Overview: A recovery in US stocks yesterday, coupled with optimism over Moderna's vaccine, is providing new fodder for risk appetites today. Equities are being driven higher, and the dollar is under pressure. Most equity markets in Asia advanced. China and Taiwan were exceptions, and, in fact, the Shanghai Composite fell for the second consecutive session for the first time in a month. European shares are pushing higher, and the Dow Jones Stoxx 600 is up almost 1% in late morning turnover in Europe. It is the third advance in four sessions. US shares are trading with a clear upside bias, and the S&P 500 will flirt again with unchanged levels for the year. Benchmark yields are mostly 1-2 basis points lower, while the US 10-year hovers around 62 bp. The dollar has been sold across the board. Against the majors, the Scandis are leading the way, but the euro and Australian dollar are standing above key levels ($1.14 and $0.7000, respectively). South Africa, Hungary, and Mexico are leading emerging market currencies higher. The JP Morgan Emerging Market Currency Index is near its best levels in a month. Gold is steady near $1808. On the back of a large drop in API oil inventory estimates (~8.3 mln barrels) and OPEC+ seeking to get compensatory cuts from some excess producers (e.g., Iraq and Nigeria) could offset part of the increase from others, September WTI is near $41.
Asia Pacific
The USDA confirmed record Chinese purchases of US corn as it scrambles to try to meet its commitments under the Phase 1 trade deal. The order for 1.76 mln tons of corn for the 12 months beginning September 1 is the fourth largest order on record. It follows on the heels of a separate order last week for 1.36 mln tons (almost evenly divided between delivery by the end of August and for the year beginning September 1. China has also boosted its orders for soy and wheat in recent weeks too. It sounds impressive, and it is, but it is still small beer. Consider that two orders for corn together are worth around $410 mln. China agreed to double its agriculture exports from the 2017 level of $24 bln.
The Bank of Japan, as widely anticipated, did not alter policy. However, its forecasts show that its pessimism has not been lifted. In April, it forecast the economy would shrink by 3%-5% in the fiscal year ending next March. Today's forecast puts the contraction at 4.7%, and that assumes not another widespread shutdown. While that may seem reasonable, Tokyo raised its alert level to its highest today.
Since China enacted its new security law in Hong Kong, there has been a threat of a brain drain, as several countries, including the UK and Australia, make it easier for Hong Kong nationals to emigrate. While China has taken offense, it does not want to be left behind. Reports suggest it is shifting its tax on Chinese citizens to include their global income. This is effectively a large tax hike on those living in HK....
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