Risk-off sentiment continues to dominate
- S&P 500 futures -1.5%
- Eurostoxx -1.8%
- Germany DAX -1.8%
- France CAC 40 -2.1%
- US 10-year yields down 8.9 bps to 1.756%
- Gold up 1.4% to $1,460.13
- USD/JPY down 0.5% to 106.03
- USD/CHF down 0.8% to 0.9745
Things all started as US-China trade negotiations were thrown into jeopardy before we saw China state-owned and private buyers pull back on US soybean purchases.
But in the midst of all of that, the key concern for markets was the PBOC fixing the yuan at its weakest level this year (first time above the 6.90 threshold) and allowing the currency to weaken beyond 7.00 against the dollar.
The move is basically a signal that they're not holding much hope for trade negotiations anymore and it shows that China is fighting back in arguably the only way (most effective short-term measure) it really can for the time being.
It also sends a signal that they don't care for Trump's recent jibes on currency manipulation and raises the risk of a full-blown currency war down the road. The unpredictability of the situation is leading to markets being more risk averse as such.
It's an ugly day for risk assets and the dollar isn't looking that pretty either as it has fallen a bit today towards the tail end of the session. If this is anything to go by, we should be prepared for more days like these in 2H 2019 as the trade war enters a new phase.