From Marc to Market:
Overview: The US dollar remains firm ahead of the July CPI release, and even though Chicago Fed Evans demurred from the hawkish talk, the market is getting more comfortable with the idea of a rate hike next year. The implied yield of the December 2022 Eurodollar futures is rising for the sixth consecutive session. Most emerging market currencies are also under pressure. The JP Morgan Emerging Market Currency Index edged up yesterday to snap a five-day drop but is resuming its decline today. The US 10-year yield is near 1.37%, ahead of today's auction, which is the highest level in nearly a month. European benchmark yields are 2-4 bp higher. Record highs in the S&P 500 and Dow Industrials yesterday had limited impact on activity in the Asia Pacific region. The local equity markets were mixed, with Hong Kong, Japan, Australia, and Chinese equities advancing. Of note, South Korea and Taiwan's markets extended their swoon for a fifth consecutive session. Europe's Dow Jones Stoxx 600 is edging higher to extend its advance to the eighth consecutive session. US futures are slightly softer. Gold is continuing to consolidate in narrow ranges after Monday's flash crash. Oil is slightly higher, building on yesterday's 2.7% rally, the most since July 21, on the back of US infrastructure plans, anticipating falling US inventories (API reportedly estimated a 815k barrel draw of oil and 1.1 mln barrels of gasoline). China's iron ore futures contract ended its five-day 12% drop. Copper is giving back about a third of yesterday's 1.5% gain. The CRB Index rose nearly 1.7% yesterday, recouping in full the losses from the previous two sessions.
Asia Pacific
China reported a sharp decline in lending last month. Bank loans were practically halved to CNY1.08 trillion from CNY2.12 trillion in June and well below expectations. Aggregate financing, which includes non-financial lending and the wealth management arms of financial institutions, was lower than bank lending, which means that shadow banking did not extend fresh loans last month. Aggregate financing rose CNY1.06 trillion after June's CNY3.67 trillion. It is the lowest since last February as the covid virus struck. These disappointing lending figures come on the heels of yesterday's PBOC quarterly report hinting at easier policy.
Beijing has sentenced one Canadian to 11 years in prison for spying and has confirmed another Canadian's death sentence for drug trafficking. China has linked the two cases to the extradition proceedings of Huawei's CFO, Wanzhou, taking place in Canada. While there could still be room for a grand deal, other considerations argue against it. Even though Wanzhou is accused of lying to HSBC about Huawei's business with Iran, the penalty is usually a fine. The US is pressing hard, and a deal with China would likely irk Washington. Also, note that Canadian Prime Minister Trudeau appears to be preparing to call elections shortly, and this may also limit his room to maneuver....
....MUCH MORE
