Article / 13 October 2016 at 7:00 GMT

Morning Markets: Six-year yuan low clatters sentiment

Managing editor, TradingFloor.com / Saxo Bank
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Watchlist

  • Bank of England MPC meeting and rate decision
  • US: Initial Jobless Claims (1230 GMT) 

Chinese export data for September fell 10% year-on-year sending USDCNH to a six-year high and damaging sentiment through the Asia session as risk-off returned to the fore.

USDCNH was at 6.7374 at 0611 GMT, well above the line in the sand at 6.700 which is usually the signal for the People's Bank of China to intervene, and will no doubt have Beijing looking on nervously. It dampened hopes that the economy might be pulling out of its two-year slump and helped send the Hang Seng to its fourth-losing day in a row as the glow of its stellar rise through Q3 starts to fade.

The release of the Federal Reserve minutes Wednesday, indicating that the board was split on a rate move for September and that December is beginning to take on the look of a racing certainty, also helped mute sentiment. A rate hike in December is priced in at 67%.

Thailand's stock market is also sliding on the back of concerns for the health of the 88-year old king, a symbol of unity in a country that is frequently riven by strife and the occasional coup. It has fallen some 10% since hitting a high in August.

South Korea's won is taking a big hit overnight as the repercussions of Samsung's Galaxy Note 7 fiasco begins to worm its way through the system. Samsung shares conversely staged a bit of a rebound overnight after it moved swiftly to slash its earnings forecast by a third on the back of the disaster but South Korea can expect more pain to come as the conglomerate accounts for some 14% of the economy.

Dollar strength continues to pervade as it once again pushes GBPUSD below 1.22 and has EURUSD on the cusp of 1.10 as we head into the European open. Not so against the yen however, after USDJPY returned to sub 104.0 levels hampering Nikkei's progress in the process.

And, while there has been a sense of phone war about Brexit lending it the air of some kind of ivory-tower debate that has little or no real meaning for the UK economy (excluding those who've holidayed abroad from the UK in the last three months), we're perhaps seeing the first signs of it seeping into the real economy.

Unilever and Tesco have become embroiled in a war of words over who should pay for goods that the logistics giant brings in from abroad. Dubbed the 'Marmite War', it's a sign of things to come and the cost will no doubt be borne at some point by the British consumer.

It's not all doom and gloom though as the RICS housing survey for September showed a return in appetite for house hunting after dismal slumps in June and July. Nothing — not even Brexit — can stand in the way of the innate drive of the English to make their castle their home!

Market signals

Asian session

  • Asian markets opened mixed after the Fed minutes and dollar's strengthening
  • China's exports fell 10% in September on year, well below predictions of a 3.3% drop
  • China's trade surplus came in at $42bn against $53bn expected
  • ASX200 hit a two-week low of 5420.8 after China data and ended the day 0.7% lower
  • Japan's Nikkei fell 0.5%, the Hang Seng lost 1.25% and Korea's Kospi fell 1%
  • Shanghai rose 0.1% despite China trade data
  • Australia's consumer inflation expectations rose in October to 3.7%, from 3.3% 
  • West Texas Intermediate crude hit a four-day low of $49.76/b in early trading 
  • Iron ore price is holding above $55

Forex ahead

  • AUD hit a fresh three-week low against the USD after disappointing China data
  • The US dollar dropped to as low as 103.555 yen, down 1% from day's high of 104.635 
  • USDJPY vols trading up to 11% vols on back of China trade data
  • GBPUSD 1-month at-the-money vols at 13%, up from 10% before the flash-crash

From the Floor

Fed minutes out. "Near-term action is pretty likely," says Moltke-Leth

Election projections. “Biotech shares are negatively correlated to polling surges for Hillary Clinton,” says Garnry

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

1..2..3
US jobless claims are expected to edge higher but remain at near 43-year lows, writes James Picerno

Fed fluster
It was a nervous start to trading in local markets after the Fed minutes lifted expectations for a US rate hike, writes the team at Saxo Capital Markets (Australia).

Samsung snaps back
Asian markets opened mixed with Samsung shares snapping four days of declines, writes Saxo's Singapore trading team.

Volatile sterling
Ad hoc news is impacting sterling almost on an hourly basis and the vulnerability could swing both ways. Nevertheless, value could be returning to the market, says John Hardy.

Deal, no deal
The deal Opec most likely signs with Russia on November 30 will be a deal that caps oil production in the federation, but at an artificially high level, writes Nadia Kazakova.

Where's the line?
Sterling's decline since the June 23 vote to exit the European Union has been such that it is dififuclt to know where the line will be drawn on GBPUSD, now that 1.30 clearly belongs to history, says Stephen Pope.

Success odds
Is success or failure a 50/50 chance? No, and there steps you can take to manipulate your portfolio to work to your advantage, writes community stalwart fxtime.

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What's in store for sterling Thursday? Photo: iStock

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13 October
Martin O'Rourke Martin O'Rourke
King Bhumbol Adulyadej has died at the age of 88 and will raise question marks over the political transition process in Thailand which is under military rule. Elections are set for 2017. The king's death saw a 0.3% slide in Thailand's Baht against the dollar.
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