Decrease in ship transit in the Strait of Hormuz and developments in Chinese markets

Shipping data showed, on Monday, that the daily average of primary commodity ships crossing the Strait of Hormuz reached 10 ships during the past ten days, which is the lowest level since last May, following American and Iranian strikes that targeted tankers.

Data issued by Kpler indicated that the ten-day moving average reached 10 ships yesterday, Sunday, compared to more than 15 ships on Friday, and about 13 ships on Saturday.

Only two ships crossed the strait on Saturday, while six ships passed on Sunday, most of them via the Iranian route.

US Central Command said that its forces targeted, on Saturday, three Iranian oil tankers, including a tanker off Kharg Island, the main center for Iranian oil exports, following attacks launched by Iran on American warships in the region.

In response, Tehran announced on Saturday that it had targeted three oil tankers that were taking unauthorized routes in the strait, in addition to three American ships in different regions.

Marisix, a company specializing in maritime information, said in a memorandum that the three Iranian tankers are “Downey,” “Stark 1,” and “Kylo,” also known as “Noxen.”

The company added that the attacks that occurred on Saturday represented a “major escalation in the maritime conflict.”

She continued: “Commercial carriers are now deliberately using tools for mutual economic pressure, which significantly weakens the previous distinction between military confrontation and commercial shipping.”

She added: “Accordingly, the level of risk is assessed as very high for Iranian or Iranian-related cargo, and significantly high for ships associated with the United States or accompanied by American forces, throughout the Strait of Hormuz and the Gulf of Oman.”

Kepler data showed that a very large oil tanker and three bulk cargo ships loaded with minerals, grains or oilseeds entered the strait yesterday, Sunday.

The data also revealed that no VLCC tanker has left the Strait of Hormuz since Wednesday.

Chinese markets moved cautiously on Monday, with technology and chip stocks rising against pressure on banks and insurance companies, at a time when the yuan recorded its highest level in 3 and a half years against the dollar, despite clear signals from the People's Bank of China that it wants to curb the speed of the currency's rise.

At the mid-session break, the Shanghai Composite Index fell 0.2 percent to 3,920.70 points, while the CSI 300 Index of leading stocks rose 0.2 percent, in a performance that reflects a clear discrepancy between sectors.

The biggest support came from technology stocks. The Chainext emerging companies index rose 2.6 percent, while the Star 50 index, which focuses on technology companies in Shanghai, rose 1.6 percent.

The semiconductor sector also rose 2.6 percent, and the CSI Fifth Generation Communications Index jumped by about 5 percent, driven by a strong rise in Zhongji Innolight stock by 8.1 percent, with Chinese companies following the gains recorded by their American counterparts.

On the other hand, the financial sector came under pressure after the Chinese Ministry of Finance announced a plan to pump about $54 billion into state-owned insurance companies and banks, in a move aimed at enhancing capital levels within the financial system.

The insurance sector fell by 2.5 percent, while the banking sector fell by 1.5 percent. Investors treated with caution the impact of capital injections on the ownership structure and future returns to shareholders.

In Hong Kong, both the Hang Seng General Index and the Hang Seng Technology Index fell by about 1 percent, at a time when regional transactions remained relatively more positive, supported by a strong reading of the American labor market that was considered an indication of the continued strength of the global economy.

But Chinese investors remain cautious due to continued external uncertainty. Nan Hua Futures financial consulting analysts said that the markets are likely to move within a limited range, as long as uncertainty about the international environment remains, noting that shifts in US interest rate expectations will remain a major factor in determining the market direction this week.

This comes at a time when markets are also awaiting developments in relations between Beijing and Washington, after reports indicated that President Xi Jinping is preparing to accompany a large trade delegation during his upcoming visit to the United States, in a move that draws attention in light of the continuing trade and investment tensions between the two countries.

In the exchange market, the yuan has been stronger than stocks; It rose to 6.7050 yuan to the dollar in early trading, its strongest level since February 2023, before falling slightly to 6.7125 yuan.

As for the yuan in the foreign market, it was trading near 6.7113 yuan to the dollar, with limited demand for the American currency continuing.

The yuan's strength came despite the People's Bank of China setting the daily reference rate at 6.7795 yuan to the dollar, about 709 points weaker than market estimates, in one of the largest gaps recorded this year.

Traders believe that this gap represents a clear indication that the central bank does not oppose the strength of the yuan per se, but wants to control the pace of its rise and prevent a rapid move that might put pressure on exporters.

Jeff Yu, chief market strategist for Europe, the Middle East and Africa at BNY, said that the yuan remains one of the most flexible Asian currencies, but this strength attracts greater attention from the authorities, which is evident in the widening difference between the official fixing rate and market expectations.

He added that the flow data indicates a relative decline in the positions supporting the yuan, with the pace of the currency's rise slowing.

The Chinese authorities are trying to achieve a delicate balance. On the one hand, the yuan's appreciation reflects a strong trade surplus and relatively stable foreign exchange inflows. On the other hand, excess currency gains may reduce the competitiveness of exports, at a time when domestic demand is still weak and the economy depends largely on the industrial sector and foreign trade.

This balance becomes more complicated with Chinese banks’ moves to raise interest rates on dollar deposits and increase their purchases of US Treasury bonds, which are steps that will support demand for the dollar and limit the strength of the yuan.