November 30, 2022

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HK, China selloff spark some risk aversion

2 min read

Forex news from the European trading session – 27 July 2021

Headlines:

Markets:

  • JPY leads, NZD lags on the day
  • European equities lower; S&P 500 futures down 0.1%
  • US 10-year yields down 1.3 bps to 1.263%
  • Gold up 0.1% to $1,798.31
  • WTI up 0.4% to $72.20
  • Bitcoin up 0.7% to $37,995

The session began with a more tepid mood with light changes among major currencies and risk trades in general but things picked up towards the tail-end of Asia Pacific trading, with the sharp selloff in Chinese markets pulsating across broader markets in general.

The sour mood in China extends from yesterday on fears of regulatory measures against the technology and property sectors, causing a big drop in tech stocks.

The Hang Seng fell by over 5% at the lows today, before closing down a little over 4% – basically a repeat of yesterday’s performance more or less.

Mainland Chinese stocks were also dragged lower, with the CSI 300 index closing down over 3% to its lowest levels since November. The selloff saw the Chinese yuan tumble, with the offshore currency falling past 6.50 against the dollar to three-month lows.

That set off some risk aversion and flight to safety, as equities elsewhere fell and bonds were bid to start European trading. 10-year Treasury yields dropped by over 3 bps to 1.241% before bouncing back a little now as the jitters abate.

In FX, the yen held gains throughout with USD/JPY testing 110.00 on the session while commodity currencies were offered with the kiwi leading losses.

NZD/USD was brought down from 0.6980 to 0.6950 before the drop was kept in-check while AUD/USD declined from 0.7370 to 0.7340 before finding some footing.

With Chinese markets closed for the day, Wall Street can switch its focus and attention away from the bloodbath and to where the market left off yesterday.

The Fed meeting is due tomorrow and remains a key risk event that the market is waiting on before really moving more significantly. There’s also big tech earnings today with Apple, Microsoft, and Alphabet set to report.

For now, the jitters are abating but we’ll see if North American traders see any more reason to be cautious going into the Fed meeting tomorrow. My thoughts from earlier:

All that being said, Treasury yields were pulled lower yesterday too before rebounding in US trading. As such, be wary that the jitters from China may not reverberate for longer parts of the day once local markets are closed – more so with focus on the Fed tomorrow.




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