Capital Markets: "Marking Time Ahead of PMI and Powell"

From Marc to Market:

Overview: Global equities and bonds are firmer in quiet turnover, and the dollar is narrowing mixed in narrow ranges. The big events of the week, the eurozone flash PMI and Powell's speech at Jackson Hole still lie ahead. The MSCI Asia Pacific Index rose for the third consecutive session, led by Korea and Australia's 1%+ gains. Europe's Dow Jones Stoxx 600 is firm and testing two-week highs. US equities are also trying to extend yesterday's gain. The rise in US yields yesterday dragged most of Asia Pacific higher, but the US 10-year slipped back from the test on 1.60%, and European yields are two-three basis points lower. The dollar's three-day advance against the yen has stalled near JPY106.70. The euro continues to trade heavily and has been unable to resurface above $1.11. Sterling is the weakest of the majors, off about 0.3% (a little below $1.21). New rules in Turkey that tie bank reserves requirements to lending may free up TRY5.4 bln (~$960 mln), which is thought likely to flow offshore, taking the lira off another 1% and taking the dollar to its best level in more than three weeks. After pushing below $1500 yesterday, gold has rebounded, while oil edges higher for the third consecutive session.

Asia Pacific
The PBOC set the dollar's reference rate in line with the private sector models (CNY7.0454). However, pressure on the yuan remains. Spot is near CNY7.0640, and the dollar peaked on August 12 near CNY7.07. The spread between the onshore (CNY) and offshore (CNH) has narrowed. The dollar peaked against the offshore yuan on August 6 at CNH7.14. The rate reform China announced over the weekend generated a smaller decline in rates than many observers expected. The new way the Loan Prime Rate is set changed, but it produced a six basis point decline to 4.25% from 4.31%.

Japan's 20-year bond sales saw a slightly better reception than expected, helping yields ease a touch today. Separately, Japan's Security Dealers Association reported today that foreign investors bought the most ultra-long Japanese bonds (20-years+) in three years last month. Foreign investors bought JPY485 bln (~$4.5 bln) of JGBs that originally had maturities of 20 years or longer. Foreign investors still prefer shorter-term paper and bought JPY2.1 trillion of two-five year government bonds.

The minutes from the Reserve Bank of Australia's recent meeting were more balanced than many expected. Although the central bank says it is prepared to ease again if necessary, the tone was more optimistic. It noted more favorable economic backdrop with tax cuts, infrastructure spending, the past easing, and the softer Australian dollar. Australian stocks rallied, with the benchmark gaining 1.2%, the most in two months.

The dollar is snapping a three-day advance against the yen that was unable to overcome the JPY107. hurdle. There are about $1.2 bln in expiring options today struck at JPY106.90 and JPY107.00. A more relevant option may be the $550 mln at JPY06.30. European activity has seen the dollar pushed lower. The Australian dollar is firm, but it is not going anyplace quickly. It stalled in front of $0.6800, which it has not traded above since the middle of last week. Even then, it needs to punch through $0.6820 to be noteworthy.

Europe
UK Prime Minister Johnson has more drama around it, but his position, at the end of the day, is not much different than his predecessor. They both recognize the importance of avoiding a hard Irish border, but neither like the backstop and seek "alternative arrangements" without really proposing a concrete workable alternative. Johnson's combative tone was supposed to send a message to the EC that is serious about leaving if needed without an agreement. However, this appears to have won over exactly no one. Sterling has remained pinned in the $1.20-$1.22 trough since the start for the month. It appears that EC officials are bracing the no-deal exit in a little more than two months.

Germany will sell 2 bln euro of 30-year zero-coupon bonds....

....MUCH MORE