Yuan devaluation is not to boost export: PBOC

A man walks past a display showing stock prices in Tokyo August 12, 2015.

Financial spreadbetters expected the brighter mood to extend to European bourses.

The Nasdaq composite rose seven points, or 0.1 percent, to 5,050.

Under its latest policy change, the Chinese central bank said the band within which the yuan is allowed to fluctuate by 2 percent up or down each day will be based on the previous day’s trading and data on currency supply and demand.

Now many are scrambling to shift cash out of the country, fearful that Tuesday’s 2 percent devaluation is the start of a longer-term slide in the currency, despite the People’s Bank of China (PBOC) saying there is no basis for more depreciation.

The surprise move earlier this week to loosen the mechanism that controls the yuan and send the currency lower reverberated through global markets but the turmoil is now abating.

“If you saw more protectionism of the domestic industry and devaluation continued, it could happen even sooner that China exports”.

China tried Thursday to ease fears of more big declines for the yuan as companies from global automakers to Chinese clothing exporters faced a new era of uncertain exchange rates. The gap between the guidance rate and the traded spot market rate narrowed sharply as banking sources said the PBOC had stepped up intervention in a bid to stabilise prices.

“There is a degree of calm returning to the market”, said Mitul Kotecha, head of Asia-Pacific FX strategy for Barclays in Singapore.

Whatever the rights and wrongs of this saga, the Chinese authorities themselves know that a concerted effort to weaken their currency could set off serious capital flight.

The Nikkei benchmark index advanced 1.1% despite official figures showing Japan’s core machine orders, a key indicator of future growth in the manufacturing sector, tumbled 7.9% in June from the previous month.

Chinese airlines have much of their debt in U.S. dollars, meaning a depreciated yuan will hike their costs to pay it off. This will likely bite into earnings of carriers like China Southern Airlines Ltd., China Eastern Airlines Ltd., and Air China.

Bond prices fell. The yield on the 10-year Treasury note rose to 2.17 percent. The Chinese move also drove investors to push back their expectations of when the US Federal Reserve would raise interest rates, helping drive the dollar index to a one-month low of 95.926.

“This leaves markets to focus on overarching themes, mostly of US dollar strength”.

ANALYST’S TAKE: “Market sentiments are noticeably more composed today”, said Bernard Aw, a market strategist at IG.

Against the yen, the dollar was about 0.2 percent higher at 124.46 JPY=.

The euro edged down about 0.4 percent at $1.1114 after scaling a one-month peak of $1.1215 on Wednesday, helped by the unwinding of euro-funded carry trades in the yuan and other emerging market currencies. Cisco’s stock gained $1.13, or 4 percent, to $29.03.

As previously reported, Chinese exports in July came in 8.3% lower than the prior year after fears that the strength of the yuan was rendering Chinese exports uncompetitive. U.S. crude CLc1 was up about 0.4 percent at $43.45 a barrel, while Brent LCOc1 added about 0.5 percent to $49.89.