China succeeded in stabilizing risk sentiment with a stronger-than-expected yuan fix on Tuesday, but it wasn’t enough to completely stanch the bleeding in Asia.
As noted in early trading, the PBoC set the daily reference rate at 6.9683, much stronger than analysts and traders expected, a day after setting it weaker than 6.90 for the first time in 2019. The PBoC also said it would sell yuan notes in Hong Kong, a go-to method for discouraging one-way depreciation bets.
The currency firmed, even as the fallout from the US labeling China a “manipulator” hasn’t even begun. One-month and one-year implied USDCNH vol. fell.
Although mainland shares trimmed losses in the afternoon, the CSI 300 still fell more than 1%. The gauge has now fallen for five consecutive sessions, to the lowest since early June.
Meanwhile, the losses continued to pile up in Hong Kong. Early in the session, the Hang Seng wiped out its 2019 gains as Asian shares were bludgeoned after Treasury’s “manipulator” announcement, which came prior to the yuan fix.
Ultimately, the Hang Seng ended the day with a relatively shallow loss (0.7%), but it was still the fifth down day in a row and the seventh in eight sessions. The MSCI Hong Kong also fell on Tuesday, bringing its losing streak to a ridiculous 10 sessions, the worst string of losses since 1984.
The index is the most oversold since 2015.
Now then… Who wants to catch that falling knife?