EQUITIES: Few Positives Outside Of China Housing Related Stocks
Regional equities are ending the week on a softer note, in line with US losses overnight and with futures struggling to stay in positive territory today (last around -0.25-0.30% for Eminis). Losses haven't been as large as earlier this week, in aggregate terms.
- The Nikkei 225 is off 1.9% at this stage, while Taiwan stocks are down by around 1%. Larger tech losses in the US have weighed, with concern around the demand outlook, given recent company announcements (Apple, Micron etc).
- The Kospi is away from worse levels, last (-0.35%). Earlier, President Yoon called for greater vigilance around market volatility and stated stabilization moves could be implemented.
- China main indices are down slightly, the Shanghai composite -0.20%. The property sub-index has rebounded +2% on reports that around 20 cities will be able to cut interest rate on loans for primary residences. Note China markets are closed for all next week due to Golden Week celebrations.
- HSI is around flat, the tech index is right around lows from March of this year.
- The ASX 200 is off by 1.4%. Note that it is a long weekend for this market, with Sydney having a public holiday on Monday.
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CNH: USD/CNH Back Sub 6.9000
The CNH has continued to strengthen this afternoon. USD/CNH is now back below 6.9000. We broke above this level in early trading on Monday, so we are tracking towards fresh week to day lows (last at 6.8970). HK equities are away from worst levels, although the same can't be said for mainland bourses. Still, US futures continue to tick higher, which is aiding broader risk appetite in the FX space (AUD/USD is at session highs of 0.6880). For USD/CNH, we topped out close to 6.8900 a number of times last week, so this could present some support on the downside if the pair continues to track lower.
US TSYS: Looking Through The Noise
Tsys price action remains muted given the uptick in e-minis (+0.6%) and downtick in the USD, with rates traders awaiting the latest inputs to gauge the likely size of the Fed’s September rate step. TYZ2 last -0-02+ at 117-00, 0-00+ off the base of its 0-05+ range, while cash Tsys run 1-2bp cheaper across the curve.
AUD: NAB: Spending Some Time Below Its $0.70-0.80 Comfort Zone
NAB note that they “are reluctant to call a peak in the USD, given a still hawkish Fed, rising risks of a global recession (Eurozone, China led) and which we are not convinced is adequately priced into risk asset markets - an ongoing threat to AUD given its risk sensitive/pro-cyclical nature.”
- “Our stronger for (still) longer USD view implies that AUD/USD will struggle to hold on to periodic forays above $0.70, with more time to be spent inside a $0.65-0.70 range through 2022.”
- “Also in the mix now is USD/CNY - a rise to as high as CNY7.00 would, on a literal read across - barely be consistent with AUD/USD above $0.65.”
- “From a valuation perspective, longer-dated hedging from Australian exporters and reassessment of FX hedges by asset managers should become a consideration should levels at or below $0.65 be seen (so a potentially AUD supporting influence).”
- “We now only see AUD back above the $.070 mark, on a sustained basis, from around mid-2023, on the assumption the USD begins a cyclical decline following signs of Fed success in its anti-inflation pursuit and the ability of markets to price Fed easing - ahead of other central banks - with greater confidence.”
- “A reversal in extreme USD (over)valuations can then come into play.”
