Fig. 1: BoE Aug ‘22 & Dec ‘22 Dated OIS (%)
Source: MNI - Market News/Bloomberg
POLITICS: Liz Truss has received a fresh boost in her bid to become the next Conservative leader as she and rival Rishi Sunak prepare to face the cameras on Sky News this evening. A second poll in less than 24 hours showed the gap between the foreign secretary and Mr Sunak widening. The new survey of Conservative Party members by ConservativeHome released on Wednesday found Ms Truss is most likely to become the next prime minister - with 58% of those asked backing her. Mr Sunak was found to have the support of 26% - while 12% were undecided. (Sky)
BOE: Foreign secretary Liz Truss, frontrunner in the race to become the next British prime minister, said she would look to change the Bank of England’s mandate to ensure it controlled inflation. (FT)
GERMANY: There may be irregular operations at Uniper’s Staudinger 5 coal-fired plant though Sept. 7 due to a limitation of coal volumes on site, according to notice on EEX’s platform. Supply limitation due to low water levels of the Rhine river. (BBG)
FED: “There is a path to getting inflation under control,” Barkin said in his separate speech, to the Shenandoah Valley Partnership in Virginia. “But a recession could happen in the process. If one does, we need to keep it in perspective: No one canceled the business cycle.” Barkin was not specific in describing his desired path of interest rates, but said inflation was unlikely to come down quickly or predictably. (BBG)
FED: Minneapolis Federal Reserve President Neel Kashkari said on Wednesday the possibility that the U.S. central bank will pivot to cutting interest rates next year is extremely unlikely. "Some financial markets are indicating they expect us to cut interest rates next year," Kashkari said at an event held as part of a financial regulation conference in New York. "I don't want to say it's impossible, but it seems like that's a very unlikely scenario right now given what I know about the underlying inflation dynamics. The more likely scenario is we would continue raising (interest rates) and then we would sit there until we have a lot of confidence that inflation is well on its way back down to 2%." (RTRS)
FED: "When you think of 2.5%, that's the longer-run neutral rate of interest, but right now, inflation is high," Daly added. "And there's a lot of demand chasing limited supply, and so of course the neutral rate is elevated. So my own estimate of where that would be right now is around or a little bit over 3%, maybe 3.1%." "So in my judgment, we're not even up to neutral right now," Daly said. (RTRS)
ECONOMY: U.S. employment may have notched a "very modest" increase in July, according to a St. Louis Fed analysis of real-time data from employee scheduling software provider Homebase, bank economist Max Dvorkin told MNI. (MNI)
FISCAL: Kyrsten Sinema is seeking a couple changes to Democrats' climate, health care and tax bill, according to multiple people familiar with the matter. The Arizona Democrat, who has not weighed in on whether she will vote for the legislation, wants to nix language narrowing the so-called carried interest loophole, which would change the way some investment income is taxed. Cutting that provision would ax $14 billion of the bill's $739 billion in projected revenue. (POLITICO)
FISCAL: The Congressional Budget Office said on Wednesday it has estimated that a $430 billion drugs, energy and tax bill proposed by Senate Democrats would result in a net decrease in the deficit of $102 billion over a 10-year period. (RTRS)
GLOBAL TRADE: More ships loaded with grain are ready to depart from Ukraine’s seaports following the vessel Razoni, which arrived in Turkey Tuesday, Ukraine’s Foreign Minister Dmytro Kuleba said without elaborating, according to the Interfax news service. “We hope everything will work and the Russian Federation won’t make any steps that would ruin these agreements that have been so difficulty achieved via brokerage from the UN and Turkey,” Kuleba said in a news conference in Kyiv, according to Interfax. (BBG)
U.S./CHINA/TAIWAN: The Biden administration is lobbying Democratic senators to put the brakes on a bill that would alter US policy toward Taiwan, including by designating it as a major non-NATO ally, according to people familiar with the matter. (BBG)
U.S./CHINA/TAIWAN: China's Taiwan affairs office said on Thursday punishment of pro-Taiwan independence diehards and external forces was reasonable and lawful, amidst raised tensions in the Taiwan strait following U.S. House speaker Nancy Pelosi's Taipei visit. Taiwan is not a 'regional' issue but China's internal affair, the Beijing-based Taiwan affairs office added, as the country's military embarks on targeted military drills in a number of zones surrounding Taiwan. On Wednesday a suspected Taiwanese separatist was detained by state security in East China's Zhejiang province on suspicion of endangering national security, state media reported. (RTRS)
U.S./CHINA/TAIWAN: Taiwan's ruling party said on Thursday that Chinese military drills have triggered regional tensions and are illegitimate. (RTRS)
U.S./CHINA/TAIWAN: Taiwan's defence ministry said on Thursday that unidentified aircraft, probably drones, had flown on Wednesday night above the area of its Kinmen islands, which are just off the southeastern coast of China, and that it had fired flares to drive them away. Taiwan has been on alert as China conducts a series of military exercises in response to a visit to the island this week by U.S. House of Representatives Speaker Nancy Pelosi. (RTRS)
NATO: The Senate passed a resolution Wednesday ratifying Finland's and Sweden's applications to join NATO as the Western military alliance seeks to strengthen its resolve against the threat posed by Russia. (NBC News)
BOJ: Bank of Japan officials are more focused on policy cues from a possible U.S. recession and slower global demand than recent solid yen gains against the dollar in July as firms importing goods do not immediately change spending plans based on short-term forex moves, MNI understands. (MNI)
JAPAN: Investors should start preparing for a return to normal Japanese bond trading as the central bank will one day step back from its debt purchases, according to a senior government official widely known as Mr. JGB. (BBG)
AUSTRALIA: SEEK new job ads fell -3.1% m/m in July, the second consecutive month of decline. Last month we noted the decline in new job ads may signal a peak in labour demand at very elevated levels amid difficulty finding suitable labour, although it was too early to tell. The decline in July adds support to that thesis, though the level of job ads is still 60.6% above pre-pandemic levels. (NAB)
NEW ZEALAND: Job ads recovered some lost ground in July, as they rose 1.3% following June’s 5.3% decline. This sees job ads 4.1% below their record level set back in May. But it is still too early to conclusively conclude that job ads have peaked in this cycle. Job ads can bounce around from month to month. That said, it is notable that the trend measure running through them eased 0.4% in July, its first monthly slippage since September last year in the wake of Delta arriving in the country. (BNZ)
ASIA: Southeast Asia's regional bloc ASEAN warned on Thursday that an increase in international and regional volatility could lead to "miscalculation, serious confrontation, open conflicts and unpredictable consequences among major powers". The Association of Southeast Asian Nations made the remarks in a statement from foreign ministers after the bloc's chair Cambodia had called on all sides to de-escalate tensions over Taiwan. (RTRS)
BRAZIL: Brazil’s central bank raised its key interest rate by half a percentage point and indicated another hike is possible next month as greater government spending before October’s elections drive inflation forecasts further above target. (BBG)
BRAZIL: Brazilian Economy Minister Paulo Guedes said on Wednesday the government-backed tax reform that has not yet been voted on in the Senate could finance cash handouts of 600 reais in 2023 under the welfare program Auxilio Brasil. Speaking at an event hosted by Brazilian brokerage XP Inc, Guedes also said budget de-indexing can make room for such expenditure under the spending cap. (RTRS)
BRAZIL: Brazil’s President Jair Bolsonaro is increasingly courting Christian evangelicals in the run-up to the October election in a strategy to block inroads made by his leftist challenger into the crucial constituency. (BBG)
RUSSIA: G-7 will continue to explore further measures against Russia to prevent it profiting from war, according to a statement from G-7 foreign ministers on energy security. Will further reduce reliance on civil nuclear and related goods from Russia. Seeks solutions that reduce Russian revenues from hydrocarbons. (BBG)
RUSSIA: Consumer prices in Russia declined for the fourth week running, data showed on Wednesday, as the rouble's appreciation in the past few months and a drop in consumer demand weighed on the pace of price growth. The consumer prices index (CPI) declined 0.14% in the week to Aug. 1 after sliding 0.08% a week earlier, the federal statistics service Rosstat said. (RTRS)
RUSSIA: Russia provided 130b rubles in subsidized loans to Yandex, VK Co and Ozon to help the companies meet obligations to their euro bond holders, Kommersant reports, citing an unidentified person familiar with the government plans. (BBG)
SOUTH AFRICA: South African power utility Eskom said it would escalate scheduled power cuts to "Stage 4" from 4 p.m. until midnight local time (1400 to 2200 GMT) on Thursday due to a shortage of generation capacity. (RTRS)
IRAN: Iran has completed installing three advanced IR-6 centrifuge cascades at its Natanz fuel enrichment plant (FEP), according to an International Atomic Energy Agency report to member states on Wednesday seen by Reuters. Iran has also informed the agency it plans to install an additional six IR-2m cascades at the FEP in a new operating unit, the report said, as top Iranian and U.S. officials headed to Vienna for talks this week on reviving the 2015 nuclear pact. (RTRS)
IRAN: Russia stands ready for constructive talks aimed at salvaging Tehran's 2015 nuclear deal with world powers, Russia's envoy to the talks tweeted on Wednesday, as Iranian and U.S. top negotiators head to Vienna to hold indirect negotiations. (RTRS)
IRAQ: Iraqi populist cleric Moqtada al-Sadr on Wednesday told his supporters to continue their sit-in which occupies the Baghdad parliament until his demands which include early elections and unspecified constitutional changes are met. (RTRS)
COMMODITIES: Guterres, the UN secretary-general, tore into global energy companies, saying it’s “immoral for oil and gas companies to be making record profits from this energy crisis on the backs of the poorest people and communities, at a massive cost to the climate.” (BBG)
METALS: Top global copper producer Codelco reported an accident at its Chuquicamata mine on Wednesday, weeks after a mishap killed a worker there and drew scrutiny to the Chilean state company's safety practices. (RTRS)
GAS: Russia's Gazprom said on Wednesday that Canadian, EU and U.K. sanctions make the delivery of a Siemens engine to the Nord Stream Portovaya compressor station impossible. (RTRS)
GAS: The second-largest U.S. liquefied natural gas (LNG) exporter on Wednesday said it reached an agreement with a federal regulator that will allow it to resume some operations at its Quintana, Texas, plant in October.Freeport LNG shut the plant, which supplies about 20% of U.S. LNG exports, following an explosion and fire on June 8. (RTRS)
GAS: European Union countries are likely to discuss more detailed measures to help energy-vulnerable states such as Germany in the event of a Russian gas shutdown in the autumn, after giving final approval later this week to a new Alert Mechanism allowing for mandatory consumption cuts in an emergency, EU officials said. (MNI)
OIL: The Swiss government said it will match European Union sanctions on Russia and allow for some exemptions in respect to oil payments. The EU introduced measures last month allowing for transactions with some sanctioned entities if they’re deemed essential to supplies of food, agricultural goods and oil to third countries. (BBG)
OIL: Iraqi oil minister Ihsan Abdul Jabbar said that Wednesday’s OPEC+ decision to raise its output target by 100,000 barrels per day (bpd) seeks to achieve balance between supply and demand in global oil markets. (RTRS).
OIL: Caspian Pipeline Consortium (CPC), which connects Kazakh oil fields with Russian Black Sea port of Novorossiisk, said on Wednesday that supplies were significantly down, without providing figures. CPC said that oil offtake was reduced from Kazakh Tengiz field due to maintenance there and oil supply volumes from another Kazakh oil field, Kashagan, were also down as production was suspended there. (RTRS)
FOREX: The dollar's strength has yet to peak, according to a majority of currency strategists polled by Reuters who were however divided on when the currency's advance would come to an end. The greenback slipped from a decade high in mid-July but quickly snapped back when three Fed officials made it clear the central bank was "completely united" on increasing rates to a level that would put a dent in the highest U.S. inflation since the 1980s. With the Fed expected to stay ahead of its peers in the tightening cycle by some measure, and the global economy expected to slow significantly, a path for the dollar to weaken meaningfully or for most other currencies to stage a comeback is difficult to forge. In the Aug. 1-3 poll, a strong majority of more than 70% of strategists, or 40 of 56, who answered an additional question said the dollar's strength hasn't yet peaked. Asked when it would peak, 14 said within three months, 19 said within six months, another six said within a year and one said within two years. Only 16 said it already had. (RTRS)
PBOC: The People’s Bank of China is unlikely to cut interest rates in the second half of the year amid the tightening of the global financial environment and rising domestic inflation, though a small cut to the reserve requirement ratio in Q4 cannot be ruled out, wrote Wen Bin, chief economist of Minsheng Bank in an article published by 21st Century Business Herald. The central bank will focus on guiding banks to increase lending, while maintaining ample liquidity and driving down the actual loan interest rate, said Wen. There is still room for the Loan Prime Rate to decrease, especially the five-year maturity, if consumption and investment is weaker than expected, said Wen. (MNI)
FISCAL: Major projects in several provinces including Jiangsu and Zhejiang have received funding support from financial bonds by policy banks to accelerate construction, in a bid to help stabilize economic growth, Securities Daily reported. A total CNY300 billion of financial bonds approved earlier can leverage as much as CNY1.5 trillion supporting funds for project construction, the newspaper said citing Wang Qing, analyst with Golden Credit Rating. Coupled with CNY800 billion credit line of policy banks, this round of financial instruments can drive up to CNY2.6 trillion of incremental funds for projects in H2, the newspaper said citing Wang. Fixed-asset investment this year can be accelerated by about 4.8 percentage points from 2021’s 4.9% should the above policy tools are fully utilized, Wang was cited as saying. (MNI)
YUAN: The Chinese yuan is likely to remain stable by the end of August, with an average forecast of 6.75 against the U.S. dollar, compared with the 6.7434 on July 29, Yicai.com reported citing 17 economists it polled. Major non-U.S. currencies such as the euro and the yen may continue to weaken into August as the Federal Reserve’s aggressive rate hikes will support the dollar in the short term, Yicai said citing Lian Ping, president of Zhixin Investment Research Institute. These economists expect the yuan to strengthen to 6.68 against the dollar by the end of 2022, the newspaper said. (MNI)
INFRASTRUCTURE: China’s infrastructure investment is expected to grow 11% on year in 2022, providing strong support to the domestic economic recovery, China Securities Journal reports Thursday, citing analysts. (BBG)
CORONAVIRUS: The southern Chinese city of Sanya, a tourism hotspot, imposed lockdown measures from Thursday in most parts of the city, ordering residents to reduce their trips outside to shop for daily necessities to once every two days and confining some strictly to their homes. (RTRS)
CORONAVIRUS: Elsewhere, the southwestern megacity of Chongqing locked down neighborhoods in one district after detecting two infections on Wednesday. The manufacturing hub hasn’t seen a major lockdown since early 2020. The eastern city of Yiwu, a wholesale hub for Christmas decorations and other consumer products, is starting mass PCR testing from Thursday after finding 38 cases since Tuesday. (BBG)
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 Thursday. This keeps the liquidity unchanged after offsetting the maturity of CNY2 billion repos today, according to Wind Information.
PBOC SETS YUAN CENTRAL PARITY AT 6.7636 THURS VS 6.7813
The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 6.7636 on Thursday, compared with 6.7813 set on Wednesday.
AUSTRALIA JUN TRADE BALANCE A$17,670BN; MEDIAN A$14,000BN; MAY A$15,965BN
AUSTRALIA JUN EXPORTS +5%; MEDIAN +0%; MAY +9%
AUSTRALIA JUN IMPORTS +1%; MEDIAN +3%; MAY +6%
Below gives key levels of markets in the second half of the Asia-Pac session:
Tsys lacked anything in the way of meaningful traction overnight, operating shy of their respective Wednesday peaks. The major cash Tsy benchmarks run 1.0-2.0bp cheaper across the curve as a result, sticking to tight ranges. TYU2 is +0-06 at 120-09, 0-01+ off the base of its 0-06+ range, on sub-par volume of 60K lots.
JGB futures have been happy to consolidate during the Tokyo afternoon after failing to build on a short and limited look above their overnight high during the Tokyo morning, last dealing +9 vs. yesterday’s settlement level, a little shy of best levels. The major cash JGB benchmarks run 0.5-3.0bp richer across the curve, bull flattening. There hasn’t been much in the way of decisive news flow to digest leaving participants to react to yesterday’s flattening of the U.S. Tsy curve and limited cross-market gyrations observed since the open.
The Japanese Ministry of Finance (MOF) sells Y250.0bn 10-Year JGBis:
Aussie bonds have continued to edge lower as we have worked our way through the Sydney session, with the record Australian trade surplus print for June and marginal cheapening in U.S. Tsys helping to pull the space away from best levels. Cash ACGBs run 3.5-6.0bp cheaper across the curve, bear flattening, while YM and XM are -6.0 and -5.5, respectively operating within the lower end of their respective overnight ranges after failing to break above neutral levels earlier in early Sydney dealing.
Major Asia-Pac equity indices are broadly off best levels but remain bid as we head towards the end of Asia-Pac dealing, with tailwinds from Wall St's strongly positive lead aiding the overall move higher.
WTI and Brent are ~$0.30 firmer apiece, with both benchmarks treading water above their respective worst levels established on Wednesday, placing them firmly back into ranges witnessed before the Russia-Ukraine war.
Gold sits ~$2/oz firmer to print $1,767/oz, operating within a tight ~$6/oz trading range across Asia-Pac dealing. The precious metal operates a short distance below Wednesday’s best levels at typing, extending a move off of yesterday’s troughs amidst a downtick in the USD (DXY).
USD/JPY wavered between gains and losses, holding a 70-pip range in a catalyst-light Asia session. The pair lost some altitude over the Tokyo fix, but then recovered in sync with U.S. Tsy yields. The spot rate last deals a dozen pips shy of neutral levels, while USD/JPY risk reversal extended Wednesday's upswing.
Date | GMT/Local | Impact | Flag | Country | Event |
04/08/2022 | 0600/0800 | ** | ![]() | DE | Manufacturing Orders |
04/08/2022 | 0730/0930 | ** | ![]() | EU | IHS Markit Final Eurozone Construction PMI |
04/08/2022 | 0800/1000 | ![]() | EU | ECB August Economic Bulletin | |
04/08/2022 | 0830/0930 | ** | ![]() | UK | IHS Markit/CIPS Construction PMI |
04/08/2022 | 1100/1200 | *** | ![]() | UK | Bank Of England Interest Rate |
04/08/2022 | 1130/1230 | ![]() | UK | BOE Press Conference | |
04/08/2022 | 1230/0830 | * | ![]() | CA | Building Permits |
04/08/2022 | 1230/0830 | ** | ![]() | US | Jobless Claims |
04/08/2022 | 1230/0830 | ** | ![]() | US | Trade Balance |
04/08/2022 | 1400/1000 | ** | ![]() | US | WASDE Weekly Import/Export |
04/08/2022 | 1430/1030 | ** | ![]() | US | Natural Gas Stocks |
04/08/2022 | 1530/1130 | * | ![]() | US | US Bill 08 Week Treasury Auction Result |
04/08/2022 | 1530/1130 | ** | ![]() | US | US Bill 04 Week Treasury Auction Result |
04/08/2022 | 1600/1200 | ![]() | US | Cleveland Fed's Loretta Mester |