Daily Briefing: China and gold

LONDON (Reuters) – China’s yuan seems to have decisively sliced past 7 per dollar to a new mid-March high, up almost 3% since the end of May.

A man wearing a face mask uses his mobile phone near a robot at the venue for the World Artificial Intelligence Conference in Shanghai, China July 9, 2020. REUTERS/Aly Song

Chinese stocks too are gangbusters – the Shenzen blue chip index has risen for an eighth straight day, adding another 1.5%. It’s already risen 16% this month, shrugging off tensions with the West over Hong Kong and economic uncertainty caused by COVID-19.

Chinese gains have lifted world stocks too. European bourses are up though U.S. equity futures are flat to a touch weaker. Also improving risk sentiment is downward dollar momentum – it’s at a new one-month low against the euro, a three-week low versus the pound and four-month lows against the Swiss franc.

Essentially, that’s a green light for emerging markets – an EM currency index is at one-month highs. Trade and commodity related currencies are also reacting to the Chinese mini-boom – the New Zealand dollar is at the highest since January for instance and the Aussie is at a one-month high.

The other story is gold scaling $1,800 an ounce for the first time since 2011. Whether that’s down to a safe-haven bid caused by the elevated COVID-19 count or a reaction to inflation fears remains unclear.

In favour of the inflation argument, Deutsche Bank notes U.S. money supply is up 25% year-on-year — only the 10th time in 190 years money supply is running above 20%.

So far though, there is little sign of that inflation surge – China June factory gate prices fell 3% from a year earlier, but the decline slowed from 3.7% in May.

In the euro zone, German exports surged 9% in May after diving by 24% in April. Imports rose by 3.5% after a 16.6% slump the previous month. This was, however, less buoyant than forecasts.

The Thursday snapshot of weekly U.S. employment claims will show if there’s an impact from the rising U.S. COVID-19 count — more than 60,000 new cases were reported across the country on Wednesday, with a daily death toll of more than 900.

But despite fresh restrictions in many states, energy use is improving, supporting oil prices – U.S. gasoline stocks fell by 4.8 million barrels last week and demand climbed to 8.8 million barrels, the highest since March 20.

Federal Reserve officials have cast doubt recently on economic recovery, noting risks from an end-July “fiscal cliff” when enhanced unemployment benefits expire. They also hinted, however, at more fiscal and monetary action.

In European company news:

SAP said its business activity gradually improved in the second quarter from the effects of a global lockdown, with revenues and operating profit edging up.

Airbus first-half deliveries slid to a 16-year low, though they rose 50% in June compared with May; aerospace engineer Rolls-Royce said it had burned through 3 billion pounds ($3.8 billion) in the first half as the hours flown by its engines halved due to the pandemic.

British housebuilder Persimmon posted a 32% plunge in first-half revenue. Its shares are up 4%, though, in line with broader gains in the sector which will benefit from a 30 billion-pound stimulus package.

Emerging stocks are up 0.6% to fresh 4-1/2 month highs and currencies have been led up by the yuan. But a weaker yuan fix on the central bank guidance rate is raising questions how comfortable Beijing is with the currency’s strength.

In debt restructuring news, Argentina’s main creditor groups rejected a sweetened offer from Buenos Aires but Economy Minister Martin Guzman reiterated there was no room to improve the proposal. With an Aug. 4 deadline, the tug of war will continue.

— A look at the day ahead from EMEA deputy markets editor Sujata Rao. The views expressed are her own —