5 Stocks To Watch As China’s Currency Takes Its Next Leg Lower

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August 5 – Stock mentions: SPY, EWY, JD, BABA, AMD, AMZN, SQ

US Markets

  • S&P 500 Futures -39 points
  • US 10-Year 1.76%
  • Dollar Index 97.71
  • VIX 20.95
  • Oil $55.19

International Markets

  • Nikkei -1.74%
  • Shanghai -1.62%
  • Hong Kong -2.85%
  • KOSPI -2.56%
  • DAX -1.55%
  • FTSE -1.98%

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China’s Currency Falls

Surprise, surprise. China’s yuan is falling yet again. However, this time, it has dropped to around 7.05 to the dollar. That is the lowest level for the yuan versus the dollar in a decade! Should we be surprised by this? Absolutely not, this has been what China has been doing since the trade war started. Remember it was April 2018 when the currency was at 6.25 to the dollar.

What’s the best way to fight a trade war with tariffs? Devalue one’s currency. One should expect to see the currency continue to devalue.

Hard to say how much more it could fall, after all, one must remember that China does not have a free-floating currency.

china yuan

South Korea (EWY)

Also interestingly the South Korea KOPSI has now fallen below its December lows! I would consider that a pretty major development and one that we will need to continue to watch.

south korea

10-Year Yields

As a result, the 10-year treasury is falling to around 1.75%, that’s the lowest level we have seen in this current cycle.

10-year yield

S&P 500 ETF (SPY)

As of this moment, the S&P 500 SPDR ETF is trading around $289, which puts that on pare with our level of support we have watched around 2,890.

spy

S&P 500 (SPY)

It means that the next level of support for the S&P 500 falls to around 2,870, should 2,890 not hold.

S&P 500, spx

JD (JD)

None of this is good for Chinese ADR’s such as JD.com. Remember, as a weaker yuan hurts the revenue and earnings outlook for this company. It also means that support for the stock falls to around $26.10

jd.com

Alibaba (BABA)

It is also awful for Alibaba, with the potential for that stock to fall to $151. The next level for BABA after that price doesn’t come until $141.

alibaba, baba

AMD (AMD)

AMD is also falling today and appears it may not be on its way to $27.22.

amd,

Amazon (AMZN)

Amazon is also falling today, as investors merely take risk-off the table. Support at $1770 is being tested; the next major of support doesn’t come until $1700.

Amazon, amzn, Stocks are falling on August 5 as the Chinese yuan falls to lowest levels since 2015 to over 7, it means that volatility is ramping up.

Square (SQ)

Square is also continuing to drop, and the next significant level of support after $65.50 isn’t until $62.

square, sq, Stocks are falling on August 5 as the Chinese yuan falls to lowest levels since 2015 to over 7, it means that volatility is ramping up.

Have a super Monday!

-Mike

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.

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