Forex Comment Aug 12

Tencent beats, gold makes comeback

China's largest IT company reported 2nd quarter earnings that exceeded the highest analysts' estimates, with stock rebounding after revenues were up 29%

Tencent beats, gold makes comeback
The Chinese tech giant had a strong second quarter. Photo: Reuters.

(ATF) Some seemingly better US virus news, slightly better than expected July US PPI (+0.3%) and marginally higher US bond yields provided a welcome excuse on Wednesday for profit-taking on gold, which on August 8 had closed at a record high of $2,059 (GC1).

A sharp drop overnight to $1,874 was the worst drop since 2013. Like the good US virus news, it did not last. California reported a new spike in Covid cases, traders and investors looked for the better economic news that seemed to evaporate as fast as it had materialised and by 7pm HK time today gold had made a strong comeback to $1,953.10 (+0.35% for the trading day).

I see no convincing evidence anywhere that vast US virus containment and economic underperformance is going to be over any time soon. Gold will take another run at recent records as the US dollar decline will resume after relative stability around 93.50 (DXY) since late last week. At present, the greenback stands at 93.4870.

In contrast with gold and in spite of any number of Trump administration shenanigans to curtail the progress of Chinese tech sector companies, the Chinese yuan has been resilient and shown very little volatility.

The PBoC set central parity for the yuan at 6.9597 to the dollar. At 7pm the onshore CNY was trading at 6.9447 and has stayed in a narrow 6.9350 to 6.9600 range since August 5.

Tencent poked a finger in US officials' eyes after they targeted China's largest IT company by outlawing the WeChat app.

Today Tencent reported 2nd quarter earnings that exceeded the highest analysts' estimates and showed revenues up by 29%. The Tencent stock closed at HK$520.50 and has by now recovered nearly half of the HK$50 loss it suffered after the US onslaught.

Foreign investment in the company was a key recovery factor and, of course, the yuan gains on cross-border inflows.