Asian equities were trading mixed on Monday after a nervous last week, which saw wild swings in global equities and emerging market currencies. News that officials from Beijing are heading to the U.S. on Wednesday to restart trade negotiations is likely to provide some stability, however, don’t expect much to the upside as these talks are considered low level and won’t likely translate into immediate decisions. If these talks were fruitful, it should at least delay the implementation of U.S. tariffs on an additional $16 billion in Chinese imports.
The dollar weakened against the Chinese yuan hitting a 10-day low following a higher fixing by the Public Bank of China and measures taken to limit short selling on the currency. It seems Chinese authorities want to defend the seven-level to avoid capital outflows and so far they haven’t used their foreign exchange reserves which rose 0.2% to $3.1179 by the end of July, suggesting that there are enough tools to control the pace of depreciation.
Against major currencies, the dollar traded sideways as traders await new clues from the Fed minutes on Wednesday and central bankers who will be gathering in Jackson Hole on Friday. The USD gave up some gains on Thursday and Friday as traders took profit after reaching a 13.5 month high. However, the trend remains to the upside for the near future, and we’re likely to see new highs supported by the continuation of monetary tightening and global financial instability.
In commodity markets, oil was slightly lower while gold was flat around $1185 after suffering the largest weekly drop since 2017. Although speculators and investors continued to short the yellow metal heavily, I think we approached a level which seems attractive to long-term physical buyers. Stability in emerging market currencies, especially the CNY and INR will also provide a boost to gold prices.
European equities are also set for a mixed open on Monday and given that there’s no tier-one economic data to be released, investors will take their cue from movements in EM currencies, in particular, the Turkish Lira.