Shares Jump From Europe to Japan as Oil Holds Rally; Yuan Soars

Stocks came back with a vengeance amid speculation losses that sent global equities into a bear market had gone too far, with rallies in crude oil and the Chinese yuan burnishing sentiment.

Shares in Europe capped their biggest two-day gain in more than four years and Japan’s Topix index soared the most since 2008, with markets in North America closed for a holiday. Developing-nation equities rebounded from their worst weekly drop in a month, as oil built on Friday’s surge. 

The yuan strengthened the most since a dollar peg was scrapped in 2005 after People’s Bank of China Governor Zhou Xiaochuan talked up the credentials of the world’s second-largest economy. Demand for haven assets such as gold and the yen waned, while nickel climbed the most in two months amid the yuan rally.

Chinese markets returned Monday from a week-long holiday, during which a gauge of global stocks capped a 20 percent slide from its May record and anxiety over the ability of central banks to quell the volatility intensified. 

Governor Zhou front-footed the market, making rare comments at the weekend on the health of the Chinese economy and asserting the stability of the local currency. Shanghai shares pared a drop of 3 percent, even as China reported a record trade surplus amid slumping imports and exports.

“The Chinese market didn’t react as bad as we feared and with the weak export data there is some big hope that the central banks will react quite fast,” said John Plassard, senior equity-sales trader at Mirabaud Securities LLP in Geneva. “It’s a mix of hope of intervention from the Asian central bank, short squeeze and also a relief in some energy and banking sectors, the most shorted sectors.”

Yuan Declines Most in Two Weeks as Global Selloff Saps Sentiment

The offshore yuan fell the most in two weeks, tracking Asian currencies and stocks lower as a global selloff eroded the appeal of riskier assets.

Equity markets sank into bear territory amid skepticism central banks can arrest a slide in the world economy. The Bloomberg-JPMorgan Asia Dollar Index fell for a second day while stocks in Hong Kong headed for their lowest close in more than three years.

Federal Reserve Chair Janet Yellen said this year’s global tumult was in response to a drop in the yuan and in oil prices, and not the U.S. central bank’s rate increase in December. A gauge of the dollar’s strength rose 0.1 percent on Monday, paring its decline from Feb. 5 to 0.8 percent.

The yuan traded in Hong Kong fell 0.16 percent to 6.5399 a dollar as of 11:50 a.m. local time, ending three days of gains, according to China Foreign Exchange Trade System prices.

The currency is headed for a 0.4 percent advance for the week. China’s onshore financial markets will reopen on Monday, after a week-long holiday, with investors watching out for what the People’s Bank of China will do with the yuan’s reference rate.

“There’s a tug of war right now as people are debating whether the dollar’s weakness and its effect on emerging-market currencies will be sustainable,” said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd. China’s central bank is likely to keep the yuan’s fixing stable on Monday, he added.

Yen loses steam as yuan firms after China's anti-speculation move

The safe haven yen shed Monday's earlier gains after China's central bank unveiled a fresh step to curb offshore speculation in the yuan and also set a firmer guidance rate, soothing worries about the risk of a rapid fall in the yuan.

The yuan's slide to a near-five year low earlier this month had stirred renewed concerns about China's economic health and the outlook for global growth, heightening investor risk aversion.

Such concerns about the yuan eased for now, as the People's Bank of China announced a new move to curb offshore speculation in the currency, and also set a firmer midpoint rate for the yuan on Monday.

The dollar edged up 0.1 percent to 117.24 yen JPY=, up from a session low of 116.56 yen touched in early Asian trade on Monday as well as Friday's 4-1/2 month low of 116.51 yen.

The Australian dollar, often used as a liquid proxy for China plays, rose 0.8 percent to $0.6914, pulling away from a near seven-year low of $0.6827 set on Friday.

Still, market participants remained sceptical about the prospects for a sustained improvement in risk appetites, given the selloff in global equities seen so far in January.

Sterling remained on the defensive, dented by worries about Britain's economic outlook and jitters over a looming referendum on British membership in the European Union.

On Monday, sterling touched a low of $1.4251 GBP=D3, just below Friday's trough and setting a fresh 5-1/2 year low. Sterling was last up 0.1 percent at $1.4273.The euro eased 0.2 percent against the dollar to $1.0892 EUR=.