With the US taking the day off for Independent Day holiday, US futures and European bourses have posted modest gains amid muted volumes even as Chinese stocks resumed selling, dragging most Asian markets lower even as the Yuan staged a remarkable comeback rising 1,200 pips in 48 hours after the PBOC issued a "red line" on further devaluation.
Tech names were the biggest losers in Europe's Stoxx 600 Index, amid spillover fears following yesterday's news that a Chinese court temporarily banned sales by chip giant Micron Technology. This weakness, however, was offset by gains in telecom shares which has led to choppy and mixed performance in Europe, amid volumes over a third below the 30DMA.
Still, tech shares are off the lows, perhaps eyeing the latest development in the trade war spat which came after the Micron news, when the US allowed ZTE to resume some business activities temporarily, which traders eyes as a potential catalyst to easing of tensions, and has helped Nasdaq 100 futures rise 21 points on Wednesday morning.
With the US closed today, all eyes were on China and how traders would respond to the PBOC's Tuesday intervention to halt the rout in the Yuan. Here, despite a weaker fixing by the PBOC, the Yuan surged, with the offshore CNH spiking as high as 6.6135 against the dollar, after sliding to just shy of 6.74 the day before, a stunning 1,200+ pip reversal. Nonetheless, the USDCNH was trading some 200 pips off the lows as doubt snuck in that despite the PBOC's insistence, the devaluation of the Yuan - whether with or without the PBOC's intervention - is far from over.
This was also evident in the action of the Shanghai Composite, which after staging a sharp rebound on Tuesday during the violent yuan reversal, resumed its selloff deeper into bear market territory, and ignoring a better than expected print in the China Caixin services PMI (53.9 vs 52.7 est), it closed lower by 1% with Chinese stocks dropping to their lowest since March 2016 as trade tension with the U.S. continued to weigh while the PBOC's latest reverse repo net drain of 80bn Yuan did not help. The Shenzhen Composite slumped 2% as traders took profits after yesterday's brief rebound.
As Bloomberg notes, "while the People’s Bank of China yesterday gave assurances that the yuan won’t be weaponized, governmental trade restrictions and market intervention remain key themes." Case in point is Tuesday's announcement that chipmaker Micron has been temporarily barred from selling in China, a move many say is in response to Trump's decision to bar China Mobile from accessing the US market. Meanwhile, the broader trade war comes into play on Friday when tariffs on goods flowing the other way come into effect.
Elsewhere in Asia, spooked by growing trade war rumbling, markets slumped toward a 9 month low, with the Nikkei down 0.3%, Sydney’s ASX 200 index losing 0.43%; the...