European Stock Markets Recover after Yuan-Fueled Rout


European stock markets recovered a bit Tuesday and Asian indices pared back heavy losses following a rout on Wall Street as investors fretted over the US-China trade war.

Global equities had tumbled Monday, with the biggest losses on Wall Street following a sharp fall in the yuan's value against the dollar that prompted Washington to formally designate Beijing a currency manipulator.

The yuan broke above 7.0 yuan to the dollar on Monday, a level investors see as a key threshold in the Chinese currency's value, and global stocks slumped amid fears of an escalating trade war between the world's two biggest economies.

The yuan stood at 7.0318 on Tuesday after hitting a fresh 11-year low at 7.0602 in Asian trades.

"There's been a bit of a relief rally... aided by a slightly strong fix on the yuan and an unexpectedly strong reading for German factory orders, but this recovery remains highly tentative," noted David Cheetham, chief market analyst at XTB trading group. 

"The recent surge in volatility has no doubt been exacerbated by light trading volumes, with August typically one of the quietest months of the year on this front due to vacations and annual leave."

Tensions have escalated since last week, when US President Donald Trump announced fresh tariffs on Chinese goods from September 1 that would subject virtually all of the $660 billion in annual merchandise trade between the two economies to punitive duties.

The yuan's slump has fuelled speculation that Beijing is allowing its currency to devalue to support exporters and offset Trump's threat to hit $300 billion in Chinese goods with 10 percent tariffs.

The slide in the yuan's value drew sharp criticism Monday from Trump who called it "a major violation which will greatly weaken China over time".

China fired back Tuesday, with the central bank saying it was "resolutely opposed" to the US designation. Trump has repeatedly accused China of currency manipulation -- charges Beijing has long denied.

Beijing's prior policy on the yuan had been to purchase foreign currencies, maintaining the yuan at a pre-determined level in part to avoid triggering capital outflows, but analysts said further weakening was likely.

"Continued yuan depreciation should be expected, albeit at a staggered pace," said Edward Moya, senior market analyst at OANDA.

"Currency wars are taking centre stage," he warned, adding that "Beijing is likely to tolerate further weakness and we could see another five percent before the end of the year."

Several rounds of tit-for-tat tariffs between the two countries have hammered trade, an important component of the global economy.

On Monday, Wall Street suffered its worst sell-off of the year, with the Dow Jones Industrial Average sinking 2.9 percent.

- Key figures around 1100 GMT -

London - FTSE 100: UP 0.1 percent at 7,232.20 points

Frankfurt - DAX 30: UP 0.6 percent at 11,731.90

Paris - CAC 40: UP 1.0 percent at 5,291.12

EURO STOXX 50: UP 0.7 percent at 3,333.89

Tokyo - Nikkei 225: DOWN 0.7 percent at 20,585.31 (close)

Hong Kong - Hang Seng: DOWN 0.7 percent at 25,976.24 (close)

Shanghai - Composite: DOWN 1.6 percent at 2,777.56 (close)

New York - Dow: DOWN 2.9 percent at 25,717.74 (close)

Pound/dollar: UP at $1.2195 from $1.2143 at 2100 GMT

Euro/pound: DOWN at 91.85 pence from 92.26 pence 

Euro/dollar: DOWN at $1.1200 from $1.1202

Dollar/yen: UP at 106.35 yen from 105.95 yen

Brent North Sea crude: UP 0.2 percent at $59.92 per barrel

West Texas Intermediate: UP 0.4 percent at $54.90 per barrel