Equities have been strong across the board today, with most major indices seen rallying by around 1% following China's decision to allow the renminbi, also referred to as the yuan, to become more flexible against the US dollar.
Wall Street spreads opened firmly higher today, while most currencies were unchanged from their mid-morning prices. Although it is still early days, many investors are already becoming sceptical of China's recent announcement, with a lack of specific details prompting investors to question how much the renminbi will actually be allowed to appreciate in the foreseeable future.
In the greater scheme of things, the development at least highlights that China is willing to consider policy changes in the face of pressure from international demand. This move is likely to ease political tensions leading up to the G20 summit in Toronto this weekend.
By 4pm (London time), the Dow Jones had gained 84.65 points (+0.8%) to 10535.29. The S&P 500 rose 7.48 points (+0.66%) to 1124.99, while the NASDAQ 100 added 9.51 points (+0.49%) to 1922.99.
Commodity prices were firmly stronger today, with July high-grade copper futures up 3.16% to $2.9775 per pound and July light sweet crude (WTI / US Oil) 1.8% higher at $78.61 a barrel. July natural gas gained 2% to $5.1 per million British thermal units.
Not surprisingly, mining stocks were the best performers today, thanks to the renminbi's future prospects. The market is speculating that China will eventually allow its currency to appreciate against the US dollar, a sign the country believes it can continue to grow without having to rely on weaker currency to fuel exports. It also stands to reason that a stronger renminbi will increase China's purchase power, making it less expensive to purchase resources.
Alcoa shares soared 6.91% to $11.88, United States Steel climbed 6.06% to $46.04 and Freeport-McMoRan Copper & Gold added a solid 6.02% to $69.87.
In contrast, US retailers were among the worst performers, with Dow components Wal-Mart and Home Depot losing between 0.4% and 0.8%, while S&P 500 constituents Abercrombie & Fitch and Macy's retreated by 3.06% to $34.25 and 1.39% to $21.16 respectively. The weakness in retailers points to the ongoing cracks in the US economic recovery, namely the fact that job security and high unemployment is weighing on consumer sentiment.
Tomorrow, all eyes will be on the UK Emergency Budget where investors will finally be able to gauge the measures that the new coalition government will put into force to rein in the largest fiscal deficit among the G20 nations. The details will emerge at 12.30pm (London time).
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'Spread Betting News 21 Jun 2010', Article by IG Index, last update: 21-Jun-10
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