From Marc to Market:
Overview: After an ugly week, market participants have returned with strong risk appetites. Equities are rebounding, and the greenback is paring recent gains. Bond yields are firm, as are commodities. Asia Pacific equities got the ball rolling with more than 1% gains in several large markets, including Japan, China, Hong Kong, and Taiwan. The MSCI Asia Pacific Index slumped 4.4% last week. Europe's Dow Jones Stoxx 600 shed 1.5% last week and is also off to a firm start (~+0.4%). US futures are around 0.3% higher. The 10-year US benchmark yield is around 1.28%, a couple basis points higher, and European yields are 3-4 bp higher. The dollar is trading lower against most currencies, led by the Norwegian krone and Canadian dollar. Only the yen is finding it difficult to make any headway against the greenback. The JP Morgan Emerging Market Currency Index is rising for the second consecutive session, though it fell by 1.2% last week. Gold is a little higher but within ranges seen in recent days and looks set to retest the $1800 area. October WTI has recovered smartly after it initially slipped below last week's lows (to ~$61.75) and is testing the pre-weekend high slightly above $64.00. Iron ore is snapping a four-day fall, while copper is extending the recovery seen at the end of last week. The September contract is at a four-day higher, near $420.
Asia Pacific
Japan's Prime Minister Suga was dealt another blow in seeking another term as LDP leader. Yokohama, a city in the prefecture that Suga represents in the Lower House, rejected his candidate and voted for a candidate supported by the opposition for mayor. Even though there were local issues in play (e.g., controversial casino), the results can only play on doubts within the LDP and invigorate the effort to replace Suga as party head and, therefore, prime minister. Although former Prime Minister Abe has backed Suga, an ally and previously the internal affairs minister, Takaichi has already indicated she will stand for leader after the formal schedule is announced later this week. The LDP's policy chief Shimomura also has indicated his interest.
Japan's preliminary August PMI softened. The manufacturing reading eased to 52.4 from 53.0, while the services component fell to 43.5 from 47.4. The result was the composite dropped to 45.9 from 48.8. Recall it stood at 48.5 at the end of last year and 48.6 at the end of 2019. The virus also sapped Australia's PMI. Manufacturing fell to 51.7 from 56.9, and services eased to 43.3 from 44.2, leaving the composite at 43.5, down from 45.2 previously. It is the second consecutive month below the 50 boom/bust level. The composite peaked at 58.9 in April.
South Korea reported strong exports (40.9%) in the first 20-days of August. This helped ease concerns on weaker world demand. The average daily value of exports was up 31.5% year-over-year. Semiconductor exports rose 40%, and auto exports increased by 37%. Shipments to the US rose by 50%, while exports to the EU rose by nearly 43%. Even with ports disrupted in China, South Korean exports rose by a third. South Korea's central bank meets Thursday. While a rate hike is widely expected, it is seen as more likely in Q4 than this week....
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