(Bloomberg) -- China’s central bank sought to steady fears that the yuan could tumble further while shares have priced in bad news already, according to market watchers.
The currency strengthened and stocks suddenly rebounded on the mainland and in Hong Kong after a brutal week, as traders waited to see whether the U.S. will impose additional tariffs on $200 billion of Chinese goods.
The People’s Bank of China was seen to offer stability by setting its yuan fixing at 6.7912 a dollar, stronger than the average estimate of 15 traders and analysts surveyed by Bloomberg. The yuan at one point gained the most since March and was trading 0.3% stronger at 6.8060 to the dollar at 10:50 a.m.
Stocks rose, with the Shanghai Composite climbing as much as 2.6%. All eyes are on trade discussions between Chinese Vice Premier Liu He and his U.S. counterparts in Washington.
Commerzbank AG (DE:CBKG) (Hao Zhou, senior emerging markets economist)
- The PBOC wanted to stabilize expectations as moves in the offshore yuan have been too crazy and short positions have piled up
- The central bank will defend the yuan at 6.9, which is the strike price for many options; a break of that level may lead to more rapid depreciation in the currency
National Australia Bank (Christy Tan, head of markets strategy)
- Yuan fixing expected to sustain a strong bias amid shift in trade talk dynamics and markets de-risking
- While China is not at risk of being labeled a currency manipulator in the upcoming report, it may still take a cautious approach and not allow the yuan to weaken too much
VC Asset Management Ltd. (Louis Tse, Hong Kong-based managing director )
- Market is rebounding as continuing trade dialogue has helped provide a sense of ease, after stocks in both Hong Kong and mainland were oversold heavily in the past four days
- There has been lots of short covering in Hong Kong, contributing to the rally
- Market is expecting a deal to be reached within this week, while some details of the deal could drag for weeks to be finalized
China Vision Capital Management (Sun Jianbo, President)
- Investors are taking heart from the positive signs that both parties have resumed talks on trade
- The market has largely priced in all the pessimistic expectations even if we get no deal out of the talks
- Even if stocks drop further, market bottom likely higher than previous low
- Sun’s firm has been adding stocks in past few days while the market corrected
Australia & New Zealand Banking Group (Khoon Goh, head of Asia research)
- Stronger-than-expected fixing suggests counter cyclical factor was in play and authorities want to try and cap the fixing below the 6.8 level ahead of trade news
- If talks breakdown and tariffs are raised, CNH could rise toward 6.9-6.95 per dollar
Royal Bank of Canada (Sue Trinh, head of Asia forex strategy)
- Counter cyclical factor has been increasingly strengthened over the course of the week
- Sees that China does not want to escalate trade tensions
- China is in a weaker negotiating position than the U.S.
- Sees yuan at 7 per dollar at end-2Q; 7.4/dollar at end-2019
Shenzhen Qianhai Yunxi Fund Management (Yang Yong, fund manager)
- This logic is a repeat of July last year: shares rose once tariffs became a certainty
- Investors piling in suggests that there as already been an over-correction
- There’s also the tech board on the way to assure us that authorities won’t let things get too ugly
To contact Bloomberg News staff for this story: Livia Yap in Singapore at lyap14@bloomberg.net;Tian Chen in Hong Kong at tchen259@bloomberg.net;Claire Che in Beijing at yche16@bloomberg.net;Amanda Wang in Shanghai at twang234@bloomberg.net;April Ma in Beijing at ama112@bloomberg.net;Jeanny Yu in Hong Kong at jyu107@bloomberg.net;Cindy Wang in Taipei at hwang61@bloomberg.net
To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, David Watkins, Magdalene Fung
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