From Marc to Market:
Overview: The dramatic sell-off of US shares yesterday is the main focus, capturing the limelight from other forces, including today's US employment report. It was the third-worst session for the S&P 500 since the March 23 bottom, and the other two did not see follow-through selling. Asia Pacific shares tumbled, led by Australia's 3% plunge, while the Nikkei, Hang Seng, and Kospi fell over 1%. European bourses are firmed, recovering about a third of yesterday's 1.4% decline. Materials, industrials, and financials are leading today's efforts. US shares are steady to slightly firmer. The bond market lost a safe-haven bid, and yields are a little higher. The US benchmark is around 65 bp, down five basis points on the week. The dollar is narrowly mixed. The majors are +/- 0.25%, with the Canadian dollar and Norwegian krone on the strong side, and the Swiss franc and Swedish krona on the weak side. Emerging market currencies are also mixed, but the JP Morgan Emerging Market Currency Index is up about 0.2% to offset most of the week's loss. Gold tumbled alongside equities yesterday and is mostly in a $1930-$1940 range today. Oil has steadied, but the October WTI contract is nursing a slightly larger than a 3% loss for the week, the most since June.....MUCH MORE
Asia Pacific
A Chinese paper (Global Times) reports that China may reduce their Treasury holdings in response to the weaponization of the dollar market, confrontation with Trump, and fear of failure given the jump in the US debt levels. The paper suggested the Treasury holdings can fall from around $1 trillion to $800 bln. They might fall, especially if the Federal Reserve ups its bond-buying program. China may have good reasons to diversify away from US Treasuries, but its holdings during the Trump presidency have been remarkably steady. In November 2016, they stood at $1.049 trillion according to US Treasury figures. The latest estimate for July was at $1.074 trillion. Moreover, even if China were do launch a divestment campaign, why would it be telegraphed. What is done is more important than what is said.
Australian retail sales continue to fare well. They rose 3.2% in July after a 2.7% gain in June. Through the first seven months, they have averaged 2.0% gain a month. In the comparable period last year, the average was 0.2%. August will be more challenging. The 3.1% decline in Australian shares today is the largest since May. Like in the US, tech stocks lead the rout. Separately, Australia committed to re-opening the economy before the end of the year.
Polls suggest Japanese Cabinet Secretary Suga is the leading candidate to replace Abe as Prime Minister. This underscores our sense of continuity of Abenomics. Suga has indicated he will press for more BOJ liquidity provisions, which given the risk of deflation as shown in the August CPI for Toyko, maybe the direction that Governor Kuroda was moving in too....
