“Unexplained, High-Volume Drops,” Yuan Shenanigans, And A Cartel Meeting

Well, things have been “choppy” overnight and especially around the flood of OPEC headlines that started coming in around 4:30 a.m. EST.

As noted earlier this morning, crude dipped precipitously (although, the definition of phrases like “precipitous dip” and “flash crash” seems to be getting more liberal by the day of late) when Saudi Arabia’s Energy Minister seemed to rule out deeper production cuts:

WTI2

That coincided with what Bloomberg described as “an unexplained, high-volume drop in DAX and Eurostoxx futures”. Here’s what a pair of “unexplained, high-volume drops” looks like:

DAXEuroStoxxDip

Meanwhile, the onshore yuan strengthened the most since late January, raising questions about whether the PBoC had intervened to narrow the gap between the daily reference rate and the spot.

USDCNY

This is being pitched as a kind of “mystery” this morning by some folks, but it’s obviously not – a mystery that is.

After all, the PBoC set the fixing at at 6.8695, which was stronger than estimates of 6.8795 from Nomura and 6.8750 from Scotiabank. This is a pattern as we noted earlier this month:

PBoC

The offshore yuan rose as well.

Yuan

Clearly, the PBoC is trying to keep the trade-weighted basket (which fell to 92.12 Thursday, the lowest since at least January 1) from dropping too much as the dollar moves lower.

“The PBOC’s daily fixings have ‘materially diverged’ from the prescribed formula, resulting in a gap between the reference rate and currency’s spot value,” Khoon Goh, head of Asia research for Australia & New Zealand Banking Group in Singapore, wrote in a note out today, adding that “instead of sticking to fixing formula, the central bank is opting for active intervention to narrow the difference, considering Thursday’s trading.” As Bloomberg noted late last night (US time) at least two Chinese banks were selling dollars in the onshore market, driving the yuan higher.

So there was that.

The euro was looking to test a six-month high set earlier this week as the fallout from the “dovish” Fed minutes continued to weigh on USD sentiment:

EURUSD

“The euro’s resilience comes despite Mario Draghi once again reiterating that the ECB isn’t looking to raise interest rates before ending its quantitative easing program,” Bloomberg cautions, before noting that “while the common currency remains strong in the spot market, option traders have begun deviating from the idea of further straightforward gains [as] risk reversals have dropped this week.”

Here’s a snapshot of global equities:

  • Nikkei up 0.4% to 19,813.13
  • Topix up 0.2% to 1,578.42
  • Hang Seng Index up 0.8% to 25,630.78
  • Shanghai Composite up 1.4% to 3,107.83
  • Sensex up 0.8% to 30,548.35
  • Australia S&P/ASX 200 up 0.4% to 5,789.63
  • Kospi up 1.1% to 2,342.93
  • FTSE 7520.48 5.58 0.07%
  • DAX 12637.69 -5.18 -0.04%
  • CAC 5346.20 4.86 0.09%
  • IBEX 35 10952.40 45.00 0.41%
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