Tag: People’s Bank of China (PBoC)

Tuesday October 16: Five things the markets are talking about

The ‘big’ dollar came under pressure yesterday and is finding it difficult to gain much traction this morning as investors taking profit on U.S assets outweighs concerns about Italy, Brexit and a Sino-U.S trade war. Furthermore, twin U.S deficits and prospects of a halt in Fed’s rate hike cycle are also weighing on the dollar.

Elsewhere, it has been mixed picture across regional stock markets overnight as investors await the next wave of corporate earnings and further developments across the aforementioned geopolitical issues.

Note: Any hint of a slowdown or stronger growth could affect the pace of Fed’s rate hikes.

Oil prices continue to fluctuate within striking distance of recent highs amid tensions between Saudi Arabia and the U.S over the disappearance of Jamal Khashoggi, a prominent journalist with U.S citizenship, while the precious ‘yellow’ metal holds its gains.

On tap: FOMC minutes are due Wednesday (02:00 pm EDT), with investors focused on projections for further interest rate rises.

1. Stocks mixed results

In Japan, the Nikkei rebounded overnight, supported by short covering in index heavyweights (automakers and SoftBank), but retailers came under pressure on worries about domestic personal consumption and slowing demand from China. The Nikkei share average closed +1.3% higher, after tumbling -1.8% yesterday. The broader Topix rallied +0.7%.

Down-under, Aussie shares rebounded overnight, as mining and financials bounced back from Monday’s -1% drop and six-month low, but rising tensions between Saudi Arabia and the West and weaker PPI data in China capped broader market gains. The S&P/ASX 200 index rose +0.6%. In S. Korea, the Kospi stock index closed flat on Tuesday as global uncertainties capped gains during the day.

In China, stocks ended lower overnight, after data showed factory-gate inflation had cooled for a third consecutive month in September amid lean domestic demand. The blue-chip CSI300 index ended -0.8% weaker, while the Shanghai Composite Index also closed -0.8% lower. In Hong Kong, the Hang Seng was up +0.1%.

Note: Chinese inflation was boosted by food while prices were mostly subdued elsewhere. China Sept CPI y/y came in as expected at +2.5% vs. +2.5%e (a seven-month high): PPI y/y was +3.6% vs. +3.5%e.

In Europe, regional bourses trade mostly higher across the board with the Italian FTSE MIB outperforming following the submission of its draft budget to the E.C, while the U.K’s FTSE underperforms on Brexit uncertainty.

U.S stocks are set to open in the ‘black’ (+0.3%).

Indices: Stoxx600 +0.4% at 361, FTSE -0.2% at 7012, DAX +0.2% at 11638, CAC-40 +0.1% at 5099, IBEX-35 +0.9% at 9004, FTSE MIB +1.1% at 19500, SMI +0.3% at 8678, S&P 500 Futures +0.3%

2. Oil dips on expectations of higher U.S stocks, gold unchanged

Oil prices have eased a tad amid expectations of an increase in U.S crude inventories, but signs of a fall in Iranian oil exports for October are limiting losses.

Brent crude for December delivery has fallen -6c, or -0.07%, to +$80.72 per barrel, while U.S West Texas Intermediate (WTI) crude for November delivery is down -14c at +$71.64 a barrel.

U.S crude stockpiles are forecasted to have risen last week for the fourth consecutive week, by about +1.1M barrels, ahead of reports from the API (data is due at 4:30 pm today) and the U.S DoE’s EIA (will be released at 10:30 am EDT tomorrow).

In the first two weeks of October, Iran has exported +1.33M bpd of crude to countries including India, China and Turkey. That is down from +1.6M bpd during the same period in September.

Note: October exports are a sharp drop from the +2.5M bpd in April before President Trump withdrew from a multilateral nuclear deal with Iran. In May Trump ordered the re-imposition of economic sanctions on the country. The sanctions will come into force on Nov. 4.

Also supporting prices is today’s comments from OPEC’s Secretary General Barkindo who said, “global spare oil capacity was shrinking,” adding “producers and companies should increase their production capacities and invest more to meet current demand.”

Ahead of the U.S open, gold prices are holding steady near yesterday’s three-month high as a number of risk-averse investors seek refuge in the metal amid rising political tensions and economic uncertainty.

Spot gold was little changed at +$1,226.71 an ounce - it touched +$1,233.26 yesterday, its highest print since mid July, as global equities slid on rising tensions between the Saudi’s and the West. U.S gold futures are flat at +$1,230.40 an ounce.

3. German Bund yields edge higher

A cautious, risk-on mood currently prevails in eurozone sovereign bond markets so far this morning, with yields of German Bunds and of other core eurozone bonds up, and Italian bond yields down.

This would suggest that market risk sentiment may be improving following last week’s sudden correction, but the balance remains a tad precarious in the current political environment. German 10-year Bund yield has backed up +1.4 bps to +0.51%.

Note: The +0.50% level in Bund yields remains pivotal and with more debt product coming to market today (Germany offers +€4B in the September 2020-dated Schatz) should be able to back up sovereign yields a tad more.

Elsewhere, the yield on 10-year Treasuries has backed up +1 bps to +3.17%, the highest in a week. In the U.K, the 10-year Gilt yield has decreased -1 bps to +1.603%, the lowest in almost two-weeks, while in Italy, the 10-year BTP yield has declined -2 bps to +3.522%.

4. G7 currency pairs are little changed

Major currencies (€, £, ¥ and C$) are relatively unchanged ahead of the U.S open.

Dealers and investors have little technical or fundamental data to work with at current levels. In fact, the market is looking for guidance, which may come in the shape of the U.S Treasury forex report, which is likely to be released this week and where the U.S could name China a currency manipulator.

If the U.S were to name China a currency manipulator it would further pressure China on trade and add to the Sino-U.S trade tensions.

EUR/USD is flat at €1.1579 and other major currency pairs are not moving by much either. GBP/USD is up slightly at £1.3163 as leaders struck a conciliatory tone a day after Brexit negotiations broke down and USD/JPY is up +0.3% at ¥112.07

Elsewhere, the performance of several petro-forex (NOK, CAD, RUB) has been held back due to various unique factors that have not translated into a growth boost for these currencies. The ruble has been driven by U.S sanctions, and the Canadian dollar has been held back by NAFTA re-negotiations.

TRY (-0.20% at $5.7865) has retreated after seven days of gains after the country released U.S pastor Andrew Brunson on Friday.

5. U.K wage growth fastest in a decade

U.K data this morning showed that wage growth quickened over the summer at the fastest pace in almost a decade, adding to signs of inflationary pressure.

The ONS said that average weekly earnings in Britain, ex-bonuses, grew +3.1% in the three-months through August.

The figures will likely reinforce market expectations that the BoE remains on course tighten monetary policy over the next 24-months to keep overall price-growth in check, assuming the U.K.’s exit from the E.U goes well.

Other data showed that U.K unemployment in the three-months through August was unchanged on the previous three-months at +4%, while the number of people in work, +32.4M, remained close to its record high.

Note: The BoE hiked interest rate in August and signalled that they expect to do so again two or more times over the next couple of years to bring inflation back to their +2% annual goal.

A weaker pound since the Brexit referendum has to push up the price of imports, squeezing U.K citizens’ purchasing power.

Monday October 15: Five things the markets are talking about

Following a weekend of warnings on global economic fragility from G10 finance leaders at an IMF meeting in Bali, has global equities starting this new week on the back foot, with regional bourses in Asia and Europe seeing red, while U.S equity futures are pointing to deep declines.

Sovereign yields are lower in this cautious climate, while yen has pushed higher along with gold. Crude oil has advanced as tensions rise between the U.S and Saudi Arabia over a missing journalist.

Politics and data are never a good mix and this week is awash with both.

Italy is to submit its contentious budget to the E.C. Already; the proposed budget has potentially broken specific thresholds, which would require a lot of debating from both parties. Expect Italian BTP yields again to come under pressure, backing up towards the psychological +4%.

The E.U meets on Wednesday and will get an update on the status of negotiations with the U.K’s Brexit. Expect the Irish border to be the ‘hot topic du jour. If there is insufficient progress, the possibility of a special summit next month to finalize an agreement looks dead in the water. Dealers expect the pound to remain volatile in the short-term.

The U.S Treasury report about the international economy and the FX market is to be released Tuesday. To neutral observers, China does not meet the threshold of “manipulation.” However, Trumps interpretation may be very different.

On the data front, the U.S releases retail sales this morning (08:30 am EDT) and FOMC minutes on Wednesday.

Across the pond, the U.K presents its labour report tomorrow, (Oct 16) inflation Wednesday (Oct 17) and retail sales Thursday (Oct 18).

In Canada, Friday’s upcoming data includes retail sales, and CPI – neither of the reports are expected to dissuade the market of pricing in a +25 bps rate hike at next weeks Bank of Canada (BoC) monetary policy decision.

1. Equities see red

In Japan overnight, the Nikkei closed at a two month low as automakers and other manufacturers were hit by news that the Trump administration would seek a provision about currency manipulation in future trade deals. The Nikkei share average ended down -1.8%, the weakest closing point since mid-Aug, while the broader Topix dropped -1.6%, the lowest close in seven-months.

Down-under, the ASX 200 fell to a six-month low overnight, led by the banking sectors growing concerns about the hit to earnings from an inquiry into misconduct. The S&P/ASX 200 index fell -1%. In S. Korea, the Kospi stock index fell -0.77% as institutions cut their exposure to riskier assets. The country’s biggest automaker Hyundai Motor slipped -1.7%, marking its lowest trading level in eight-years.

In China and Hong Kong, stock markets again slipped overnight following last week’s deepest dive in eight-months, as investors await the latest twist in the Sino-U.S trade dispute. The Shanghai Composite index closed lower by -1.5%, while in Hong Kong the Hang Seng closed -1.4% lower.

In Europe, regional bourses trade lower across the board, tracking U.S futures and Asian indices lower. The FTSE and sterling (£1.3140) trade a tad lower after the E.U and U.K paused Brexit talks until after this week’s mini-summit.

U.S stocks are set to open deep in the ‘red’ (-0.8%).

Indices: Stoxx600 -0.6% at 356.8, FTSE -0.3% at 6976, DAX -0.4% at 11474, CAC-40 -0.6% at 5066, IBEX-35 -0.3% at 8876, FTSE MIB -0.2% at 19225, SMI % at -0.8%, S&P 500 Futures -0.8%

2. Oil prices rise on Saudi tensions, gold higher

Oil prices remain bid this Monday morning as tension over the disappearance of a Washington post journalist and Saudi critic, Jamal Khashoggi, fuelled supply worries, although concerns over the long-term demand outlook dragged on sentiment.

Brent crude oil jumped +$1.49 a barrel to a high of +$81.92 before easing to +$81.13, up +70c. U.S crude (WTI) was last up +40c at +$71.74.

Saudi Arabia has been under pressure since Khashoggi, a U.S. resident, disappeared on Oct. 2 after visiting the Saudi consulate in Istanbul.

President Trump has threatened “severe punishment” if it is found that the journalist was killed in the consulate.

On Sunday, the Saudi’s said it would retaliate to any action taken against them over the Khashoggi case. The market is tentatively concerned that the Saudis may use oil as a tool for retaliation.

Despite prices starting the week better bid, there are still lower that last week’s high print.

Also limiting price gains is a report from the IEF last Friday stating that the market looked “adequately supplied for now” and cut its forecasts for world oil demand growth this year and next.

Ahead of the U.S open, gold prices have jumped +1% to hit a three-month high as global stocks resumed their fall and investors wrestled with the impact of the ongoing Sino-U.S. trade war and higher U.S interest rates. Spot gold is up +0.9% at +$1,228.24 an ounce, while U.S gold futures are up +0.8% at +$1,231.80 an ounce.

3. Italian and Portugal yields fall

Portuguese and Italian government bond yields have fallen this morning, with prices outperforming euro zone peers after ratings agency Moody’s upgraded Portugal’s credit rating back to investment grade.

Portugal’s 10-year bond yield fell -4 bps to +2.01% after Moody’s lifted its credit rating to Baa3 on Friday.

The positive periphery sentiment from Portugal has spilled over into Italy’s battered bond market. Italian 10-year BTP yields are down -4.5 bps to +3.53%.

Note: Expect Italian yields to trade rather volatile this week as Italy presents its budget to the E.C.

Elsewhere, the yield on U.S 10’s fell -1 bps to +3.15%. In Germany, the 10-year Bund yield has dipped -1 bps to +0.49%, the lowest in more than a week. In the U.K, the 10-year Gilt yield has eased -2 bps to +1.614%, the lowest in more than a week.

4. Dollar’s safe haven flows ease

Risk aversion flows initially provided a bid for the traditional safe-haven currencies of JPY (¥111.75) and ‘big’ USD, however, market sentiment has eased a tad ahead of the U.S open.

GBP (£1.3147) opened below the psychological £1.31 handle on concerns that a Brexit agreement might be slipping away after the U.K and E.U negotiators were said to have called ‘a pause’ in their Brexit talks and would now wait for the outcome of a summit mid-week (Wed) before any resumption.

TRY ($5.8208) is firmer by over +1% outright for its seventh session gain on optimism that relations between Turkey and U.S would improve following the release of U.S Pastor Brunson.

Bitcoin prices have spiked +6.5% this morning, jumping above +$6,600. While the catalyst behind the move higher is not clear and with few ready to label bitcoin a “true store of value” in turbulent times, BTC has held up better than most of late.

5. Embarrassing losses in Bavarian election shake Merkel’s coalition

Germany’s grand coalition could become even further unstable after coalition members suffered humiliating results in an election in the southern state of Bavaria.

Chancellor Merkel’s Bavarian allies slumped to their worst election results in almost 70 years and her junior coalition partners, the center-left Social Democrats (SPD), saw support in Bavaria halved.

The SPD had hoped that infighting over immigration between Merkel’s Christian Democrats (CDU) and the Bavarian Christian Social Union (CDU) allies would give them a boost in Bavaria.

But instead, the party saw support fall to just under +10%, prompting a discussion over the sustainability of its alliance with Merkel’s conservatives at the national level.

Note: SPD members are still bitter over their leaders’ decision to join a Merkel-led government.

Merkel’s authority may be called into question as soon as in two-weeks in an election in the western state of Hesse - the state is ruled by Merkel’s CDU in a coalition with the Greens, but polls suggest she is losing further support.

Friday October 12: Five things the markets are talking about

Volatility, in particular, for equities, has notched aggressively higher this week, now that sovereign bond yields are beginning to price out cheap money.

Stronger than expected U.S economic data and weak European underlying inflation in key countries is being blamed as the specific trigger for this week’s ‘bearish’ bout.

However, Chinese trade data released earlier this morning showed better-than-expected growth in Chinese exports has, at least temporarily, helped ease investor concerns about the damage to China’s economy from U.S tariffs and other trade friction.

China’s trade surplus with the U.S widened to a record +$34.1B in September as exports to the American market rose by +13% y/y, despite a worsening tariff war.

Global equities have staged a robust recovery; the ‘big’ dollar trades steady, U.S Treasury yields back up and crude oil prices recover while still heading for the biggest weekly drop in three-months.

Nevertheless, a gradual Fed rate increase remains the order of the day, especially after yesterday’s muted U.S CPI data - the market is pricing in a +25 bps move in December.

Since the Fed’s last meeting in September all data has been in line with the Fed’s depiction of an economy in which low unemployment will be coupled with inflation running near +2% for the foreseeable future.

1. Stocks sell off ends in Asia

Chinese stocks, among the biggest losers in a global market selloff this week, rallied overnight, as investors reassessed the impact of the Sino-U.S trade spat on the country’s economy and its markets.

In Japan, the Nikkei ended higher on Friday as investors took heart from gains in Chinese equities on upbeat export data, which generated buying in manufacturers exposed to China. The Nikkei share average gained +0.5%. On Thursday, the index slid -3.9% and for the week the index was down -4.6%, its biggest weekly drop since March. The broader Topix traded flat.

Down-under, Australia’s ASX 200 lagged most of Asia Pacific overnight as the heavily weighted energy and financial sector held the index back. It ended +0.2% higher, but fell -4.7% for the week. In S. Korea, its stock market rebounded from one of its biggest drops in seven-years. The Kospi rallied +1.5%, its first gain this month. The index fell -4.7% for the week.

In China, the main stock indexes bounced higher overnight after suffering massive losses this week, as investors went bargain hunting on the back of stronger Chinese exports data. At the close, the Shanghai Composite index was +0.9% higher, after touching near four-year lows yesterday. The index was down -7.6% for the week, its worst weekly performance in eight months. The blue-chip CSI300 index closed +1.49% higher.

In Europe, regional indices trade higher across the board rebounding from multi-month lows following a rebound in U.S index futures and Asian Indices.

U.S stocks are set to open deep in the ‘black’ (+0.8%).

2. Oil rebounds, but pares gains on adequate supply, gold lower

Oil has rallied overnight; rebounding after two-days of heavy declines, though prices pared gains after an IEA report deemed supply adequate and the outlook for demand weakening.

Brent crude has rallied +76c to +$81.02 a barrel, having dropped by -3.4% yesterday. U.S crude (WTI) has added +71c to +$71.68.

Note: Brent is still on course for a -3.7% decline this week, the biggest weekly fall in about four-months.

Oil found support from data showing that China’s daily crude imports last month hit their highest in four-months and from a rebound in equities.

Gains were pared, after a monthly report by the IEA said the oil market looked “adequately supplied for now” after a big rise in production and trimmed its forecasts for world oil demand growth this year and next. “This is due to a weaker economic outlook, trade concerns, higher oil prices and a revision to Chinese data,” said the IEA.

Ahead of the open, gold prices are under pressure as global equities rally, but the ‘yellow’ metal trades within striking distance of its 10-week high print in yesterday’s session. Spot gold is down -0.4% at +$1,218.86 an ounce, after rallying +2.5%yesterday, as this weeks equity rout sent investors rushing to safe-havens. U.S gold futures are down -0.4% at +$1,222.30 an ounce.

3. Yields back up on relief

Eurozone government bond markets show signs of relief as equity markets rebound. The 10-year Bund yield is trading +2.3 bps higher at +0.54%, pulling the yields of other core and semi-core issuers higher.

Note: Bunds yields are down from five-month highs reached earlier this week at +0.58%.

Eurozone periphery government bond yields trade lower, indicating a lower level of concern, at least for the day. Italy’s 10-year BTP yield is trading -4.5 bps lower at +3.53%.

Note: Italian 10-year bond yields rose to five-year highs earlier this week on tension between Rome and the E.U over Italy’s expansionary budget plans.

Elsewhere, the yield on 10-year Treasuries has backed up +3 bps to +3.18%, the biggest advance in a week. In the U.K, the 10-year Gilt yield has gained +2 bps to +1.694%. In Japan’s 10-year JGB yield has climbed less than +1 bps to +0.15%.

4. Dollar stable, EM pairs rally

USD initially tested multi-week lows as a weak Wall Street soured its recent bullish sentiment. Nevertheless, the greenback is off its worst levels as the equity sell-off has eased.

After jumping to an 11-day high of €1.1611 overnight, the dollar has stabilized and EUR/USD trades slightly higher, last by +0.1% at €1.1593. However, expect Italian fiscal risks and the direction of U.S yields to continue to drive the EUR/USD.

Emerging-market currencies are having another good day after weathering the global equity selloff this week. The South African rand is up +1.1% at $14.483, and the Mexican peso has gained +1.5% at $18.8718. The Turkish lira has paired some of its gains, but its trading +2% at $5.9451 – up +5% on the week.

The PBoC set yuan at weakest level since March 2017, a day after U.S Treasury staff advised Secretary Steven Mnuchin that China was not manipulating its the exchange rate. The midpoint for the dollar was ¥6.9120.

GBP/USD (£1.3215) is trading within striking distance of its three-week highs on hope for a Brexit agreement at the upcoming E.U leader summit next week. There is speculation that PM May is close to an agreement, but obstacles remain, as she requires the DUP Party ally and rebel Tory members support.

5. Eurozone factory output rebounds

Data this morning showed that industrial production in the eurozone rebounded strongly in August, as surges in Italy and the Netherlands offset weakness in Germany to suggest economic growth across the currency bloc continues at a modest pace.

The E.U’s statistics agency said industrial production was +1% higher in August than in July, and up +0.9% on year. The market was looking for a monthly gain of just +0.2%.

It was the first rise in production since May, following two straight months of decline.

Today’s healthy rebound will likely reassure the ECB that the economy is on course to grow more slowly this year than last, but still at a rate that will lead to new jobs being created, thereby pushing wages and inflation higher.

Note: The IMF trimmed its eurozone growth forecast for this year to +2% from +2.2%, noticeably downgrading its growth projection for Germany to +1.9% from +2.2%.