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Asian Stocks Gain on Move by China’s Central Bank, but Trade War Weighs

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  • Asian Stocks Gain on Move by China’s Central Bank, but Trade War Weighs

Asian stocks rose on Monday after China’s central bank took steps to try to drag the yuan away from 14-month lows, but the tit-for-tat conflict over Sino-U.S. trade hung heavily on markets.

The People’s Bank of China late on Friday raised the reserve requirement on foreign exchange forward positions, making it more expensive to bet against the Chinese currency.

The move boosted the Australian dollar, which is often played as a liquid proxy for the yuan. The Aussie came off two-week lows to climb as high as $0.7412 after the announcement, and was last at $0.7396.

Analysts say the step by the PBOC will be generally positive for Asian assets.

“Leaning against bearish CNY sentiment is important because a rapidly weakening currency risks triggering residential outflows and destabilizing domestic asset prices,” JPMorgan analysts said in a note.

“Our economists think that PBOC likely will take further action if CNY depreciation continues or capital outflow pressure increases.”

On Monday, MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.2 percent for a second straight session of gains.

Japan’s Nikkei edged up 0.1 percent, while Australian shares added 0.5 percent. South Korea’s KOSPI index rose 0.4 percent.

On Wall Street, the Dow climbed 0.54 percent, the S&P 500 gained 0.46 percent and the Nasdaq Composite added 0.12 percent. They were helped by strong corporate earnings, although gains were capped by worries over the escalating trade tensions.

China’s finance ministry proposed tariffs on $60 billion worth of U.S. goods on Friday, while a senior Chinese diplomat cast doubt on prospects of talks with Washington to resolve the bitter trade conflict.

That was followed by a report in China’s state media saying Friday’s retaliatory tariffs were “rational” while accusing the United States of blackmail.

At the same time, U.S. President Donald Trump said his strategy of placing steep tariffs on Chinese imports is “working far better than anyone ever anticipated”, citing losses in China’s stock market. He predicted the U.S. market could “go up dramatically” once trade deals were renegotiated.

“Our economists consider that escalation in tension may bring the U.S. and China back to the negotiation table, but that even if negotiations are resumed, a bumpy and lengthy process is likely to ensue as the two sides remain very far apart,” JPMorgan added.

According to Bespoke Investment Group, mentions of tariffs in S&P 500 company earnings reports for the second quarter have more than doubled from the first quarter of this year.

In currencies, the dollar index, which measures the greenback against a basket of six other currencies, was up 0.1 percent at 95.259.

Traders see further upside in the dollar as they maintained a significantly large long position on the currency, while net short bets on the Aussie were their largest since November 2015.

The British pound held at $1.30 after falling to an 11-day low of $1.2975 following remarks by Bank of England Governor Mark Carney that Britain faced an “uncomfortably high” risk of a “no deal” Brexit.

The euro inched down to more than 5-week lows of $1.1573.

Gold bounced from near 17-month lows after weaker-than-expected U.S. jobs data, and was last up 0.1 percent at $1,213.70.

Meanwhile, Brent crude futures were off 2 cents at $73.19, while U.S. crude oil futures were up 9 cents at $68.58 a barrel.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade long experience in the global financial market.

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Investment

Barclays Tell High Net Worth Investors to Shun Africa and Other Emerging Economies

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Barclays to High Net Worth Clients, Stay Off Africa and Other Emerging Economies

Barclays, one of the world’s largest investment banks, has started advising high net worth clients to stay off Africa and other emerging economies.

According to Barclays, despite the recent recovery noticed in emerging-market stocks, investors are better off avoiding the risks that still abound in emerging nations. Barclays Plc, however, advised high net worth clients to focus on U.S equities despite the S&P’s breakneck rally.

The investment bank said emerging economies do not have enough fiscal buffers to spend their way out of the COVID-19 pandemic and will likely continue to struggle in the near-time compared to the US with 12 percent of gross domestic product fiscal-support.

It said the huge US stimulus may halt rebound in emerging-markets stocks as more money is expected to flow into the world’s largest economy and its European counterparts.

“Compared to the U.S., emerging-market economies appear more vulnerable,” said Haider, the London-based managing director and head of global growth markets. “Their central banks have less room to maneuver, their governments may not be able to provide unlimited support and equity markets, given their sector mix, can be more challenged by an economic slowdown.”

Barclays added that even after 33 percent rebound in stocks of emerging markets since the panic selloff subsided in March, stocks are still down by 9 percent from year-to-date while the US S&P 500 stocks are up by 45 percent. Presently, their stocks trading at a 36 percent discount to US stocks, up from 25 percent three months ago.

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Economy

Crude Oil Rises to $43.1 Per Barrel on Production Cuts Extension

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  • Crude Oil Hits $43.1 Per Barrel Following OPEC’s Production Cuts Extension

Brent crude oil, against which Nigerian oil price is measured, rose by 1.25 percent on Monday during the Asian trading session following OPEC and allies’ agreement to extend crude oil cuts to the end of July.

OPEC and allies, known as OPEC plus, agreed to extend production cuts of 9.7 million barrels per day reached in April to July on Saturday.

In the virtual conference, delegates agreed that members, including Nigeria and Iraq presently struggling to attain a 100 percent compliance level must keep to the agreement or be forced to do so in subsequent months.

Nigeria, Iraq and others failed to keep to the cartel’s agreement in May after reports show that Nigeria only managed to attain a 19 percent compliance level during the month while Iraq struggled to attain just 38 percent in the same month.

Russia and Saudi Arabia, the two largest producers of the group, warned members to stick to the agreed quota if they want to rebalance the global oil market.

While the errant producers such as Iraq and Nigeria have vowed to reach 100% conformity and compensate for prior underperformance, we still think they will likely continue to have some commitment issues over the course of the summer,” said Helima Croft, head of global commodity strategy at RBC Capital Markets.

The potential return of Libyan output could also cause considerable challenges for the OPEC leadership.

Earlier on Monday, Brent crude oil hits $43.1 per barrel, more than a month record-high, before pulling back slightly to $42.83 per barrel.

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Economy

Gold Dips by 2 Percent on Better Than Expected Job Report

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  • Gold Dips by 2 Percent on Better Than Expected Job Report

Gold prices declined by 2 percent on Friday following a better than expected US non-farm payroll report.

The report showed an increase of 2.5 million payroll numbers against a decline of 7.5 million predicted by many experts.

The surprise number boosted investors’ confidence in US recovery as many dumped their haven investment (gold) for the stock market.

“We had significantly stronger-than-expected U.S. payroll numbers – an increase of 2.5 million versus an expectation of a decline of 7.5 million – that 10-million swing has brought forward expectations of the economic recovery in the United States,” said Bart Melek, head of commodity strategies at TD Securities.

Spot gold immediately declined by 1.9 percent per ounce to $1,678.81 while the U.S. gold futures slid 2.6 percent to settle at $1,683.

Gold was also being pressured by stronger yields and a slightly firmer dollar, “meaning the opportunity cost to hold gold in the portfolio has gone up,” Melek added.

The surprise didn’t stop there, US Dow Jones was up 614 points despite the protest going on the US and US-China tension.

Also, NASDAQ rose by 29 points while the S&P index added 50 points increase.

Note: Investors generally increase their investments in gold and other haven assets during a crisis to avert risk exposure and do the opposite once they sense a better economy.

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