China Talks And Walks Back A Currency War, Slamming Gold

The China seas calmed themselves today, basically on talk from the People’s Bank Of China.

In a closely-monitored press conference in Beijing, the Chinese central bank said the country's “strong economic environment, sustained trade surplus, sound fiscal position and deep foreign exchange reserves remain strong support for the exchange rate.” The bank also said that it will keep a hawk eye on "abnormal" cross-border flows. (That means you, Hong Kong!)

The yuan was effectively devalued 10% earlier this week, so the talk from PBOC seems frivolous at best.

Today’s jawboning ostensibly means that the Chinese will not allow the yuan to drop any further, although it’s probably best not to bet the family jewels on that statement.

The Shanghai indices bounced around like jumping beans in the wake of the chatter, spending lots of time above and below the flat line. It finally ended the day up 1.8%. Volatility is the watchword for China markets.

The China news helped the DAX and CAC but the FTSE found no balm from the lightening of the China load.

In New York, the latest drop in crude weighed on the Dow and S&P 500. West Texas Intermediate is down 2.6% at 4 o’clock in New York. Brent closed down 1.00%

Other data pushed on U.S equities, however. A sharp rise in American consumer spending – up 0.6% – in July and a revision of June’s numbers upward rekindled fears of a an earlier-rather-than-later Fed interest-rate hike.

The weekly new unemployment claims also came in within expectations, only slightly higher than the 270,000 predicted.

On the China news, especially, and perhaps because of renewed rate fears, gold plunged more than $10. It came well off the overnight highs in the mid 1120s, but seems to have regained some traction in New York trading.

A slightly stronger dollar – which also reacted to the more tempered remarks by the People’s Bank of China – gave gold an extra nudge down. Tomorrow’s trading in currency should be intriguing. We shall see if analysts and investors actually believe that China is done mucking round with its currency or if the financial powers that be feel that China’s statements are empty rhetoric.

Rightly, people with skin in the game will begin to refocus on the Federal Reserve. We’re only 33 days away from the start of the next FOMC powwow.

Wishing you as always, good trading,