MNI EUROPEAN OPEN: What Else Will China Do?
EXECUTIVE SUMMARY
- BULLARD SAYS FED CAN SLOW INFLATION WITHOUT SPARKING RECESSION (BBG)
- FED HAS MORE WORK TO DO WITH INFLATION NOT HAVING PEAKED, MESTER SAYS (RTRS)
- FED'S EVANS BACKS 50 OR 75 BPS HIKE IN SEPTEMBER IF INFLATION DOESN'T ABATE (RTRS)
- CHINA CONTINUES WARNINGS, LEVIES TRADE BANS ON TAIWAN AS PELOSI MAKES ADDRESS
- 60% OF TORY MEMBERSHIP PREFER TRUSS FOR NEXT PM (THE TIMES)
Fig. 1: USD/TWD vs. USD/TWD 1-Week Implied Vol.
Source: MNI - Market News/Bloomberg
UK
POLITICS: Liz Truss has extended her lead over Rishi Sunak in the Conservative leadership race to 34 points, with 60 per cent of party members now saying they will vote for the foreign secretary to succeed Boris Johnson as prime minister. A YouGov poll for The Times and Times Radio found that almost nine in ten Tory members had made up their minds. Twenty-six per cent said they would support Sunak. The rest were undecided or said they would not vote. (The Times)
POLITICS: Voting for the next prime minister has been delayed after GCHQ warned that cyber hackers could change people’s ballots, The Telegraph can reveal. (The Telegraph)
ECONOMY: The UK economy is sliding into recession, with no let-up in sight in a cost of living crisis that will leave more than 5mn households with their savings exhausted by 2024, according to new forecasts by the National Institute of Economic and Social Research. (FT)
BOE: The Bank of England’s monetary policy committee must implement the biggest interest rate rise of its 25-year history to get a grip on rampant inflation, according to The Times’ shadow committee. (The Times)
EUROPE
ITALY: The Italian economy is proving resilient to the war in Ukraine, supply bottlenecks and rising commodity prices and should continue to grow into the first quarter of 2023 after “reassuring” second quarter gross domestic product data, Bank of Italy Senior Deputy Governor Luigi Federico Signorini told MNI. (MNI)
ITALY: Italian banks are well positioned for the phasing in of the remaining elements of Basel III regulations by 2025 and new rules on risk weights should not reduce the flow of credit to firms, Bank of Italy Senior Deputy Governor Luigi Federico Signorini told MNI. (MNI)
U.S.
FED: The Federal Reserve may be able to slow inflation without sparking a recession in the US economy, Federal Reserve Bank of St. Louis President James Bullard said. The US central bank has developed over time respect for its ability to tame price increases, marking a contrast to the 1970s, Bullard said Tuesday. And that increases the odds policy that makers can succeed in cooling prices while minimizing pain for the economy, he said. The same is true for the European Central Bank, he also said. (BBG)
FED: The Federal Reserve has further to go on raising interest rates as inflation has not even peaked yet, Cleveland Fed President Loretta Mester said on Tuesday. "We have more work to do because we have not seen that turn in inflation," Mester said in an interview with the Washington Post. "It's got to be a sustained several months of evidence that inflation has first peaked - we haven't even seen that yet - and that it's moving down." (RTRS)
FED: The U.S. Federal Reserve could raise interest rates by half a percentage point at its next policy meeting in September if high inflation does not improve and a 75 basis point hike could also be on the table, Chicago Fed President Charles Evans said on Tuesday. (RTRS)
POLITICS: New York Democratic Rep. Carolyn Maloney said Tuesday that she doesn't "believe" that President Joe Biden is going to run for re-election in 2024. (CBS News)
BONDS: US financial regulators are moving ahead with a plan that could slash the amount of time that traders have to report many bond transactions to just one minute.(BBG)
OTHER
GLOBAL TRADE: The first grain-carrying ship to leave Ukrainian ports in wartime safely anchored off Turkey's coast on Tuesday, while a senior official said Ankara expects roughly one grain ship to depart from Ukraine every day as long as the export agreement holds. (RTRS)
GLOBAL TRADE: Samsung Electronics and SK Hynix are re-evaluating their investments in China, as the leading Korean chipmakers respond to incoming US restrictions on the production of advanced semiconductors. (FT)
GLOBAL TRADE: China’s announcement of military drills around Taiwan as US House Speaker Nancy Pelosi visits the island is already having ripple effects across global supply chains, prompting detours and causing delays of energy shipments. Gas suppliers are re-routing or reducing speed on some liquefied natural gas vessels currently en route to North Asia, according to people familiar with the matter. Shipments to Taiwan and Japan this weekend will be affected, said the people, who requested anonymity as the information isn’t public. (SCMP)
U.S./CHINA/TAIWAN: U.S. House of Representatives Speaker Nancy Pelosi told the Taiwanese parliament on Wednesday the U.S. chip bill would offer a good opportunity for U.S.-Taiwan cooperation in the chip industry. Pelosi also said she wants to increase parliamentary exchanges with Taiwan. (RTRS)
U.S./CHINA/TAIWAN: The Biden administration wants to keep tensions between Washington and Beijing inflamed by a high level visit to Taiwan from boiling over into a conflict, White House national security spokesman John Kirby said on Tuesday. In a briefing with reporters. (RTRS)
U.S./CHINA/TAIWAN: U.S. House of Representatives Speaker Nancy Pelosi's visit to Taiwan seriously infringes upon China's sovereignty and territorial integrity, and has a severe impact on the political foundation of China-U.S. relations, Xinhua News Agency reported citing a statement by the Ministry of Foreign Affairs late on Tuesday after Pelosi arrived in Taiwan and vowed America’s commitment to support Taiwan’s democracy. The ministry said China will take all necessary measures. The People's Liberation Army Eastern Theater Command launched joint military operations around Taiwan island starting on Tuesday night as a solemn deterrent against the U.S. escalation of tension on the Taiwan issue, Xinhua reported. (RTRS)
U.S./CHINA/TAIWAN: Former editor-in-chief and party secretary of the Global Times, Hu Xijin, tweeted the following on Wednesday morning, “PLA announced it would conduct live-fire exercises in 6 regions surrounding Taiwan island, a situation that surpassed 1996 Taiwan Strait crisis. This is not just a demonstration, but an actual exercise to liberate Taiwan. Pelosi's visit is bound to speed up China's unification.” (MNI)
U.S./CHINA/TAIWAN: China will suspend the import of Taiwanese fruits and sea food, including citrus, chilled white hairtail and frozen horse mackerel starting on Wednesday, the People’s Daily reported citing a statement by China Customs released following U.S. House of Representatives Speaker Nancy Pelosi's visit to Taiwan on Tuesday. The Ministry of Commerce also said in a statement that China will suspend the export of natural sand to Taiwan from Wednesday, the newspaper reported. (MNI)
U.S./CHINA/TAIWAN: The Taiwan Affairs Office of the State Council on Wednesday announced punishments on organizations related to die-hard elements seeking "Taiwan independence." The mainland will also punish, in accordance with the law, organizations, enterprises or individuals that offer funds or services to the foundations, and take other necessary measures, Ma said. (Xinhua)
U.S./CHINA/TAIWAN: Taiwan's defence ministry said late on Tuesday that China was attempting to threaten key ports and cities by announcing drills around the island in the coming days. The defence ministry said in a statement the drills were aimed at psychologically intimidating Taiwan's citizens, adding the armed forces had "reinforced" their alertness level and citizens should not worry. (RTRS)
U.K./CHINA/TAIWAN: China’s UK ambassador has urged British politicians not to “dance to the tune of the United States” and vowed “severe consequences” should MPs set foot in Taiwan. (Guardian)
NATO: The U.S. Senate will hold votes on Wednesday on approving Finland's and Sweden's accession into NATO, Majority Leader Chuck Schumer announced on Tuesday. The debate, Schumer said, will begin at 1:30 p.m. EDT (1730 GMT). (RTRS)
SOUTH KOREA: South Korea's residential property prices are likely to drop by up to 2.8% in two years with a full percentage point hike in policy interest rate, according to a research paper by the central bank on Wednesday. (RTRS)
IRAN: The head of the U.N. nuclear watchdog said on Tuesday "good words" from Iran are not enough to satisfy international inspectors and he hopes Tehran is ready to be transparent about its nuclear program, which was "moving ahead very, very fast". (RTRS)
EQUITIES: Taiwan's cabinet also said its citizens should feel reassured and that a national stabilisation fund for the stock market will closely watch the situation and react in a timely manner. (RTRS)
COMMODITIES: CME Group Inc. is considering new wheat futures as traders shy away from the existing Black Sea contract due to Russia’s invasion of Ukraine, according to people familiar with the matter. (RTRS)
GAS: A Nord Stream 1 gas turbine that has become the focus of a deepening energy row with Russia is in Germany after undergoing maintenance in Canada, and German Chancellor Olaf Scholz will visit it on Wednesday, Siemens Energy said. (RTRS)
OIL: OPEC and its allies are considering either a modest increase in oil production or maintaining output at current levels when they meet Wednesday, delegates say, as the alliance seeks more time to assess a possible slowdown in global energy demand. (WSJ)
CHINA
PBOC: The People’s Bank of China should cut the reserve requirement ratio or interest rates in a timely manner to boost aggregate demand, while promoting steady growth of credit, according to a report by the China Finance 40 Forum. China should also supplement local government resources quickly to ensure the intensity of their fiscal spending, the report said. It should also provide broader relief plans for real estate developers facing liquidity crunches, such as delaying the repayment of domestic debts, and actively promoting debt restructuring with the help of local governments, according to the report. (MNI)
CORONAVIRUS: The Chinese city of Yiwu in Zhejiang province has suspended some public gatherings and dining at restaurants, closed multiple entertainment venues, and locked down some areas to cope with COVID-19 flare-ups, the city government said on Wednesday. Yiwu is a major manufacturing export hub in eastern China and home to 1.9 million people. (RTRS)
CHINA MARKETS
PBOC INJECTS CNY2 BILLION VIA OMOS, LIQUIDITY UNCHANGED
The People's Bank of China (PBOC) injected CNY2 billion via 7-day reverse repos with the rate unchanged at 2.1% on Wednesday. This keeps the liquidity unchanged after offsetting the maturity of CNY2 billion repos today, according to Wind Information.
- The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.
- The 7-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.6023% at 9:34 am local time from the close of 1.3862% on Tuesday.
- The CFETS-NEX money-market sentiment index closed at 41 on Tuesday vs 44 on Monday.
PBOC SETS YUAN CENTRAL PARITY AT 6.7813 WEDS VS 6.7462
The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 6.7813 on Wednesday, compared with 6.7462 set on Tuesday, marking the biggest daily drop since Jun 2.
OVERNIGHT DATA
CHINA JUL CAIXIN SERVICES PMI 55.5; MEDIAN 53.9; JUN 54.5
CHINA JUL CAIXIN COMPOSITE PMI 54.0; JUN 55.3
The Caixin China General Services Business Activity Index (services PMI) rose 1 point to 55.5 in July as an improved Covid situation sped up the services sector recovery. “Supply and demand in the services sector expanded. Although Covid restrictions hurt the businesses of some service companies, the economic fallout from this round of outbreaks was fading. Gauges for business activity and new business were both in expansionary territory in July, hitting their highest readings in 15 and nine months respectively. The pandemic situation overseas restricted external demand, with the measure for new export orders in contractionary territory for the seventh straight month. (S&P Global)
JAPAN JUL, F JIBUN BANK SERVICES PMI 50.3; FLASH 51.2
JAPAN JUL, F JIBUN BANK COMPOSITE PMI 50.2; FLASH 50.6
The Japanese services economy signalled that demand conditions had broadly stagnated at the start of the second half of the year as the boost from the wider reopening of the economy waned. Latest PMI data indicated the softest rises in both new business and business activity in the respective threeand four-month sequences of growth, with the readings pointing to only fractional expansions. Panel members commented that weaker economic conditions, partly due to inflation and uncertainty, had weighed on the sector. (S&P Global)
AUSTRALIA Q2 RETAIL SALES EX INFLATION +1.4% Q/Q; MEDIAN +1.2%; Q1 +1.2%
AUSTRALIA JUL, F S&P GLOBAL SERVICES PMI 50.9; FLASH 50.4
AUSTRALIA JUL, F S&P GLOBAL COMPOSITE PMI 51.1; FLASH 50.6
Latest S&P Global PMI® data brought about mixed feelings regarding the current and future health of the Australian service sector. On one hand, the economy recorded a sixth month of overall expansion in business activity and new business. However, both increased at marginal rates that were the slowest in their respective sequences. With firms reporting that interest rate hikes and sustained inflationary pressures were dampening overall demand, July’s record high selling price inflation certainly presents itself as a further downside risk to sector health in the near future. (S&P Global)
NEW ZEALAND Q2 UNEMPLOYMENT RATE 3.3%; MEDIAN 3.1%; Q1 3.2%
NEW ZEALAND Q2 EMPLOYMENT CHANGE +0.0% Q/Q; MEDIAN +0.4%; Q1 +0.0%
NEW ZEALAND Q2 EMPLOYMENT CHANGE +1.6% Y/Y; MEDIAN +2.3%; Q1 +2.7%
NEW ZEALAND Q2 PARTICIPATION RATE 70.8%; MEDIAN 71.0%; Q1 70.9%
NEW ZEALAND Q2 AVERAGE HOURLY EARNINGS +2.3% Q/Q; MEDIAN +1.3%; Q1 +1.9%
NEW ZEALAND Q2 PVT WAGES INC OVERTIME +1.3% Q/Q; MEDIAN +1.1%; Q1 +0.7%
NEW ZEALAND Q2 PVT WAGES EX OVERTIME +1.3% Q/Q; MEDIAN +1.1%; Q1 +0.7%
NEW ZEALAND JUL ANZ COMMODITY PRICES -2.2% M/M; JUN -0.4%
NEW ZEALAND JUL CORELOGIC HOUSE PRICES +9.5% Y/Y; JUN +12.4%
SOUTH KOREA JUL FOREIGN RESERVES $4,38.61BN; JUN $438.28BN
MARKETS
SNAPSHOT: What Else Will China Do?
Below gives key levels of markets in the second half of the Asia-Pac session:
- Nikkei 225 up 125.65 points at 27720.38
- ASX 200 down 27.051 points at 6971.00
- Shanghai Comp. up 12.85 points at 3199.116
- JGB 10-Yr future down 16 ticks at 150.51, yield up 1.5bp at 0.191%
- Aussie 10-Yr future down 9.5 ticks at 96.905, yield up 9.3bp at 3.069%
- U.S. 10-Yr future +0-11 at 120-15, yield down 4.18bp at 2.707%
- WTI crude down $0.46 at $93.95, Gold up $8.83 at $1769.26
- USD/JPY down 48 pips at Y132.67
- BULLARD SAYS FED CAN SLOW INFLATION WITHOUT SPARKING RECESSION (BBG)
- FED HAS MORE WORK TO DO WITH INFLATION NOT HAVING PEAKED, MESTER SAYS (RTRS)
- FED'S EVANS BACKS 50 OR 75 BPS HIKE IN SEPTEMBER IF INFLATION DOESN'T ABATE (RTRS)
- CHINA CONTINUES WARNINGS, LEVIES TRADE BANS ON TAIWAN AS PELOSI MAKES ADDRESS
- 60% OF TORY MEMBERSHIP PREFER TRUSS FOR NEXT PM (THE TIMES)
US TSYS: A Little Firmer In Asia, Belly Leads Bid
TYU2 deals +0-10+ at 120-14+, 0-01+ off the peak of its 0-13+ range, operating on above average volume of ~140K. Cash Tsys run 2-5bp richer across the curve, with the belly outperforming.
- Asia-Pac trade saw Tsys fade away from Tuesday’s cheapest levels. As a reminder, yesterday’s cheapening came about as some of the more dovish (at least in a historical context) regional Fed Presidents pushed back on the idea that the Fed was nearing a pivot, stressing its commitment to combatting inflation. St. Louis Fed President also chimed in during overnight dealing, Bullard continued to attempt to playdown any recession-related worry, while flagging a more data-dependent round of tightening going forwards, in addition to reiterating his view that the Fed Funds target should be at 3.75-4.00% by year-end.
- The continued verbal jousting re: the Taiwan situation played into the bid. China vowed to enact criminal punishment against “Taiwan-independence diehards” via the major state-run media outlet, Xinhua, while it also levied trade bans on certain Taiwanese goods. Elsewhere, Chinese Foreign Minister Wang Yi has urged the U.S. to stop playing the Taiwan card. Ultimately, the focus of any Chinese reaction to U.S. House Speak Pelosi’s trip to Taiwan remains Taiwan-centric for now, avoiding the worst case scenario for markets (e-minis are a touch above settlement levels).
- A joint press conference between the Taiwanese President Tsai & U.S. House Speaker Pelosi generated the sort of language you would expect i.e. Taiwan noting that won’t back down to China, while it looks to develop its relationship with the U.S. & Pelosi being supportive of Taiwan, flagging the potential for some form of fairly imminent trade agreement between the two countries.
- On the flow side, 2x block buys in TY futures supported the space during the first half of Asia dealing (a cumulative ~$873K in DV01 terms).
- NY hours will see the release of the ISM services survey, final S&P services PMI, factory orders, final durable goods data and weekly MBA mortgage apps. We will also get the quarterly refunding announcement from the Treasury and a raft of Fedspeak (Barkin, Bullard, Harker & Kashkari).
JGBS: Off Lows In Tokyo
JGB futures edged away from their overnight trough during the Tokyo session, although the contract has stuck to a narrow range, -20 vs. settlement into the close.
- Cash JGBs run little changed to 2.5bp cheaper on the day, bear steepening. Much of the long end has stuck to ranges established in early dealing after the initial cheapening adjustment in lieu of Tuesday’s core global FI moves (10s being the exception, although they are off session cheaps).
- There hasn’t been anything in the way of meaningful domestic news flow to digest since the Tokyo open, although there has been confirmation that U.S. House Speaker Pelosi will visit Japan on Thursday, in what will be another leg of her heavily-watched trip to the Asia-Pacific region.
- The breakdown of the latest round of BoJ Rinban operations revealed slight moderations in cover ratios across the 1- to 5- & 10- to 25-Year zones of the curve, although that didn’t have any tangible impact on JGBs.
- 10-Year JGBi supply headlines tomorrow’s docket.
AUSSIE BONDS: Working Away From Lows In Sydney Trade
Aussie bonds have edged further away from their overnight/early Sydney cheaps as we have worked our way through the Sydney day, tracking a bid in U.S. Tsys as core FI markets have unwound a little of Tuesday’s Fedspeak-inspired cheapening. Worry surrounding U.S. House Speaker Pelosi’s visit to Taiwan also aided the move in ACGBs away from worst levels amidst a barrage of sharp Chinese rhetoric and trade embargoes on the island, although the lack of escalation of a military nature meant that the moves away from lows remained fairly shallow.
- Cash ACGBs run 6.0-12.5bp cheaper. YM is -12.5 and XM is -11.0, while Bills are 4 to 18 ticks cheaper through the reds, bear steepening.
- The latest round of ACGB Nov-32 supply went well enough, with the average yield pricing 1.15bp through prevailing mids, although the cover ratio printed 2.44x, coming in below the six-auction average of 2.95x. The recent move away from cycle cheaps in core FI markets and yesterday’s RBA decision likely helped promote firm pricing at the auction, with the cheapness of the line vs. the nearby benchmark 10-Year ACGB May-32 likely aiding in digestion, although overall demand wasn’t overwhelming, per the cover ratio dynamics.
- There was some limited trans-Tasman gyrations surrounding New Zealand’s labour market data, which faded quickly.
- Thursday’s domestic data docket will be headlined by Australian trade balance figures for June, with little else on offer.
AUSSIE BONDS: The AOFM sells A$800mn of the 1.75% 21 Nov ‘32 Bond, issue #TB165:
The Australian Office of Financial Management (AOFM) sells A$800mn of the 1.75% 21 Nov ‘32 Bond, issue #TB165:
- Average Yield: 3.0895% (prev. 2.9040%)
- High Yield: 3.0900% (prev. 2.9100%)
- Bid/Cover: 2.4375x (prev. 4.6350x)
- Amount allotted at highest accepted yield as percentage of amount bid at that yield: 85.9% (prev. 49.9%)
- Bidders 37 (prev. 43), successful 11 (prev. 19), allocated in full 3 (prev. 12)
EQUITIES: Mostly Higher In Asia; Chinese Developer Sell Off Continues
Most major Asia-Pac equity indices are firmer at typing following the closely-watched joint appearance between U.S. House Speaker Pelosi and Taiwanese President Tsai earlier in the day, although Chinese and Hong Kong benchmarks have pared their initial bids, dragged lower by weakness in Chinese developers.
- The Hang Seng trades 0.6% firmer, paring earlier gains of as much as 1.2% after having opened higher. The loss in momentum comes as the HSTECH (+1.3%) is back from as much as +2.8% higher earlier, although gains in China-based tech equities largely countered continued weakness in the property (-0.8%) and finance (-0.4%) sub-indices.
- The CSI300 sits virtually unchanged at typing, paring gains of as much as 1.1%. Relatively shallow losses across industrials and financials added to gloom in real estate, with the CSI300 Real Estate Index (-1.9%) on track to record a sixth consecutive lower daily close. On the other hand, the healthcare (+1.1%) sub-gauge outperformed, while a broad swathe of defence-related stocks such as Jiangxi Xinyu Guoke (+3.2%) and AECC Aviation Power (+7.8%) were bid for another day.
- The Taiex sits 0.2% worse off at typing, back from as much as 0.5% lower. Weakness in virtually every other equity sector countered outperformance in the heavyweight Semiconductor (+0.7%) sub-gauge, coming as Pelosi had earlier raised the prospect of closer U.S.-Taiwan collaboration re: chips in the Taiwanese Parliament.
- E-minis sit flat to 0.3% better off at typing, operating around the bottom of their respective ranges established on Tuesday.
OIL: Off Worst Levels; OPEC+ Decision Eyed
WTI is ~-$0.30 and Brent is ~-$0.40, paring earlier losses of as much as ~$1.00-1.20 apiece at typing. Both benchmarks operate a short distance above their respective, recently-made multi-week lows ahead of the OPEC+ decision due later today, with focus centred on a potential output increase from the group.
- To elaborate, WSJ source reports have pointed to OPEC+ considering proposals for output increases at today’s meeting, corroborating earlier, separate source reports re: the matter from both RTRS and a Fox Business news reporter.
- On the sidelines, note that RTRS source reports on Tuesday pointed to the OPEC+ Joint Technical Committee (JTC) lowering their forecasted surplus in global oil markets (from 1.0mn bpd in their July forecast to 800K bpd).
- Brent’s prompt spread continues to moderate, printing ~$1.84 at typing, down from its peak at ~$2.80 just earlier this week.
- Elsewhere, the latest round of U.S. API inventory estimates crossed on Tuesday, with oil prices edging lower after reports pointed to a surprise build in crude stockpiles. Cushing hub stocks rose, while there was a drawdown in gasoline and distillate inventories.
- Looking ahead, U.S. EIA inventory data is due, with WSJ estimates calling for a drawdown in crude stocks.
GOLD: Higher In Asia
Gold sits $6/oz better off, printing $1,767/oz at typing. The precious metal has rebounded from its early Fedspeak-induced lows, rising above neutral levels after the Australia Q2 retail sales print, with a downtick in nominal U.S. Tsy yields aiding the move higher.
- To recap Tuesday’s price action, gold retreated from 4-week highs to close ~$12/oz lower, snapping a four-day streak of gains. The decline tracked a similar move in the USD, with the DXY closing higher on the day after its own four-session streak of losses.
- Gold’s move away from Tuesday’s highs also comes as headlines surrounding U.S. House Speaker Pelosi’s visit to Taiwan remains focused on a widening suite of Chinese trade and business embargoes on Taiwan, with little sign of military escalation from the Chinese observed at present despite the swathe of conflict-tinged warnings prior to Pelosi landing in the country.
- Headline risks from Pelosi’s visit will remain in focus throughout the day as she meets with Taiwanese leaders, although both the White House and her have recently reiterated that the trip does not represent a change in long-standing U.S. policy towards the island.
- From a technical perspective, gold’s recent bounce is still seen as corrective, with focus on initial resistance at ~$1,784.8/oz (50-Day EMA), a break of which would expose further resistance at $1,809.5/oz (trendline resistance). On the other hand, support is seen at ~$1,747.7/oz (20-Day EMA).
FOREX: USD Unwinds Initial Gains, China Caixin Services PMI Beat Aids Sentiment
Initial greenback strength dissipated as U.S. Tsy yields declined across the curve. While hawkish comments from '22 FOMC voter Bullard ("soft landing doesn't require gradualism") generated a fresh buying impulse in early Tokyo trade, the dollar struggled to cling onto those gains. The BBDXY index toped out at 1,276 and turned its tail, pulling back into yesterday's range.
- Risk sentiment in the region improved as China's Caixin Services PMI beat expectations (55.5 versus 53.9 expected), offering some comfort after disappointing data on manufacturing sector released a few days back. Spot USD/CNH posted a leg lower in response to the data, despite continued focus on Sino-U.S. tensions surrounding House Speaker Pelosi's ongoing visit to Taiwan.
- USD/JPY retreated from new weekly highs after the Tokyo fix. Lower U.S. Tsy yields were the likely culprit, as the spread between yields on 10-Year Tsys/JGBs shrank ~7bp from Tuesday's closing levels. Despite that, USD/JPY 1-month risk reversal plumbed a new weekly high.
- The kiwi dollar took a nosedive upon the release of New Zealand's Q2 labour market data and remains the worst G10 performer, albeit it is clawing back losses amid broader recovery in sentiment/USD sales, with NZD/USD sitting at $0.6248 (off session low of $0.6213 & 20 pips below neutral levels) as we type.
- New Zealand's unemployment rate unexpectedly edged higher from record lows, which came on the back of employment growth & participation missing forecasts. On the other hand, wage figures were strong, with the Labour Cost Index posting the steepest annual increase since late 2008.
- Solid wage data coupled with the latest CoreLogic House Price Index, which showed the largest quarterly decline in property prices since the GFC, may have helped prevent the market from boosting RBNZ rate-hike bets.
- Today's data highlights include U.S. factory orders & final durable goods orders, EZ retail sales and a suite of Services PMI readings from across the globe.
- Central bank speaker slate is dominated by Fed members, with Bullard, Harker, Daly, Barkin & Kashkari all set to make appearances.
FX OPTIONS: Expiries for Aug03 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0150(E589mln), $1.0193-00(E1.8bln), $1.0245-50(E654mln)
- USD/JPY: Y131.25($530mln), Y131.50($495mln), Y132.25($500mln)
- EUR/JPY: Y135.85-00(E664mln)
- USD/CNY: Cny6.75($1.1bln)
UP TODAY (Times GMT/Local)
| Date | GMT/Local | Impact | Flag | Country | Event |
| 03/08/2022 | 0600/0800 | ** |  | DE | Trade Balance |
| 03/08/2022 | 0630/0830 | *** |  | CH | CPI |
| 03/08/2022 | 0715/0915 | ** |  | ES | IHS Markit Services PMI (f) |
| 03/08/2022 | 0745/0945 | ** |  | IT | IHS Markit Services PMI (f) |
| 03/08/2022 | 0750/0950 | ** |  | FR | IHS Markit Services PMI (f) |
| 03/08/2022 | 0755/0955 | ** |  | DE | IHS Markit Services PMI (f) |
| 03/08/2022 | 0800/1000 | ** |  | EU | IHS Markit Services PMI (f) |
| 03/08/2022 | 0800/1000 | * |  | IT | Retail Sales |
| 03/08/2022 | 0830/0930 | ** |  | UK | IHS Markit/CIPS Services PMI (Final) |
| 03/08/2022 | 0900/1100 | ** |  | EU | retail sales |
| 03/08/2022 | 0900/1100 | ** |  | EU | PPI |
| 03/08/2022 | 1100/0700 | ** |  | US | MBA Weekly Applications Index |
| 03/08/2022 | 1345/0945 | *** |  | US | IHS Markit Services Index (final) |
| 03/08/2022 | 1400/1000 | *** |  | US | ISM Non-Manufacturing Index |
| 03/08/2022 | 1400/1000 | ** |  | US | factory new orders |
| 03/08/2022 | 1430/1030 |  | US | Philadelphia Fed's Patrick Harker | |
| 03/08/2022 | 1430/1030 | ** |  | US | DOE weekly crude oil stocks |
| 03/08/2022 | 1545/1145 |  | US | Richmond Fed's Tom Barkin | |
| 03/08/2022 | 1830/1430 |  | US | Minneapolis Fed's Neel Kashkari |
