Overview: Investors hope that the world took a step away from the abyss in recent days. Developments in Hong Kong, US-China talking, a political and economic crisis in Italy appears to have been averted, and a risk of a no-deal Brexit has lessened. Asia Pacific equities closed the week on a firm note and extended the rally the third week. European shares are mixed today, but the Dow Jones Stoxx 600 is also posting its third consecutive weekly gain. Back-to-back gaps higher have seen the S&P 500 explode out of their month-long trading range. It is set to post the second weekly gain in a row, something not seen for nearly two months. Interest rates are backing up, with the US 10-year yield poised to snap a five-week decline. Global benchmarks are higher today following the sharp rise in US rates yesterday. Bonds in the periphery in Europe are bucking the pressure and yields have slipped. The foreign exchange market reflects the improved investor sentiment with the yen and Swiss franc trading heavily and the growth-sensitive dollar-bloc currencies and Scandis leading the way higher. Emerging market currencies are recouping some recent losses against the dollar, but the Turkish lira is an exception. Like yesterday, it is seeing the gains scored earlier in the week pared.
Asia Pacific
Hong Kong Chief Executive Lam may have waited too long to formally withdraw the controversial extradition bill and the protest demand extended beyond it. Although China is clearly not above intimidation, it continues to rely on Hong Kong to address the violent protests. Some, albeit belated, concessions by Lam may be designed to split the business community away from the movement. The economic fallout is growing. For the first time since 1995, Fitch cut Hong Kong's long-term foreign currency borrowing credit rating to AA with a negative outlook from AA+.
The Chinese yuan has stabilized. The PBOC continued to set the dollar's reference rate in the mid-CNY7.08 area, below where bank models suggest and below where spot trades. Gradually, in recent days, the market came closer to the PBOC rather than the other way around. Moreover, for the second consecutive session, the dollar is trading weaker against the offshore yuan than the onshore yuan. After the mainland markets closed for the week, the PBOC announced a 0.5% cut in reserve requirements. Separately, note that ZTE rallied 9% in Shenzhen trading amid reports that Spain will use the company for part of its 5G rollout. ...
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