Coronavirus News Asia

Virus vs economic recovery a dead heat, yuan stable

VIX – equities volatility, MOVE – bonds volatility, and OVX – oil vols – have all come down from recent highs, which signals calmer waters ahead in key asset classes.

At the same time, though, all three indices have stubbornly stayed at elevated levels by historical standards.

The best way to understand that is to look at it as a tug-of-war between the undiminished threat of a second coronavirus wave in the US and growing concerns over the virus spread in Brazil, India and Africa, and continued economic recovery in Asia and in Europe.

No winner will be declared until either defeat of the virus in the US is evident or an effective vaccine is found and mass produced.

At this point, volatility indices tell us, “Wait! Don’t jump to conclusions.”

As stocks, bonds and oil vols go, so do currency exchange rates – they don’t move much.

The PBoC this morning set yuan parity at 7.0865, strongest since June 16 when vols hit recent highs.

By 7pm, the currency (CNY) had strengthened further to 7.0759. The offshore cousin CNH traded at 7.0704.

As no Chinese or US monetary policy moves entered into the picture, equity vols, in particular kept things stable – with some downside draft on the US dollar which – on the DXY – stood at 97.4130, down 0.22% from the open.

I expect the yuan to stay within the 7.05 – 7.10 range to the US dollar (as I have often repeated recently).

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