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Market roundup | China’s yuan becomes an unlikely high-yield haven

LiveMint logoLiveMint 10-08-2017 Livemint

As global investors turn increasingly risk-averse amid tense relations between North Korea and the US, China’s currency is becoming an unlikely winner.

The yuan is the best performer among 31 major peers since Friday, rising 1.1% to 6.6605 against the greenback. That compares with a 1.5% tumble by the South Korean won or a 0.5% drop by the Australian dollar. While China is North Korea’s key ally, the nation’s central bank has been supporting the yuan with a series of strong fixings, and bearish bets against the currency have receded after it rose above 6.7 per dollar. Bloomberg

Britain likely to dodge recession

Britain will avoid recession in the coming year but economic growth is expected to lag the euro zone, a Reuters poll showed on Thursday. Consumers will feel the pinch from wage increases failing to keep up with rising prices.

It is just over a year since Britons voted to leave the European Union, a decision that has knocked around 13% from sterling’s value, in turn driving inflation well above the Bank of England’s 2% target as imports became more expensive.

Inflation will peak at 2.9% in the last quarter of 2017, according to the poll of almost 70 economists taken this week, but that won’t push the central bank to tighten its ultra-loose monetary policy anytime soon.

Reuters polls over the past few months have repeatedly said a disorderly Brexit, where no deal is reached when the two years of talks are due to conclude, would be the worst outcome for sterling and Britain’s economy. Reuters

Markets unsure how to price in US-N. Korea tensions

Financial markets haven’t really reacted much to the escalation in tensions between the US and North Korea, and some observers explain that it’s largely because in the worst-case scenario it’s impossible to guess the appropriate price for things like stocks and bonds. “It’s hard to price a potentially extinction event (at least for much of the Korean peninsula),” is how Timothy Ash, a senior strategist at Bluebay Asset Management in London, puts it.

Mark Mobius, Templeton Emerging Markets Group executive chairman, said in a May interview about the prospect of a North Korean nuclear conflict: “There’s nothing you can do about it—if something breaks out, we’re all finished anyway.”

Maybe that’s why the worst day this year for the Kospi index of South Korean stocks was 28 July, which was all about a global tech-stock retreat and nothing to do with geopolitics. Bloomberg

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