From Marc to Market:
Overview: A flash crash saw gold drop more than $70 an ounce in early Asia. Silver was dragged lower too. The precious metals have stabilized at lower levels, but it signals a rough adjustment to a higher interest rate environment as a hawkish BOE and strong US employment data suggest peak monetary stimulus is at hand. The dollar is broadly mostly firmer against the major and emerging market currencies. The JP Morgan Emerging Market Currency Index is lower for the fifth consecutive session, while the euro was sold to its lowest level in five months before stabilizing. Bonds in the Asia Pacific region sold off in the wake of the jump in US yields after the jobs report, but benchmark yields are 1-2 bp lower in Europe, and the US 10-year yield is a little softer near 1.28%. Japan's markets were closed for a national holiday, while China and Hong Kong led the advancers in a mixed session that saw Australia, South Korea, and Taiwan shares fall. Europe's Dow Jones Stoxx 600 is posting small gains for the sixth consecutive session. US equity futures are posting small losses. Crude oil tumbled last week and has continued to fall today. WTI for September fell nearly 7.7% last week, its biggest decline since last October. Near midday in London, it is off another 3.6% today to approach key support near $65.00. Copper fell by 3% last week, its biggest drop in nearly two months. It is off by another 1.4% today.
Asia Pacific
China reported trade figures over the weekend and July inflation prints earlier today. The data does not give a clean read on the economy as the virus and extreme weather conditions distort the activity. Both imports and exports slowed, and the trade surplus rose to $56.5 bln from $51.5 bln in June. The PRC imported 25 aircraft last month, which also inflated the import figures. The distinction between value and volume may be of increased importance. The value of iron ore, oil, and steel imports, for example, rose, but it concealed a decline in volume. Recall that the PMI showed that orders for manufactured goods exports fell for the third month in July. Part of the decline in textiles exports, including protective masks and medical equipment, may be traced to the base effect and last year's surge. The politically sensitive trade with the US saw a 13.4% year-over-year rise in exports and a 25.6% rise in imports.
China's CPI rose by 1% year-over-year last month, down from 1.1% in June. Prices rose by 0.3% on the month, the first increase since February. Food prices are off 3.7% year-over-year, while non-food prices have risen by 2.1%. Excluding food and energy, China's consumer prices rose 1.3%. The average pace in H1 21 was 0.4%. Producer prices accelerated to a 9% year-over-year pace from 8.8% in June. Mining prices rose 38.7% (35.1% in June), though raw material price increases eased to 17.9%, year-over-year, a three-month low. On balance, given the recent cut in reserve requirements, Chinese officials are more concerned with signs that growth is faltering than consumer price pressures.
The seven-week and counting lockdown of Sydney, coupled with one of the lowest vaccination rates among high-income countries, is taking its toll on public support for the Morrison government. The latest polls show that the prime minister's support has slipped below 50% from 85% last April. Labor leads the ruling coalition by six percentage points (53%-47%). National elections must be held by next May....
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