Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

A rebound in U.S. tech stocks lifted the Nasdaq and S&P 500 on Wednesday, but soft U.S. employment indicators kept investors on edge and sparked a rally in Treasuries and gold prices. 

More on that below. In my column today, I look at the surprising strength of China's yuan against the dollar in recent weeks, and argue that it may be part of Beijing's wider strategy in its trade negotiations with Washington. 

I’d love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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* U.S. jobs

This is a huge week for the U.S. labor market, and therefore the Fed. Most observers agree conditions are softening - the disagreement is over how rapidly, whether interest rate cuts are warranted, and if so, when does the Fed act.

Figures on Wednesday showed job openings fell to a 10-month low in July and there were more unemployed people than positions available for the first time since the pandemic. Weekly claims and July ADP private sector jobs data are out on Thursday, before the big one Friday - August non-farm payrolls.

* ECB

Euro zone price pressures may be a little hotter than expected, with figures this week showing producer inflation in July and consumer inflation in August above forecast. European Central Bank board member Isabel Schnabel told Reuters there's no need to cut rates.

Schnabel is at the hawkish end of the spectrum, but markets don't disagree - the ECB is expected to stand pat next week and all of next year. Further rate cut hopes are fading. Could the next move, whenever it comes, actually be a rate hike?     

* China flexes muscles

China held its largest-ever military parade on Wednesday to mark 80 years since Japan's defeat in World War Two, with President Xi Jinping telling the world it must choose between "peace or war, dialogue or confrontation, win-win or zero-sum." U.S. President Donald Trump called it a "beautiful ceremony".

The event was designed to flex China's diplomatic, economic and tech muscle too, not just its military might. As many countries agree to lopsided trade deals with the US, the leaders of China, Russia and India are forging closer ties between their nations. 

A notable trend this year has been the often-counterintuitive market reactions to U.S. President Donald Trump's efforts to upend many long-held economic norms. One of the biggest surprises has been the appreciation of China's yuan.

The consensus opinion at the start of the year was that Beijing would counter Washington's punitive tariffs on Chinese imports by depreciating the yuan against the dollar. This would keep Chinese goods competitive, enabling the country's exporters to compensate for any loss of U.S. business. 

On top of that, a weaker exchange rate would, in theory, help to reflate China's economy, pulling it out of the deflationary funk it has been in since its property bubble began to burst in 2021.

And, finally, a weaker yuan would be a poke in the eye to Washington. A key pillar of the Trump administration's economic agenda, articulated most artfully by adviser Stephen Miran and Treasury Secretary Scott Bessent, is a weaker dollar.  

But Beijing surprised everyone.

The yuan did slide to an 18-year low around 7.350 per dollar during the chaos of Trump's April 2 'Liberation Day' tariffs. And combined with low domestic inflation and even deflation in recent years, the yuan's broad 'real' effective exchange rate (REER) is the weakest in over a decade.

But since April, it has reversed course rapidly against the dollar, trading last week at a 2025 high of 7.1260 per dollar.

Indeed, measured by the People's Bank of China's official daily fixings or offshore market trading, the yuan just posted its biggest monthly gain against the greenback in almost a year.