From Marc to Market
Overview: The optimism among investors appears to have evaporated in the face of new US-Chinese tensions, possible delays in the next US fiscal stimulus, and new record virus infections in Australia and Hong Kong. US stocks had pared early gains yesterday, and the high-flying NASDAQ finished lower after setting new record highs. Hong Kong (-2.25%) and Australia (-1.3%) led the regional declines, though China eked out some modest gains, helped by the energy sector. The MSCI Asia Pacific and Europe's Dow Jones Stoxx 600 are snapping three-day advances today, and US shares are pointing to a lower open. Bond markets are narrowly mixed, and the peripheral European bonds have lost bid seen earlier this week on the EU agreement. The US 10-year has slipped below 60 bp. The dollar is mixed. The euro has is at new 14-month highs, near $1.1570. The Australian dollar is just below 15-month highs near $0.7170. Sterling and Norwegian krone are leading the decliners with 0.4% and 0.2% declines near midday in Europe. Emerging markets currencies are also seeing profit-taking after the JP Morgan Emerging Market Currency Index rose 1.1% yesterday, the most in a month. Gold reached almost $1866 before profit-taking saw it fall $20 before buying re-emerged. Oil is also pulling back after reaching a four-month high near $42.50 yesterday basis the September WTI contract. It is trading about a dollar below yesterday's highs.....MUCH MORE
Asia Pacific
The US has apparently ordered China to close its consulate in Houston within a few days. It is not immediately clear why, though some are linking it to surveillance or attempts to steal or disrupt US efforts to find a vaccine. There are reports that officials in the consulate were destroying documents. Chinese officials threaten a tit-for-tat response. The yuan did appear to weaken on the news, though most currencies, as we noted, are softer today against the greenback.
Preliminary July PMI readings will mostly be reported Friday, but Japan's was released today and confirms that the world's third-largest economy continues to struggle at the start of Q3. The manufacturing PMI edged up to 42.6 from 40.1 and the services to 45.2 from 45.0. The composite stands at 43.9, up from 40.8 in June. Recall that it finished last year at 48.6. The BOJ does not meet again until the middle of September, and there continues to be talk of another supplementary budget in the second half of the fiscal year that begins October 1.
The dollar found support near its recent lows against the yen around JPY106.65 yesterday, and Tokyo refrained from selling it. It edged back above JPY107 in the European morning, but we suspect the JPY107.20 area may cap it and what appears to be a risk-off day. The Australian dollar's 1.6% advance yesterday was the largest in nearly seven weeks. Limited follow-through buying saw it rise to almost $0.7170 today before the profit-taking was seen. It is finding support about half a cent lower. The PBOC set the dollar's reference rate at CNY6.9718 compared with a median model estimate of CNY6.9712. The dollar rose back above CNY7.0, and its 0.4% advance is the largest in a couple of months.
Europe
The UK Telegraph reports that post-Brexit trade negotiations with the EU are on the verge of breaking down. Businesses are apparently being instructed to prepare to have future trade on WTO terms. UK Prime Minister Johnson had previously threatened to walk away from the talks if there was no substantial progress by the end of this month, and the two sides are still far apart, according to reports. Given the disruption that is bound to happen regardless of the talks, game theory would suggest negotiating until the last minute to demonstrate everything was done to minimize it. The virus slowed the negotiations in the first place, and to stop now seems more like a threat.
The EU agreement has not been approved by the EU Parliament, but there are already some different interpretations....
