From Marc to Market:
Overview: The challenges for investors have not gone away, but a combination of factors has helped stabilize the capital markets. The PBOC set the dollar's reference rate above CNY7.0, but not as high as anticipated, and this has seen the yuan strengthen modestly today. Meanwhile, the strong recovery in the S&P 500 has spilled over and helped lift global equities. Asia Pacific equities were led higher by a 13% gain China's CSI300; ending a six-day decline with its biggest advance in a month. Europe's Dow Jones Stoxx 600 is posting gains for the second session. The 0.8% gain in the morning has been led by information technology and health care. US shares are also trading higher, extending yesterday's recovery. The gap created by Monday's sharply lower opening (~2898.1-2914.1) is important for the near-term outlook. The dollar is weaker against most of the major and emerging market currencies in relatively quiet turnover. Among the majors, the recently beaten-up Australian and New Zealand dollars are leading the way. The Philippines became the latest emerging market central bank to cut rates, but the peso is poised to end its six-day slide. Gold is slipping back below $1500 and oil is firm following reports Saudi Arabia is seeking to strengthen efforts to stabilize prices.
Asia Pacific
The PBOC set the dollar's reference rate above CNY7.0 for the first time in over a decade. However, analysts estimating were it should be based on their models were surprised that it was not set even stronger. The fix was at CNY7.0039, but it was projected to be a little above CNY7.0150. The signal was that the PBOC was stabilizing the yuan. The yuan strengthened by about 0.2% against the dollar.
Yesterday China reported that its reserves edged slightly lower in July to about $3.104 trillion from $3.119 trillion. The small change can be explained through shifts in valuation, and it confirms what many suspected, namely, minimal intervention. Today, China reported a narrower trade surplus of $45.1 bln in July vs. $51.0 bln in June, but the details were constructive. Exports rose 3.3% year-over-year. Economists had expected another decline after June's 1.3% fall. Imports slid 5.6% in July, less than the 7.4% drop in June and the 9% decline economists expected. Of note, exports to the US fell 6.5% year-over-year, while its bilateral surplus is 11% larger in the first seven months of 2019 compared with the same period last year. China appears to be re-orienting its trade, as one would expect given the US tariffs. Exports to Europe rose 6.5% and 15.6% to ASEAN.
Japan reported a larger than expected June current account surplus of JPY1.21 trillion. It was smaller than the May surplus of JPY1.59 trillion, but this was primarily due to seasonal factors, and on an adjusted basis, the surplus is the largest since October 2017. However, the news that captured the attention of investors today was Japan's decision to resume exports to South Korea of some materials needed to make semiconductor chips. This seemed to be the first thaw in a few weeks. Japanese chip material companies and South Korean firms rallied on the news.
The Philippines first reported a disappointing Q2 GDP of 5.5%. It is the slowest in five years and was below the median forecasts. This solidified expectations for a quarter-rate cut that was quickly delivered. The rate corridor is now 3.75%-4.25%. Rate cuts were delivered in April and June, and with 2.4% inflation, the economists expect another reduction in Q4.......MUCH MORE
