Overview: Equities began the week on a firm note in the Asia Pacific region. The Nikkei gained more than 2%, and the profit-taking seen in China ahead of the weekend was a one-day phenomenon. The Shanghai Composite rose 1.8%, and the Shenzhen Composite surged 3.5%. Taiwan and South Korea markets also rallied more than 1%. European and US stocks enjoy more modest gains of around 0.5%-0.6%. Benchmark 10-year yields are mostly 2-3 bp higher, though the US 10-year Treasury yield is a little softer around 64 bp. European sovereigns are expected to sell around 36 bln euros of bonds this week, while there may be $20 bln investment-grade bonds coming to market from US names this week. The dollar is narrowly mixed. The Swedish krona, Australian dollar, Canadian dollar, and euro are firmer, while the Norwegian krone, Japanese yen, and New Zealand dollar are nursing small losses. Emerging market currencies are similarly mixed, leaving the JP Morgan Emerging Market Currency Index virtually flat after rising by about 0.35% last week. Gold has come back firmer after slipping in the last couple of sessions and is trying to re-establish a foothold above $1800. OPEC+ may be ready to bring more output next month, and this is weighing on crude oil prices. The September WTI contract is struggling to hold above $40 a barrel.
Asia Pacific
First officials in China stir the pot, buy stocks was patriotic. People bought stocks. Stocks soared. Then the regulator of banking and insurance sectors cautioned against "illegal speculation," and stocks fell. Last week's data showed total social funding (bank and nonbank financial intermediaries) has risen by almost 13% in H1 20. In addition to these funds, savings from the wealth-management products, that are often variable-rate fixed-income investments, may have been freed up as well as the risk of defaults increase.
South Korea's trade in the first ten days of July suggest better regional trade is taking place. Exports fell 11% in June (year-over-year) but in the first part of July were off 1.7%. Semiconductor chip exports rose 7.7% after a flat showing in June,m though wireless device exports fell 9.7%. Auto exports increased by 7.3%, but parts shipments fell by a third. Ship exports soared by over 300%. Exports to China increased by 9.4%, and exports to the US rose by 7.3%. Shipments to Japan fell by more than 20%. Imports fell by 9.1%. Oil purchases slumped by nearly a third. Imports of chip fabrication machinery surged by 85%.
Japan's tertiary activity (service sector) slipped 2.1% in May after a revised 7.7% decline in April (initially 6.0%). The revision fully made up for smaller than expected May decline, which had been anticipated closer to 3.8%. The BOJ's two-day meeting starts tomorrow. All of the regions were downgraded in a BOJ branch report out late last week. The BOJ itself is not expected to change policy but can be expected to promise to take more action if necessary....
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