Market Swings
European bourses and commodity markets came under heavy selling pressure overnight following the Yuan devaluation inspired rout in the Asia Pacific region yesterday. However, US shares rallied back from early weakness to post modest gains, and copper and oil rebounded. This may spur a positive start to trading locally, particularly in light of in-line corporate reporting so far, but all eyes will turn to the Yuan rate set this morning to set the tone.
The Yuan rallied yesterday afternoon after reports of state bank buying and comments from authorities that the changes to the fix were about attaining IMF reserve currency status rather than an expression of concern about the economy. A broader acceptance of this proposition, and a fix that reflects current levels of USD/CNY around 6.44, could calm nerves and see shares rally. On the other hand, an aggressively higher fix may prompt further weakness.
Local trading may also see support based on company reports so far. While Fairfax missed badly, and Telstra reported in line, Tabcorp, News Corp, Sirtex, Mirvac and Goodman Group have all exceeded expectations. Although only about 20% of companies have reported annual results so far, both sales and earnings growth are ahead of forecasts.
Crown and Whitehaven Coal will round out today’s major reports. Yesterday’s strong start to trading in the three major banks while CBA was in trading halt suggests the much anticipated share issue was already factored. While CBA remains suspended, and is unlikely to resume today, it may add pressure on the market when it returns.
For further comment from Michael McCarthy at CMC Markets please call 02 8221 2135.
Frequently Asked Questions about this Article…
The Yuan devaluation led to heavy selling pressure in European bourses and commodity markets, but US shares managed to rally back from early weakness, posting modest gains. This mixed reaction highlights the global sensitivity to changes in the Yuan's value.
A stable Yuan rate, reflecting current levels around 6.44 USD/CNY, could calm investor nerves and potentially lead to a rally in shares. Stability in the Yuan is seen as a positive sign for market confidence.
Companies like Tabcorp, News Corp, Sirtex, Mirvac, and Goodman Group have all exceeded expectations in their recent reports, contributing to a positive outlook for local trading.
Achieving IMF reserve currency status for the Yuan is significant as it suggests a broader acceptance of the currency in global markets, which could stabilize its value and reduce economic concerns.
Local markets may see support from the current corporate reporting season, as both sales and earnings growth are ahead of forecasts, despite some companies like Fairfax missing expectations.
The CBA trading halt, due to an anticipated share issue, may add pressure on the market when trading resumes. However, the strong start in other major banks suggests that the issue was already factored into market expectations.
US shares rallied back from early weakness due to a rebound in copper and oil prices, which helped offset the selling pressure seen in other global markets.
State banks play a crucial role in stabilizing the Yuan by buying the currency, which can help counteract devaluation pressures and support the government's economic strategies.
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