From Marc to Market:
Overview: US interest rates and the dollar turned higher following comments by the Fed's Vice Chairman Clarida, who appeared to throw his lot with the more hawkish members. The dollar recovered from weakness that had seen it fall to almost JPY108.70, its lowest level since late May, and lifted the euro to $1.19. Still, there has been little follow-through dollar or Treasury buying today. The euro and yen are marginally softer, but most other major currencies post small gains. Emerging market currencies are mixed, and the JP Morgan Emerging Market Currency Index is slightly softer, declining for the third consecutive session and four of the past five. The US 10-year yield is hovering around 1.18%, while European yields are 1-3 bp lower at new multi-month lows. With travel restrictions imposed throughout China as the virus is detected in all the provinces, China's 10-year bond yield is at new 12-month lows at 2.80%. Equities in the Asia Pacific regions were mixed, with China, Hong Kong, Taiwan, and South Korea falling and Japan, Australia, and India posting small gains. Europe's Dow Jones Stoxx 600 is up for the fourth consecutive session and is extending its push into record highs. US futures are slightly higher. Demand concerns and an unexpected build in the US (3.6 mln barrels instead of a 2.9 mln draw) keep oil on the defensive. September WTI recovered after initially extending its losses for the fourth consecutive session. It saw a marginal extension of yesterday's losses to almost $67.60 before bouncing to almost $69. Recall that it settled a little below $74 last week. Gold peaked yesterday a little shy of $1832 but is probing the lower end of this week's range that extends to $1805. Copper is extending its losing streak to a fifth consecutive session (for a cumulative loss of nearly 5%). Iron ore prices tumbled 2.4% (12th decline in 14 sessions) to approach four-month lows. The CRB Index fell yesterday to bring its four-day drop to about 3.5%.
Asia Pacific
Melbourne and the rest of Victoria are in a new lockdown, which now covers about 2/3 of Australia's population. Sydney is reporting record cases still. Australia reported a record trade surplus in June of A$10.5 bln. Exports and import growth rose less than expected. Despite China's trade sanctions (for Canberra's foreign policy), exports to China rose 8.2%, led by iron ore. Australia exports a record amount of iron ore. The recent decline in iron ore prices will show up in the trade figures later this year. Coal exports rose by 15.5% month-over-month.
Japan is extending the quasi-emergency to eight more prefectures as it still wrestles to bring the virus under control. Separately, the MOF weekly portfolio flows showed that Japanese investors returned to the buy-side after selling nearly JPY1.1 trillion of foreign bonds in the week through July 23 (JPY225 bln). Foreign investors bought a record amount of Japanese bonds in early July (~JPY2.6 trillion) and in the subsequent three weeks added another JPY750 bln. Equity flows were minor.
The Biden Administration announced its first weapon sales to Taiwan. The $750 mln deal is relatively modest, but it will draw Beijing's ire. The highlights include new self-propelled howitzers and almost 1700 kits to enhance some missiles with more accurate GPS guidance. Reports suggest that since 2010, the US has sold more than $23 bln of weapons to Taiwan. Meanwhile, the US has begun its largest war game exercise 40 years, involving three dozen ships and 50 virtual units, covering 17 time zones....
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