Capital Markets: "Markets Yawn, Deal or No Deal"

From Marc to Market:

Overview: While there are signs that Europe has reached a compromise on the grant/loan issue, the spillover into the markets is quite limited. China, with Shanghai's 3.1% gain, led a few markets in the Asia Pacific region higher, including Japan and India. Most markets were lower, and Europe's Dow Jones Stoxx 600 is a fractionally firmer, recovering from initial losses. US shares are a little heavy. Bond markets are quiet, with the US 10-year quiet around 61 bp and European peripheral yields off mostly1-2 bp, though Italy's 10-year yield has slipped four basis points to about 1.12%. Core European yields straddle unchanged levels. The dollar is mostly softer against the major currencies, though the Swiss franc and Japanese yen are nursing small losses. The Scandis are up around 0.3%-0.4% to lead the move. Emerging market currencies are mixed. Eastern and central Europe, outside of Turkey, are generally firmer, while several East Asian currencies, including Indonesia and Thailand, are weaker. Gold is little changed around $1810, and September WTI is in about a 30-cent range on either side of $40.50.

Asia Pacific
Japan recorded a June trade deficit of about JPY269 bln. It was about a third of the size of the May deficit but still considerably wider than expected and points to a considerable drag on Q2 GDP. Exports were weaker than forecast, falling 26.2% from a year ago. Economists forecast almost a 25% drop after a 28.3% fall in May. The decline in imports moderated more than expected. The 14.4% decline followed a 26.2% decline in May. The forecast was for around a 17.5% decline. Japanese exports account for a modest 15-18% of GDP, and foreign demand remains weak. Exports to the US were off 46.6%, but even exports to the rebounding China are uninspiring, down 0.2%. Japanese auto exports have been nearly halved from a year ago, and this reflects weakness in the US and Europe. However, auto exports jumped almost 19% to China after falling more than 20% in May.

Chinese regulators announced it was lifting the caps on equity investment from insurance companies. The maximum had been 30% of total assets. It is now 45%. Officials appear to be trying to bolster equities and, at the same time, curb excessive retail enthusiasm. Separately, the PBOC left the benchmark one-year Prime Loan Rate unchanged at 3.85% (five-year was also unchanged at 4.65%). It was the third month the rate was steady, and it illustrates the official cautious approach.

Australia updates its economic and fiscal outlook this week. It begins off with the RBA minutes tomorrow and Governor Lowe's comments. The head of Australia's banking regulation speaks Wednesday, leading up to the Treasurer Frydenberg's update on Thursday. He is expected to project a 10% deficit in the new fiscal year that just began. Frydenberg already indicated that support for small businesses and extended employment schemes that are slated to end in September....

....MUCH MORE