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ASX recovers after China stabilises currency, but dragged down by disappointing CBA result

Pedestrians are seen reflected on the Australian Stock Exchange trading board in Sydney

The Australian share market has recovered slightly from its heavy bleeding, which led to $90 billion being wiped off the ASX boards earlier this week.

Key points:Worsening US-China trade relations triggered a global market sell-off at the start of the weekStocks have recovered slightly after China intervened late yesterday to strengthen the yuanAustralia's market lost $90 billion over the last two days and has not recovered much because CBA's profit result disappointed

By 11:35am (AEST), the ASX 200 had lifted by a modest 3 points, practically flat at 6,481.

That is small change compared to its 290-point drop from the last couple of days.

The local market would have enjoyed a stronger rebound had it not been for Commonwealth Bank shares (-1.6pc), the biggest drag on the ASX 200 index.

This was after the bank reported a disappointing full-year result — its net profit sliding 8 per cent to $8.6 billion as the impact of a slowing economy and falling interest rates took their toll.

It was also dragged down by $2.2 billion in customer remediation costs and a rise in bad debts owed by its borrowers.

The best performing sectors on the market are consumer cyclicals (+0.9pc) and telecommunications (+0.8pc).

Gold miners like Resolute Mining (+5.8pc), Regis Resources (+3.9pc) and St Barbara (+3.8pc) have surged, as worsening trade relations between China and the United States drove investors towards safe haven assets.

On the flipside, energy is the worst performing sector as oil prices continue to tumble.

The sector was weighed down by oil and gas companies Cooper Energy (-2.7pc), WorleyParsons (-2.4pc) and Caltex Australia (-1.5pc).

The Australian dollar has risen slightly to 67.8 US cents, only just above a decade low.

Market snapshot at 7:50am (AEST):ASX SPI futures +0.7pc at 6,437, ASX 200 (Tuesday's close) -2.4pc at 6,478AUD: 67.6 US cents, 55.54 British pence, 60.34 euro cents, 71.93 Japanese yen, $NZ1.04US: Dow Jones +1.2pc at 26,030, S&P 500 +1.3pc at 2,882, Nasdaq +1.4pc at 7,833Europe: FTSE 100 -0.7pc at 7,172, DAX -0.8pc at 11,568, CAC -0.1pc at 5,235, Euro Stoxx 50 -0.6pc at 3,292Commodities: Brent crude -2pc at $US58.63/barrel, spot gold +0.1pc at $US1,475.67/ounce, iron ore -3pc at $US97.55/tonne China stabilises currency

The Australian market's recovery was partially due to the China's central bank stepped in to stabilise the yuan.

The People's Bank of China (PBOC) indicated that it wants the yuan to trade at stronger-than-expected level (6.9683 yuan per US dollar).

The PBOC's overnight intervention came after the US Treasury Department labelled Beijing a "currency manipulator" — for letting the yuan slide to an 11-year low of 7 yuan per US dollar on Monday (local time).

Market analysts saw China's earlier decision — to let its fixed exchange rate drop and suspend its purchases of US agricultural products — as payback for last week's tariffs imposed by the US on its imports.

In its first official response to the Trump administration's accusations, the PBOC said that China "has not used and will not use the exchange rate as a tool to deal with trade disputes".

The PBOC also warned America's move — to label China a currency manipulator — would "severely damage international financial order and cause chaos in financial markets", while preventing a global economic recovery.

US market rebound

Meanwhile, Wall Street rebounded — a day after suffering its worst losses of 2019 — on the back of the China central bank's intervention into currency markets.

The Dow Jones index closed 311 points higher, rising 1.2 per cent to 26,030.

The broader S&P 500 and tech-heavy Nasdaq lifted strongly, up 1.3 and 1.4 per cent respectively.

Technology stocks led the recovery — but they also bore the brunt of the previous day's market sell-off that pushed the main US indices 3 per cent lower.

That plunge was triggered when China allowed its currency to depreciate against the dollar to its lowest level in 11 years.

Apple and Microsoft shares jumped 1.9 per cent each. Both companies get significant revenue from China and are highly sensitive to swings in the ongoing trade dispute.

But European markets did not join in the rebound, with London's FTSE and Germany's DAX down at least 0.7 per cent each.

Spot gold prices have risen to their highest value in more than six years ($US1,475.67) as demand rises for safe haven assets.

Meanwhile, Brent crude prices have continued to suffer — down 2 per cent to $US58.63 per barrel, due to the prospect of the trade war reducing globing demand for oil.

Investors are growing more anxious as the US and China increase their trade war from a simmer to a boil and threaten global economic growth.

"What's really come into the market and spooked investors is the sense that the stakes are rising again," said James McCann, senior economist at Aberdeen Standard Investments.

The lingering trade dispute is looming over closely interconnected supply chains and other economies risk becoming collateral damage.

Investors should be focusing on the trade dispute's impact on the broader economy, including industrial production, along with business investment and sentiment, Mr McCann said.


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