The players were getting rid of Chinese stocks at the start of the week indicating stronger concerns in the market. Market fears were fueled by a recent increase of interest rate by US Federal Reserve, greenback's hikes, slower economic activity and US-China tensions. Moreover, the pessimism came from the PBOC which downgraded reserve requirements for banks as a way to maintain credit. This reflects the need for tougher steps to avoid a collapse. It is quite possible the PBOC still has enough monetary and lending means to support the country's economy that is slowing down now, though the stock market upturn requires a better environment in the country.
As of today, China's stock market improved somewhat, and now the players keep track of the Chinese yuan. The US dollar-to-yuan rate attempted to break the 6.93 handle again, whereas the price fixing was at 6.898. Thus, now the next point is the period when the rate touches a psychological level at 7. In the USA, the White House may probably define Beijing's move as a deliberate yuan downgrading by 9% over the past 6 months to get a jump in the war. We should wait for the next report of Steven Mnuchin to see whether he accused China in currency manipulation.
It is worth mentioning, that an economic slowdown is detected not only China but also in other developing countries. Seeing trading affected by import duties and trade tensions, the International Monetary Fund downgraded its global GDP outlook to 3.7% in 2018 and 2019 (July outlook – 3.9%).
At present, traders may monitor the changes of US Treasuries, especially on the yesterday's day off due to the Columbus Day celebration. The 10Y state bonds hiked to 3.2520% posting a 7-year peak. In case of further strengthening, global currencies and gold can face new selloffs.