From Marc to Market:
Overview: The dollar's resilience after initially selling off in response to the as-expected CPI was impressive. A quieter tone is dominating today and most of the G10 currencies are +/- 0.15%. While the dollar is consolidating, the underlying tone is still firm. For the week, it has risen against all the major currencies and the Dollar Index is up nearly 0.6% this week, its fourth consecutive weekly gain. The greenback is rising today against most of the emerging market currencies as well.
The US quarterly refunding has been successfully completed and both the US and China's July CPI have been published. The net result is that the US benchmark 10-year yield is off about five basis points this week to a little below 4% and the two-year yield is up less than two basis points. The US Treasury sold more than $500 bln of paper ($103 bln coupons and $410 bln of bills). The chances of a Fed hike next month were downgraded slightly to 10%. The US 10-year premium over China narrowed a little but is still over 130 bp. The deflation in China, on the heels of other disappointing data is encouraging speculation for a rate cut and/or a cut in reserve requirements. The dollar is holding above CNY7.20. China's CSI 300 plunged by 2.3% today, which led most of the regional markets lower, except Japan, where the weaker yen helped bolster equities. Europe's Stoxx 600 is giving back most of yesterday's 0.8% gain, while US index futures are narrowly mixed. The 10-year JGB yield was steady near 0.58%. European benchmark yields are mostly 4-5 bp higher, but the stronger than expected UK GDP figures has sent 10-year Gilt yields 10 bp higher to 4.45%. The US 10-year Treasury yield is slightly softer near 4.08%. Gold is consolidating its recent losses and found support near $1910. It is the third weekly loss for the yellow metal. September WTI posted a possible key downside reversal yesterday after approaching $85. Follow-through selling today saw it reach $82.25. Its six-week rally is at risk and must close above $82.82 to extend it.
Asia Pacific
China's lending figures for July were unexpectedly low. New yuan loans (banks) increased by almost CNY346, which is less than half of the CNY780 bln projected.....
....MUCH MORE
Related:
July 10: "China May Face A Dreaded 'Balance Sheet Recession'":
Of course it is, this is the classic central bank "pushing on a string" scenario....
Which was re-iterating June 18's "Goldman Sachs cuts China GDP forecast for 2023":
That 'the country’s ongoing stimulus was incapable of generating a strong “growth impulse,"' line is what we were trying to communicate last week. From June 14's "What's that Got To Do With The Price Of Pork In China?"....
Here's "What's that Got To Do With The Price Of Pork In China?":
Pork prices are one of the most basic indicators of the health of the Chinese economy.
Our proxies are hog futures on the Dalian Commodities Exchange. For folks paying attention, the months-long sideways move, here using the September futures as the example, the sideways move from mid-January to mid-April put the lie to the hubbub about the Great Reopening. The move up from December 2022 was all anticipatory emotion rather than actual demand:
The reason we are pointing this out today is the possible double bottom and the mini-rally over the last couple days. Again, like the December rally, traders may just be optimistic about recent events, in this case the loosening implied by the rate cut by the People's Bank of China but the directional change is definitely worth noting.
The negative spin on the rate cut would be the one we used on Tuesday, that it's classic "pushing on a string" i.e. the problem isn't the cost of money but rather the lack of demand for money.
In this sort of situation, if the money isn't going into domestic demand in will go into financial assets. In the West the Central Bankers say about that reality "We meant to do that, it's the Wealth Effect' whereas it's actually the Cantillon Effect where the people who get the money first get to take advantage of prices that haven't yet moved and are thus lower for them than for those who follow them in.
Unfortunately for us, this time it is tougher to distinguish between a real demand driven move and a speculative "close-your-eyes-and -bet-on-higher" than it was in January, for another very basic reason: We had the Chinese lunar New Year on January 22 to tip us off.
As repeated in May 15's ""China Data Dump Total Disaster; Youth Unemployment Hits Record High"":
....the point of the intro to and outro from January 31's "What If China Had A Reopening And Nobody Cared?":
China isn't reopening, it has reopened. This is it. And despite the record savings the population has accumulated over the last three years we are not seeing a wave of demand in the domestic economy. Using one of the most basic proxies for what is actually going on, the price of pork, the grand reopening, is, to say the least, muted. This is especially true considering the country just celebrated the largest, most festive holiday on the calendar....
So there you go, a definite maybe.
