China’s currency was on track for its best week in 10 months as the country’s economic prospects have brightened and investors shift into its domestic bond market.
The onshore-traded renminbi firmed 0.1 per cent to Rmb6.7551 per dollar on Friday, taking the currency’s gains to about 1.2 per cent this week and putting it on course for its biggest weekly rise since November 2019.
The Chinese currency has rallied in recent months as export growth and investor appetite for onshore debt have sent flows of dollars into the country. The rise in the renminbi, which has come during a period of weakness for the greenback, means the currency is heading for its best quarter on record.
“With China on course for a more pronounced recovery than elsewhere, its external position the strongest in a decade, and onshore yields unusually attractive by global standards, there is still room for further gains,” wrote Julian Evans-Pritchard, a China economist at Capital Economics.
Copper prices rose to their highest levels in two years due to strong demand in China, the world’s largest consumer of the metal. Copper rose to a high of $6,850 a tonne, the highest level since June 2018, before falling back to $6,781 on the London Metal Exchange.
US equities drifted higher at the opening bell on Wall Street, with the S&P 500 up 0.1 per cent and the Nasdaq Composite rising 0.3 per cent. Both indices were hovering around their week-ago level, having reversed gains made mid-week when shares in big technology companies dropped.
“Stocks remain technically overbought in the short term and vulnerable to a further correction,” said analysts at BCA Research. Investors should pivot into cheaper areas of the stock market, such as financials, non-US stocks, and value stocks, they added.
In Europe, upbeat UK data released on Friday added to the encouraging China data: retail sales in August rose 0.8 per cent on a monthly basis, slightly beating analysts’ expectations. In July sales overtook their pre-pandemic level to rise year on year, a trend that continued into August with a 2.8 per cent annual increase.
“Retail sales plausibly will remain above last year’s average in the remaining months of this year, as Covid-19 appears to have triggered a rotation away from spending on services towards goods,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
But households would save more of their incomes than they did last year, he said, meaning “a sustained V-shaped recovery in households’ spending is out of reach”.
European equities drifted lower, with the Stoxx 600 and London’s FTSE 100 off 0.4 per cent and Italy’s FTSE Mib down 0.8 per cent.
Financials fared particularly badly, with the Stoxx 600 banks index accelerating losses and falling to its lowest level since May. Investors were spooked after the Bank of England said on Thursday it was examining how a negative interest rate “could be implemented effectively,” as well as by renewed concerns about lockdowns and the heightened risk of a no-deal Brexit.
The BoE’s announcement “is a clear signal that the [monetary policy committee] intends to use this tool,” said Brian Hilliard, chief UK economist at Société Générale.
Mr Hilliard said the central bank could deploy negative rates in early 2021 “in reaction to the shock following the move to trading under [World Trade Organization] rules after the failure . . . for the trade talks with the EU”.
The pound lost some ground against the dollar, falling 0.2 per cent to $1.2947 after a choppy session on Thursday.
In the Asia-Pacific region, mainland China’s CSI 300 index ended the day 2.1 per cent higher while Hong Kong’s Hang Seng climbed 0.6 per cent. Japan’s Topix index closed up 0.5 per cent while Australia’s S&P/ASX 200 shed 0.3 per cent.