Global markets struggle and metals lose ground

London — The dollar stayed strong but metal markets buckled badly on Thursday, as signs that China was resorting to credit-fuelled stimulus again and trade jitters helped drive its currency to a one-year low.

Asian shares had struggled following the moves and Europe’s bourses were also weaker as traders banked some of the recent gains that had hoisted the Stoxx 600, the DAX and the CAC 40 to one-month highs.

Britain’s Brexit-bruised pound was still suffering, falling below $1.30 for the first time in 10 months, as stronger retail sales figures did little to repair the damage done by constant political turmoil and Wednesday’s weak inflation data.

The yen was at ¥113 to the dollar, euro at $1.16 and most other European currencies were all weaker too. Instead of politics though they were just unable to fend off another advance from a dollar now near a one-year high.

“Sentiment right now is still very much in favour of buying the dollar,” said Crédit Agricole forex strategist Manuel Oliveri.

“It is positively correlated with risk appetite and risk appetite remains supported by the US earnings season and there is a very strong notion among clients that there is further room for improvement.”

That appetite got its latest boost as S&P 500 rose to its highest in more than five months on Wednesday, the Dow Jones climbed for a fifth session and the FANGs group of big tech giants hit fresh record highs.

Trade jitters and developments in China, however, meant Asia had been a different picture.

The Chinese central bank plans to incentivise banks to expand lending to companies, a source with direct knowledge of the matter said, a proposal that points to another shot of stimulus.

China’s foreign-exchange regulator meanwhile said it would keep currency markets stable amid intensifying trade frictions with the US.

The worries had pummelled the yuan to a one-year low of 6.7800 to the dollar and 6.7427 in offshore and onshore trade.

The technology-heavy Shenzhen Composite stocks index shed 1.0% and Shanghai Composite index fell 0.6% to head back towards a one-and-a-half-year low it had set earlier this month.

“Market players are looking at both the onshore and offshore exchange rate to determine whether or not the People’s Bank of China [PBoC] is intentionally allowing a weaker yuan,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

“If the difference between the two markets becomes too big, that could mean the PBoC is intervening in the market.”

She noted that although the spread between offshore and onshore yuan had widened recently, it was still far from the levels it hit during the Chinese financial market shock in 2015 when the central bank was seen intervening heavily.

Metals melt

Metals markets were also in the firing line again. China is the world’s biggest consumer of most industrial metals so worries about its economy can have a serious impact.

Copper and nickel were both down more than 2% on London’s metal exchange, while zinc was down more than 3% and lead shed 2.5%.

Oil and gold also dropped again. Gold hit another one-year low of $1218.34/oz, while Brent and West Texas Intermediate (WTI) US crude futures were down 80c and 53c at $72.10 and $68.20 a barrel respectively.

Brent has fallen almost 9% from last week’s high above $79 on emerging evidence of higher production from Saudi Arabia and other members of oil cartel Opec as well as Russia and the US.

“The outlook remains negative,” said Robin Bieber, technical analyst at London brokerage PVM Oil Associates.

Reuters