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Stocks diverge as easing US-China tensions boosts yuan

January 16, 2020 - Thursday 6:01 PM by Agence France Presse

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London, United Kingdom | AFP | -Stock markets diverged on Tuesday, while the yuan briefly surged against the dollar after a US decision to no longer designate China a currency manipulator -- a further sign of easing tensions between the economic titans.

The US Treasury announcement late Monday comes as the two sides prepare to sign off on the first part of a wider trade agreement that has helped fan a rally in world equity markets.

Washington's move also led to a temporary sell-off in haven assets with the yen and gold sliding.

Both later recovered along with oil prices awaiting the Wall Street open.

Asia was given a firm lead from Wall Street overnight, whose the Nasdaq and S&P 500 indices struck record highs Monday.

- 'Purest barometer' -

US President Donald Trump had in August accused Beijing of weakening its yuan currency "to steal our business and factories", re-stating a long-standing grievance.

But soon after the end of trade on Monday, the Treasury said in its semi-annual report to Congress that the unit had strengthened and Beijing was no longer keeping it artificially weak.

The dollar slumped to 6.8670 yuan at one point, the lowest level since July.

"The yuan is the purest and best barometer to gauge the market's view on US-China trade tension," said AxiTrader's Stephen Innes.

"With the yuan strengthening ahead of the 'phase one' deal signing, it's indicating the potential for further improvement in trade relations."

The US reversal of China's status as a manipulator "is a most precise and definitive de-escalation of trade tension to date and provides a less congested road as we pivot to phase two of the broader trade agreement", Innes added.

- 'Definitive de-escalation' -

Data on Tuesday showed China's trade surplus with the US narrowed 8.5 percent in 2019, which will likely play well in the White House, where the huge disparity is a key bone of contention and a major catalyst of the trade war.

Tokyo's main stocks index was among the biggest gainers, rising 0.7 percent as the dollar advanced against the yen owing to a rush out of safety -- giving a boost to Japan's exporters.

However, profit-taking saw Hong Kong drop 0.2 percent and Shanghai slip 0.3 percent following recent advances. European stock markets were down at the half-way mark.

Improving confidence also hit gold, which is a popular go-to asset in times of turmoil. The yellow metal last week broke $1,600 per ounce for the first time in seven years on the Iran crisis but the lowering of expectations for a conflict with the US has seen it tumble.

The improving China-US outlook heaped further pressure on gold, which dropped to $1,545.19 on Tuesday. Agence France-Presse

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