From Marc to Market:
Overview: Weak growth impulses from China and a continued rise in energy prices greets the new week. Equities are struggling. Hong Kong, Japan, South Korea, and Taiwan fell in Asia Pacific activity. Europe's Dow Jones Stoxx 600 is about 0.5% lower near midday, while US futures indices are also nursing small losses. Crude is trading at new highs that puts November WTI above $83 and Brent above $85 a barrel. Benchmark 10-year yields are mostly 4-6 bp higher. A larger than expected jump in New Zealand's Q3 CPI lifted its 10-year yield 15 bp. BOE's Bailey continued to press with hawkish rhetoric, sending the yield of the December short-sterling futures contract up 16 bp today. However, the dollar rides higher in the foreign exchange market, and sterling and the Kiwi are softer. The JP Morgan Emerging Market Currency Index snapped a five-week slide last week but off about 0.25% today, led by the South African range (~-0.85%) and the Mexican peso (~-0.75%). Gold was turned back last week after briefly trading above $1800. It is extending the retreat today to approach $1760. China's iron ore prices fell for the fourth consecutive session, and steel rebar prices fell 1%. On the other hand, copper, which rallied 10.6% last week, is extending the gains today to approach the year's high set in May.
Asia Pacific
China's data disappointed, and economists have already begun revising down this year's growth prospects. The economy reportedly grew by 0.2% in the quarter for a 4.9% year-over-year rate. Both were weaker than expected. The September details were soft, but retail sales held in better than the production and investment components and the "surveyed jobless rate" slipped lower. Industrial production rose 3.1% year-over-year, missing the median forecast (Bloomberg survey) of 3.8%. It has risen 5.3% year-over-year in August. Investment in fixed assets slowed from an 8.9% year-over-year rate to 7.3%, also below expectations. Property investment was also weaker (8.8% year-over-year vs. 10.9% in August). Retail sales rose 4.4% year-over-year after a 2.5% pace previously and above the median forecast for a 3.5% increase. The unemployment rate eased to 4.9% from 5.1% amid expectations for an unchanged reading. In the second half of 2019, the "survey unemployment rate was about 5.2%. Note that the same US investment bank that recently said that the Fed would not hike rates next year has also shifted its view of the PBOC away from a cut in reserve requirements this year. The 10-year Chinese benchmark yield rose to 3.03% today, a three-month high as others also appear to have given up the expectation.
The jump in New Zealand's Q3 CPI sent ripples across the New Zealand debt market. The yield on the December T-bill futures jumped 16 bp in the day session and has risen another four basis points, what is regarded as Tuesday's session as the market adjusts its expectations for next month's RBNZ meeting. The 10-year bond yield rose 15 bp. Consumer price rose 2.2% in Q3 quarter-over-year. The median forecast in Bloomberg's survey anticipated a 1.5% pace. Instead, the year-over-year rate jumped to 4.9% from 3.3%, well above expectations. The RBNZ meets on November 24. The cash rate is at 50 bp. The swaps market has a 25 bp hike discounted and is halfway toward pricing in another 25 bp move. This mirrors the guidance of the central bank where the RBNZ head of research saying, "In our opinion, the data strongly demand a more aggressive approach...than espoused in August," than that the odds of a 50 bp move jumped to "just a tad under 50:50." Meanwhile, rising infections led to the extension of the lockdown in Aukland for at least two weeks....
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