S. for unfairly targeting the country's officials in their ongoing trade war.
The PBOC added in a statement published Tuesday that its designation as a currency manipulator seriously harms international rules, and vowed not to use the yuan as a tool in its ongoing trade dispute with Washington.
U.S. equity futures, however, look to have gained some composure in the overnight session, even as stocks in Asia extended declines to multi-month lows and safe-haven assets continued to rally, with contracts tied to the Dow Jones Industrial Average suggesting just a 130 point gain at the opening bell, while those linked to the broader S&P 500 are indicating a 11.7 point advance.
European stocks, meanwhile, added to earlier gains Tuesday, buoyed by stronger-than-expected industrial orders data from Germany, with the Stoxx 600 rising 0.56% and Germany's DAX performance index jumping 0.65% in Frankfurt.
Away from equities, the U.S. dollar index, which tracks the greenback against a basket of six global currencies, bumped 0.03% higher to 97.552 as investors cautiously returned to risk markets in Europe, while benchmark 10-year U.S. Treasury bond yields rallied from an October 2016 low of 1.672% overnight to 1.736% in early European trading.
The Treasury's move to label China a manipulator, alongside President Donald Trump's renewed plea to the U.S. Federal Reserve to respond to China's yuan devaluation, has boosted bets for near-term rate cuts.
The CME Group's FedWatch tool, which assigns rate change probability, is pricing in an 76.5% chance of a 25 basis point September cut, up from just 54.8% last week, and 23.5% chance of a 50 basis point move, up from merely 2% last week. There's also a 92% chance of a further reduction between now and the end of the year.
Global oil prices also bounced from multi-month lows in early European trading, although Brent crude continues to languish following an 8% fall this month amid concerns that the U.S.-China trade war will sap demand from the world's biggest energy consumers.
Brent crude contracts for October delivery, the global benchmark, were seen 28 cents higher from their Monday close and changing hands at $60.09 per barrel while WTI contracts for September, which are more tightly linked to U.S. gas prices, were marked 32 cents higher at $55.01 per barrel.
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