REFORMS: An employee counts Chinese 100 yuan notes at a branch of Bank of Communications in Shenyang, Liaoning province. Picture: REUTERS
An employee counts Chinese 100 yuan notes at a branch of Bank of Communications in Shenyang, Liaoning province. Picture: REUTERS

LONDON — Gains by Chinese stocks, a steadier yuan and a recovery in oil prices helped calm frazzled investors on Friday, just in time for the first US payrolls report of the year.

China nudged the yuan higher for the first time in nine days, easing the fear that it had lost control of the currency.

Traders also cheered its decision to dump an unpopular stock market circuit-breaker system introduced this week, helping to restore a measure of risk appetite.

After a fall of more than 10% in Chinese equities, an equally dramatic slump in oil and volatility in other markets, a 2% rise by Chinese shares helped Asia end higher for the first time in 2016.

Europe followed suit, with the FTSE, DAX and CAC40 up between 0.5 and 0.7%. Nevertheless, the nightmare start to 2016 means Asian markets have seen their worst week since the eurozone crisis in 2011, and for Europe and the 46-country MSCI All World share index the worst in more than four months.

"We’ve had a stabilisation in China overnight, but the question remains as to whether China’s economy is headed for a hard or soft landing," Rabobank senior fixed income strategist Richard McGuire said.

There was also a sense of relief in commodities markets as oil prices pulled out of their tailspin, although few experts were willing to declare an end to the slump.

After reaching a 12-year low the previous session, Brent crude rose 53c to $34.28 a barrel by 9.30am GMT, from an intraday high of $34.72. US West Texas Intermediate (WTI) was up 40c at $33.63 a barrel.

Industrial metals such as copper, iron ore and zinc also rose after losses of 4%-6% so far this week. Gold was one of several safe-haven assets to retreat.

It all came just in time for some of the most influential pieces of macroeconomic data for markets, the monthly US nonfarm payrolls figures.

The latest Reuters poll shows economists expect 200,000 jobs were added in December and the overall unemployment rate remained at a seven-and-a-half-year low of 5%. A solid report could soothe the fear over the economy’s health by showing recent weakness was largely restricted to manufacturers and exporters. Both have been hit by a strong dollar and anaemic global demand.

It will also be the first reading since the Federal Reserve raised US interest rates in December for the first time in almost a decade.

On the jobs

Amid the hope for a solid payrolls number and relief over the steadying of the yuan, the dollar rose more than half a percent against both the euro to $1.0878 and yen to ¥118.34 on Friday.

The yen, the currency market’s safe-haven darling, has been one of the major beneficiaries of this week’s turbulence. It gained about 1.7% against the dollar and 1.5% to the euro.

Friday’s reversal came after the People’s Bank of China (PBoC) nudged the yuan/dollar rate up to 6.5636 to the dollar. On Thursday, it reportedly had intervened to defend the yuan in offshore trade, reversing a decline of more than 1% that took it to a record low of 6.7600 to the dollar.

The Chinese central bank’s decision on Friday was "a signal it does not intend to keep allowing the yuan to fall", JPMorgan Asset Management global market strategist Yoshinori Shigemi.

Elsewhere in Asia, Japan’s Nikkei average surrendered earlier gains to end the day down 0.4% at its lowest closing price since September 30. That extended losses for the week to 7%, the biggest weekly decline in four months.

In bond markets, yields on 10-year US treasuries fell to a two-and-a-half-month low of 2.119% on Thursday and last stood at 2.17807%. German bunds were steady at 0.539% after their yields fell this week as investors headed into safe assets.

"The fact that 10-year German yields are back at around 50 basis points shows there is a flight to quality," ING senior rates strategist Martin van Vliet said.

Although much could depend on the 1.30pm GMT payrolls figures, Wall Street, which opens at 2.30pm GMT, was expected to see a small bounce after a 5% fall this week, one of its worst starts to a year on record.

After the US market close on Thursday, two Apple suppliers added to growing worry about slowing shipments of the iPhone 6S and 6S Plus by cutting their revenue estimates for the third quarter.

Reuters