Mo money, mo honey.
From Marc to Market:
Overview: The capital markets are winding down what has been a challenging week that has seen equity markets slide and the dollar and bonds rally. The MSCI Asia Pacific fell for the fourth consecutive session, but the more interesting story may be the intrasession recovery that could set the stage for a better performance next week. The Nikkei gapped lower and rallied by around 2%, though still closed (0.65%) lower. Similarly, the Shanghai Composite recovered to new session highs after dropping over 1.1% at the open and closed less than 0.1% lower. South Korea and Taiwan indices fell a little more than 1% and still closed near session highs. Europe's Dow Jones Stoxx 600 is up about 0.8% near midday in Europe to pare this week's decline to about 0.25%. That said, it is the first back-to-back weekly loss since April. US futures are pointing to a modestly higher opening. The US 10-year benchmark yield is up about four basis points to 1.34%. If sustained, it would be the first yield increase since June 25, when it settled slightly less than 1.53%. European bond yields are edging higher, though not before Germany's 10-year yield slipped to a new three-month low (minus 31 bp). The dollar is mostly softer against the major currencies today. The Norwegian krone and the Australian dollar are leading the move. The yen is the weakest major currency today, slipping by about 0.3% to pare this week's gain to around 0.9%, which leads the majors. The krone and dollar-bloc currencies are the poorest performers this week, all off more than 1%. Among the emerging markets, the freely accessible currencies are doing best, led by South Africa, Hungary, and Russia. On the week, the three Latam currencies (Brazil, Colombia, and Chile) have been the weakest performers, losing 2.3%-3.8% coming into today. The JP Morgan Emerging Market Currency Index is posting a small gain today to snap a four-day slide. It is off about 1.2% so far this week, and it is the fourth losing week in the past five. Gold is firm a little above $1800 after snapping a six-day advance yesterday. Oil is finding better footing. August WTI is near $74 after recovering yesterday from a three-week low near $$70.75.
Asia Pacific
China's consumer prices rose 1.1% in June, slightly less than expected, and follows a 1.3% year-over-year rise in May. Pork prices, off 36.5% year-over-year, took almost one percentage point off its CPI measures. There appears to have been a small rebound in pork prices late last month, and officials expect prices to stabilize in H2. Food prices more generally fell by 1.7% (+0.3% in May), and non-food prices rose by a similar magnitude (1.6% in May). Fuel prices are higher, but the core CPI, stripped of food and energy, rose 0.9% year-over-year (0.9% in May). Producer prices rose 8.8% year-over-year (9.0% in May). There is some expectation that producer prices increases may have peaked, and officials have signaled further sales of some industrial metals from its strategic stockpiles. The softer inflation readings, coupled with the slippage in the PMI reports, give impetus to the signal from officials that it is prepared to provide more monetary support. After mainland markets closed, the PBOC announced a 50 bp cut in the required reserve ratio. It is seen freeing up about CNY1 trillion.
China also reported a surge in lending in June, led by shadow banking. Consider new yuan bank loans rose by CNY2.12 trillion, more than a third increase from the CNY1.5 trillion in May. Aggregate financing, which includes non-banking loans and wealth management arms of banks, jumped to CNY3.67 trillion from CNY1.92 trillion in May. While the new yuan loans exceeded expectations by CNY270 bln, the increase in aggregate financing was CNY780 bln above the median forecast in Bloomberg's survey.
The BOJ meets next week. With Tokyo in yet another formal state of emergency, it would not be surprising to see it lower its growth forecasts. The BOJ is also expected to provide the broad details of a new lending facility to encourage more environmentally friendly investment. The BOJ is not expected to take any fresh initiatives to boost the economy, which likely contracted in the quarter that just ended. Talk emerged this week of a new supplemental budget after the Olympics....
....MUCH MORE
