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Global stocks feel relief as China de-escalates currency spat

By AFP - Aug 06,2019 - Last updated at Aug 06,2019

Traders and financial professionals work at the opening bell on the floor of the New York Stock Exchange on Tuesday in the Brooklyn borough of New York City (AFP photo)

LONDON — Global stock markets breathed a sigh of relief on Tuesday after Beijing appeared to de-escalate a conflict with the US over the level of its currency.

Equities had tumbled on Monday, with the biggest losses seen on Wall Street — in what analyst Fawad Razaqzada at Forex.com called "a bloodbath" — after China allowed the yuan to slide against the dollar, effectively weaponising the currency as a riposte to a new round of US tariffs on Chinese goods.

Tensions have escalated since last week, when US President Donald Trump announced fresh tariffs on Chinese goods from September 1 that would subject virtually all of the $660 billion in annual merchandise trade between the two economies to punitive duties.

The yuan's slump fuelled speculation that Beijing is allowing its currency to devalue to support exporters and offset Trump's threat to hit $300 billion in Chinese goods with 10 per cent tariffs.

 

Escalation? 'Not just yet' 

 

But on Tuesday, investors relaxed somewhat after the People's Bank of China fixed the yuan at a higher level against the dollar than analysts had expected, signalling a degree of detente after Washington slapped the "currency manipulator" label on China.

"Markets are relieved with the PBOC's decision to weaken the yuan at a slower pace, a sign that we might not just yet see the peak escalation in the US-China trade war," said Edward Moya, an analyst at OANDA.

Still, he said, "continued yuan depreciation should be expected, albeit at a staggered pace".

US equities were higher at the Wall Street opening bell, as were most European markets, after Asia pared early losses.

"Sentiment appears to be easing a bit as China took measures to stem the slide in its currency," Charles Schwab analyst said.

Analyst Michael Hewson at CMC Markets called the twist in the US-China standoff "this latest game of trade war cat and mouse" and said that "good sense has long since ceased to be an arbiter of future policy moves where the US and China are concerned".

The yuan broke above 7 yuan to the dollar on Monday, a level investors see as a key threshold in the Chinese currency's value.

The yuan stood at 7.0226 in the European afternoon Tuesday after hitting a fresh 11-year low at 7.0602 in Asian trades.

In Europe, investors also welcomed unexpectedly strong German factory orders, said David Cheetham, chief market analyst at XTB trading group.

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