Wednesday: 5 Things The Market Is Talking About

North Korea say they’ve detonated a hydrogen bomb, the yuan falls to a five-year low and brent oil drops below $35 a barrel for the first time since 2004. Here are some of the things people in markets are talking about today.

1. H-Bomb?

North Korea said it successfully tested its first hydrogen bomb at 10 a.m. local time, with the blast triggering a magnitude 5.1 earthquake. Experts are already disputing the country’s claims, which they say are not backed up by initial data reviews. For the moment, there seems to be little for markets to worry about, as previous North Korean nuclear tests have led to – at worst – only short-lived selloffs.

2. Yuan falls to five-year low

The yuan sank to a five-year low after the People’s Bank of China set the currency’s reference rate at an unexpectedly weak level. The currency tumbled 1.1 percent in Hong Kong and dropped 0.6 percent in Shanghai, widening the gap between the two to a record. The Caxin Media and Markit Economics services gauge slumped to a 17-month low of 50.2 in December, suggesting conditions may be weaker than official government data suggests. As the PBOC is allowing the yuan to depreciate, bets on further easing from the central bank are waning, meaning China’s sovereign bonds are falling, ending the session lower for the fifth straight day.

3. Brent below $35

Despite the North Korean nuclear test, Middle-East tensions, and improving growth prospects in Europe, oil cannot find a recovery. This morning Brent crude dropped below $35 a barrel and was trading down $1.32 at $35.10 at 11:14 a.m. London time. The continuing oil price slump should see an increase in M&A deals in the industry this year, according to consultant IHS Inc., as limited funding opportunities will force debt-saddled companies to sell assets.

4. Euro-area set for robust growth

A Purchasing Managers’ Index for manufacturing and services in the euro-area unexpectedly rose to 54.3 in December from 54.2 in November, Markit Economics reported this morning. In the U.K. a services gauge eased to 55.5 in December from 55.9 a month earlier as the risk of a British exit from the European Union starts to weigh on hiring and investment.

5. Fed minutes

At 2 p.m. today the Federal Reserve will release the minutes of its December rate-hike meeting. Analysts will be looking for any hints as to the likely rate path, with ‘gradual’ and ‘data-dependent’ the likely keywords.

Forex heatmap

Bloomberg

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell