From Marc to Market:
Overview: Today's highlights include a surprise rate cut from China after another series of disappointing data and much stronger than expected Japanese Q2 GDP (6% annualized pace). The UK reported an unexpected sharp jump in average weekly earnings, which were sufficient to get renew speculation of a 50 bp hike by the Bank of England next month. The US dollar is mixed. The Swedish krona and dollar-bloc currencies are struggling, while the Swiss franc and sterling are leading the other European currencies higher. The yen is slightly lower and is threatening to extend its losing streak for the seventh consecutive session. Gold is holding above yesterday's low, which was slightly below $1903, but the upside has been capped near $1908.
Stocks and bonds are selling off. China's 10-year bond yield slipped nearly five basis points but that is the exception. European benchmark yields are 5-10 bp higher, with peripheral premiums widening. The 10-year US Treasury yield is about three basis points higher, pushing above 4.20% for the first time since last November. Some of the largest bourses in the Asia Pacific rose but not China, Hong Kong, or South Korea. Europe's Stoxx 600 is off around 0.75% after rising 0.15% yesterday. US index futures are also posting modest declines. September WTI is extending yesterday's pullback after rallying for the past seven weeks.
Asia Pacific
Japan, the world's third-largest economy, reported that Q2 GDP rose by 1.5%, nearly twice the pace expected, a 6% annualized pace. However, the details show a weak domestic economy. Private consumption and business spending slowed. Consumption actually contracted (-0.5%). Business spending was flat after a revised 1.8% increase in Q1 (initially 1.4%). Inventory destocking took 0.2 percentage points off GDP after adding 0.4 percentage points in Q1. The key were net exports, which contributed 1.8 percentage points to GDP. It had shaved Q1 GDP by 0.3 percentage. It is the most since Q3 20, which itself was the biggest contribution since Q2 14. Goods exports were led by auto shipments to the US and Europe. Tourism was also strong (export of hospitality services). Border controls were lifted in April. Tourism may be boosted after China lifted its ban on group travel last week. Lastly, Japan's June industrial production was revised to 2.4% from 2.0%, month-over-month. Separately, the US 10-year yield has risen to almost 360 bp on top of Japanese yields. The high for the year was set 363 bp in early July. Last year's high was shortly after the dollar and 10-year US yields peaked. On October 23, 2022, the US premium peaked near 400 bp, which was the most since 2002.
China's financial difficulties, stemming from the property market and wealth management, will not be helped by the disappointing economic data which sparked an immediate reaction by the PBOC. It surprised by cutting the benchmark one-year medium term lending rate 15 bp to 2.50% and boosting the lending volumes (CNY401 bln from CNY103 bln). Adding to the recent news of falling exports, and deflation, today China reported another series of disappointing data. The year-over-year increases should be flattered by the end of the zero-Covid policy but instead, industrial production and retail sales slumped. Fixed asset investment (reported on year-to-date, year-over-year basis) was weaker than expected and property investment fell at an accelerated pace. Residential property sales slowed, and the surveyed jobless rate rose. China has stopped reporting some data and details and announced today it would stop reporting youth (16–24-year-olds) unemployment. It had hit 21.3% in June. Separately, reports indicated that officials are also considering a cut in the stamp tax on stock transactions. China's 10-year bond yield fell around six basis points before stabilizing. China also announced an extra bill sale in Hong Kong, which may helped support the currency,
The dollar is rising for the seven[th] consecutive session....
....MUCH MORE
