Thursday, August 3, 2023

Capital Markets: "Markets Remain Unsettled, Bonds and Stocks Retreat, Dollar Gains Ahead of BOE"

From Marc to Market:

Overview: The global capital markets remain unsettled. The combination of the BOJ adjustment of its monetary policy, Fitch's downgrade of the US to AA+, ahead of a flood of supply, and new measures by China have injected volatility into the summer markets. The US dollar has extended it gains today against the G10 currencies and most emerging market currencies. The yen has recovered a bit after the BOJ stepped in and bought JGBs for the second time this week at market prices, well shy of the 1.0% upper band for the 10-year yield.

However, bonds and stocks continue to sell off. The 10-year JGB yield is near 0.65%, while European benchmark yields are most 3-7 bp higher. The 10-year Gilt yield is up about two basis points to almost 4.42% ahead of the Bank of England meeting. Most now look for a 25 bp hike but a 50 bp move cannot be ruled out. The decision by the Czech central bank is awaited, but it has been on hold since last June at 7.0%. The US 10-year Treasury reached 4.16% today, its highest level since last November. Last year's high was set in late October near 4.33%. Equities extended their decline in the Asia Pacific region, though China bucked the move with modest gains. Europe's Stoxx 600 is off almost 1% for its third consecutive fall. US index futures are also lower. Gold fell to almost $1931, its lowest level since July 11 and is stabilizing in the European morning. September WTI posted a key downside reversal yesterday and follow-through selling took it to about $78.70 today (yesterday's peak was almost $82.50). It too has steadied in the European morning.

Asia Pacific
China's Caixin services and composite PMI shed little fresh light on the world's second-largest economy