Thursday, July 22, 2021

Capital Markets: En Garde Lagarde (and industrial commodities)

 From Marc To Market:

Overview: The rally in US shares yesterday, ostensibly fueled by strong earnings reports, is helping to encourage risk appetites today. The MSCI Asia Pacific Index is posting its biggest gain in around two weeks, though Japan's markets are closed today and tomorrow. The Dow Jones Stoxx 600 is building on yesterday's rally, and with today's ~0.8% gain, it is up on the week. US equities are also trading with a firmer bias. The 10-year US yield that spiked to nearly 1.125% on Tuesday is knocking on 1.30% today. European bond yields are mostly softer, and Italy's benchmark yield has slipped to a new three-month low (~67 bp). The foreign exchange market is quiet. The Norwegian krone and Australian dollar lead the majors today, while the euro and Canadian dollar are little changed. The JP Morgan Emerging Market Currency Index is advancing for the third consecutive session, though it is still about 0.3% lower for the week. Gold is finding support ahead of the two-week low near $1791. Oil is firm, and the September WTI contract is building on yesterday's 4.6% rally. Around $70.70, it is still about 1.2% lower on the week. Copper is rising for the third day. The wildfires in Canada are raising new concerns about lumber supply, and the possible impact on sawmills sent the September lumber up 7.75% yesterday, the most in a year.

Asia Pacific
SWIFT reported that China's yuan share rose to 2.46% in June (1.90% in May), just shy of the March high of 2.49%.
It puts the yuan in fifth place overall, the same as last year. The highest share accounted for by the yuan was 2.79% in August 2015. The US dollar's share rose to about 40.6%, the highest in a year. The euro's share slipped to 37.9%. It is not clear that a digital yuan will bolster the use of the yuan. Separately, we note that the Institute for International Finance estimates that foreign central banks accumulated yuan reserves accounted for nearly a third of the inflows last year and as much as 60% of China's inflows in Q1 21.

China is stepping up its efforts to ease the pressure on commodities. It is planning on increasing the sales for copper, aluminum, and zinc from its strategic reserves. In addition, Beijing has announced plans to sell a quarter of its coal reserves or around 10 mln tons. It has also announced intentions to sell 22 mln barrels of oil to its refiners. The US reported its first oil build since May as inventories rose by about two million barrels, though storage at Cushing slipped to its lowest level since January 2020. Gasoline imports are rising and stand at their highest level in a decade, with Saudi and Spanish shipments reported....