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Index Futures Rebound as Yuan Worries Ease


Thursday, August 8, 2019

U.S. stocks futures inched higher ahead of trading on Thursday after the People’s Bank of China fixed the yuan’s daily reference rate versus the dollar at a stronger than expected level. Fresh data on the world’s second largest economy indicated that the fallout of the ongoing U.S.-China trade war has not been as grievous as earlier feared.

Earlier today, China’s central bank fixed the yuan’s daily midpoint versus the dollar weaker than the psychological level of 7 for the first time since 2008. However, this was still better than the level most economists were expecting. This indicates that China is keen on stabilizing its currency quickly. Further, China’s trade surplus for July exceeded expectations, indicating that the impact of the trade war had been overestimated.

Ahead of the opening, consumer staples giant Kraft Heinz KHC and Keurig Dr Pepper KDP released 1H19 and second-quarter earnings respectively. While both companies beat earnings estimates, they fell short of sales expectations. Meanwhile, Uber Technologies UBER and Activision Blizzard ATVI are expected to release second-quarter earnings figures after the market close.

Markets ended moderately higher on Wednesday after major benchmarks recovered from losses incurred earlier in the session. While, the Dow ended in the red, the S&P 500 and the Nasdaq closed in the green. Meanwhile, central banks of India, New Zealand and Thailand announced interest rate cuts.

The Dow Jones Industrial Average decreased less than 0.1%, to close at 26,007.07. The S&P 500 increased 0.1% to close at 2,883.98. The tech-laden Nasdaq Composite Index closed at 7,862.83, gaining 0.4%. The fear-gauge CBOE Volatility Index (VIX) decreased 4.6% to close at 19.23. Decliners outnumbered advancers on the NYSE by a 1.04-to-1 ratio. On Nasdaq, a 1.03-to-1 ratio favored declining issues.

The Dow dipped 22.5 points to close in the red due to broad-based losses. At its session lows, the Dow had dropped as much as 589 points. Shares of Caterpillar CAT lost 1.1% and weighed on the 30-stock index. The stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The S&P 500 rose 2.2 points to end in positive territory after sinking nearly 2% at its session lows. Of the 11 major sectors of the S&P 500, eight ended in the green, with materials stocks leading the advancers. The Materials Select Sector SPDR Fund (XLB) increased 1.4% on Wednesday. Meanwhile, both the Dow and the S&P 500 exhibited their best turnaround in a session since Dec 27, 2018.

The Nasdaq gained 29.6 points to also close in the green. Shares of Apple AAPL jumped 1% and supported gains for the Nasdaq.

Citing possibilities of an aggravation in the global economic slowdown due to the U.S.-China trade war, central banks of India, New Zealand and Thailand cut their key interest rates on Wednesday. While, New Zealand reduced its lending rate to an all-time low of 1%, India reduced its repo rate by 0.35% to 5.40%. This was the fourth time in a row that the Reserve Bank of India (RBI), the country’s central bank, has slashed interest rates.

Meanwhile, the Bank of Thailand also cut its benchmark interest rate to counter a weakening economy and tepid inflation levels. The country’s central bank slashed its policy rate to 1.50% from 1.75%.

After setting its daily currency anchor at 7 yuan against the U.S. dollar, its lowest level since 2008, China pegged its official midpoint reference for yuan at 6.9996. The People’s Bank of China (PBOC) fixes the currency on a daily basis, allowing only a 2-percentage-point change on the either end of the currency’s official midpoint.

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