The Chinese yuan gained against the US dollar and British pound, while dropping against the Euro, in a volatility filled session. In exchange for US dollars, the yuan appreciated to 7.5850 in the overnight session. Although strength was seen in the currency, it was a different story for the Shanghai stock market and other regional indexes. It wasn’t the fact that markets printed red for another straight session that surprised traders. Rather it was the fact that Shanghai and Hong Kong posted substantial losses, especially after the Dow had recovered so strongly heading into the session close. In Hong Kong stock dropped supporting the biggest three day decline in the index since the terrorist attacks in the US in 2001. Leading decliners on the day were shares in China Life Insurance and Hang Lung Properties. Both companies declined on expectations that the so called contagion will likely continue into next week. Incidentally, both shares led corresponding sectors lower, with China Life losing a whopping 3.5 percent on the day. Hang Lung stock declined by 6.2 percent. Ultimately, when it was all said and done, the Hang Seng benchmark index finished lower by 1.4 percent, losing 285.26 points to 20,387.13. Comparatively, the Shanghai Stock Market closed lower by 2.28 percent or 108.87 points to close at 4,656.57. Losses seemed to be minimized as some took the exports figure as widely positive for further economic growth in the country.

Hong Kong Sees Economic Growth Accelerate
Development in Hong Kong’s exporting and investment sectors helped to boost the economy to a higher than expected rate of growth in the second quarter. Gross domestic product for the second three months of the year climbed 6.9 percent on the annualized comparison. The figure betters the consensus estimate, which pitted a 6.2 percent gain as the previous quarter’s figure was revised to 5.7 percent. Entering the longest economic expansion in a decade, Hong Kong’s economy has sported record low unemployment, a nine year low, and increasing wage levels in boosting consumer spending. Combined with noted improvements in the aforementioned sectors, and the country is poised for further momentum heading into the second half of the year. Incidentally, this counters previous arguments that weakness may be an issue as the US, a major trade partner, seems to be headed for a slowdown. Nonetheless, market sentiment is with the HKD for now, boosting it to 7.8106 against the greenback.

Singapore Exports Rise Better Than Expected
Non-oil domestic exports from Singapore advanced better than expected at a 5.5 percent pace for the month of July, the fastest pace in 6 months. Subsequently, compared to June, the figure grew by 0.5 percent in the monthly assessment. Although positive for the economy, and supportive of the underlying Sing dollar, the report does show some signs of weakness which may creep up in the longer term. According to the government, survey results on non-electronic goods remained strong. However, considerable weakness in the electronics manufacturing component continued to exist, for the sixth month straight. Electronic goods orders declined by 11 percent for the month and continues to weigh on the overall figure. As a result, currently positive momentum is being built on the recovery in pharmaceutical shipments, which surged an incredible 45 percent last month, and will remain widely dependant on the resiliency of sector demand. Any pullbacks in demand may very well put the economy’s growth in jeopardy.

Richard Lee is a Currency Strategist at FXCM.