Capital Markets: "...Consolidate"
From Marc to Market:
Overview: The Australian dollar powered to marginal news highs for the year as the move against the US dollar continued yesterday. The euro stopped a few hundredths of a cent below the high seen at the end of last week. However, neither sustained the upside momentum and have come back offered today.
The greenback is narrowly mixed against the major currencies, with sterling performing best, encouraged perhaps by the more upbeat message from the Bank of England. Led by the continued sell-off of the Turkish lira (~3%), emerging market currencies are on the downside as well. The JP Morgan Emerging Market Currency Index is lower for the fifth session in the past six.
Equities are mostly lower. In the Asia Pacific regions, Chinese, Japanese, and Hong Kong markets edged lower. Still, the rest of the area was higher, led by India, where the central bank refrained from cutting rates as many expected. European shares are a little heavier. Since the 2% rally on Monday, the Dow Jones Stoxx 600 is consolidating at (~0.5%) lower levels. US shares are little changed after the S&P 500 closed a gap left on the charts from the breakaway move in February. Asia Pacific bond yields may have been dragged higher by the backing up in US rates yesterday, but the US 10-year is back around 52 bp, and European yields are 2-3 bp lower. Gold was hovering a little below the $2055 record-high set yesterday.
Oil is heavy, with the September WTI contract trading nearly $2 lower than yesterday $43.50 peak. The 200-day moving average, which it has not surpassed in six months is just above $43.85.
Asia Pacific
As the US opens up a new front in the confrontation with China over apps, China says it wants to avoid a Cold War, though stopped short of suggesting any change in behavior. US Secretary of State indicated a broader push against Chinese apps beyond TikTok. He wanted "untrusted" Chinese apps to be removed from app stores, for US companies not to make apps available for Huawei phones, and refrain from using China's cloud services. Separately, China announced that effective at the start of this week, it would cut the transaction fees for currency transactions for a dozen emerging markets currencies for three years to help facilitate the Belt-Road Initiative.
The Reserve Bank of India surprised many with its standpat decision. The repo rate remains at 4% and the reverse repo at 3.35%. We had thought another rate cut was likely as the economy remains in poor shape (July composite PMI 37.2 vs. 37.8 in June), and price pressures are expected to fall. We suspect the RBI will still feel pressure to cut rates this year after today's pause.
Japan and the UK appear to be getting closer to reaching a trade agreement. It seems to be mostly rolling over the treaty with the EU to the UK. This is particularly important for the auto sector. In Japan, there has been some suggestion to unwind last year's controversial sales tax increase, but the LDP policy chief rejected it. Lastly, the MOF reported that Japanese investors stepped up their foreign bond-buying last week. The JPY1.15 trillion (~$11 bln) of net new purchases was the most in a couple of months....
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