Market Looks to Rally on Yuan News

Good news this morning. The market will most likely get a lift today thanks to China agreeing to let the yuan rise against the dollar. I know currency news is as dull as dirt, but this time it matters. The Chinese currency is now at its highest level in two years and it had its biggest one-day gain in five years.
Let me explain: China keeps a very tight leash on the yuan. Even though this was the biggest move since 2005, the rally was a lousy 0.42%. The Chicoms keep the yuan artificially low and that doesn’t sit well with the rest of the world, including me. One dollar will get you 6.7976 yuan. My take is that this was a just a nice gesture from China ahead of the next G-20 meeting.
The good news for us is that Asian markets like the news a lot. Not surprisingly, the major airline stocks inside China some very good gains. The downside is that oil rose. This makes sense since investors think it will spur greater demand from China.
Reuters lists some of the winners and losers from today’s move. The winners include automakers, consumers and tech, foreign heavy machinery makers, luxury firms and Chinese financials. The losers are foreign financials and commodity firms.

Posted by Eddy Elfenbein on June 21st, 2010 at 9:14 am

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