Chinese Yuan Appreciates On Back Of Comments
The Chinese currency gained against the US Dollar and British pound following comments from Asia Pacific members in the overnight session. Appreciating against the US dollar, the yuan advanced to 7.5710 while rising to 15.43 against the pound sterling. What prompted the advance seems to be the notion that global trade partners are beginning to jump on the bandwagon, urging countries with irregularly low valued currencies to take an active part in reducing imbalances. Although commentary was targeted at Japan’s low valued yen, the majority of the requests seemed to heading towards the direction of China. In a statement released by the 21-member Asia Pacific Economic Cooperation in Australia, members called for more “flexibility”, turning away from naming any particular parties. “Flexibility of exchange rates and prices will facilitate these necessary adjustments.” However, as always, Chinese officials noted that global pressure will not be accepted as the nation won’t follow on “others’ words” in regards to a more flexible currency regime. Nonetheless, market sentiment is beginning to price in the likelihood of such an event as it is becoming increasingly clear that others aside from the US are starting to be concerned.

CSI Index 300 Hits Record High, Chinese Stocks Continue Advance
Benchmark stocks in China hit a fresh record high, sending gains higher for the fourth consecutive week. Boosting advancers on the day were bids on shares in China Merchants Bank Co. as the lender was supported by positive speculation over net income that may have more than doubled for the first two quarters of the year. The day’s good vibes helped to bolster sector stocks including shares in Shanghai Pudong Development Bank. Incidentally, Merchants Bank rose to the 10 percent daily cap as Shanghai Pudong shares rocketed higher by 5.8 percent to 44.23 yuan. Citic Securities Co. shares were also bid higher throughout the session. Investors already seeing the gains that equity markets have made are hoping it will translate into quality earnings for the company. As a result, the benchmark CSI 300 was able to bolt higher by 3.7 percent or 162.19 points to close at 4,598.38. Incidentally, the continued advancement of equity shares have prompted some to question whether or not attempts by the People’s Bank of China have been effective enough. Although sparking some concerns of thinning liquidity in the market, the recent string of rate increases by the PBoC have pretty much been tossed to the wayside. As a result, and as evident by the continued runup in shares, the central bank will likely have to resort to aggressive policy before it’s too late for the economy.

Regional Markets Feed Off Shanghai Fever
Catching bullish fever from Chinese stock markets, regional markets also took a turn for the better. Notably, Hong Kong shares were higher for the first time in three days as several benchmark stocks spread throughout sectors helped to boost overall speculation. Notably, Lenovo Group Ltd. shares jumped higher during the session following increased price estimates by US based Goldman Sachs & Co. Attributed to the upgrade were fiscal first quarter profit that skyrocketed, to the tune of 13 times previous values. Shares of Lenovo, the world’s third largest computer maker, rose 2 percent to HK$5.20. Ultimately, due to the overall bid tone in the market, the benchmark Hang Seng was able to add 95.19 points to 22,538.44. Although a positive tone did exist, positive results were somewhat strained in Singapore as the banking sector, weighed down by US subprime concerns, minimized the day’s gains. The Straits Times index closed little changed up 0.58 points to 3,436.04.

Richard Lee is a Currency Strategist at FXCM.