Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
EXECUTIVE SUMMARY
- PBOC CUTS 2 KEY POLICY RATES - BBG
- TRUMP CHARGED IN GEORGIA PROBE - BBG
- YELLEN SAYS CHINA A “RISK FACTOR” FOR THE US - BBG
Fig. 1: RBNZ Terminal Rate Pricing
Source: MNI - Market News/Bloomberg
U.K.
POLITICS: UK health authorities and civil servants repeatedly warned Prime Minister Rishi Sunak’s government about the potential for an infectious disease outbreak on board a vessel holding asylum seekers, people familiar with the matter said. The warnings were given before the British government last week moved the first 39 asylum seekers into the Bibby Stockholm barge moored off the south coast of England — only to be forced to evacuate within days after traces of the Legionella bacteria were detected, according to the people, who requested anonymity discussing internal advice. (BBG)
BOE: No households are expected to be affected by the failure of a critical Bank of England payments system earlier today, the UK central bank said in an updated statement. Thousands of homebuyers and other financial transactions were briefly delayed after the BOE’s Real-Time Gross Settlement service went down for six hours this morning. (BBG)
EUROPE.
UKRAINE: A blast in a northern Russia oil field killed two people and injured at least five others, the state news agency Tass reported Monday, citing authorities. The cause of the explosion was not immediately identified. It occurred at the Talinskoye oil field near Nyagan town in Khanty-Mansiysk region, the Moscow-based Izvestia newspaper reported, citing an unidentified source. The explosion also touched off a forest fire near the field. (BBG)
U.S.
TRUMP: Donald Trump and some of his closest allies and former top former administration officials were indicted in Atlanta over efforts to undo his 2020 election defeat in Georgia, the fourth criminal case against the former president as he campaigns for the White House. The sweeping indictment, approved by a grand jury on Monday, charges Trump and 18 other defendants, including former New York City Mayor Rudolph Giuliani, former White House Chief of Staff Mark Meadows, and former senior Justice Department official Jeffrey Clark. (BBG)
UBS: UBS Group AG said it agreed to pay $1.44 billion to settle a case with the US Department of Justice regarding how it handled residential mortgage-backed securities. The matter stems from 2006 and 2007 and related to the issuance, underwriting and sale of the securities, UBS said in a statement Monday. (BBG)
MAUI FIRES: The disastrous wildfires on the Hawaiian island of Maui are now the US’s deadliest in more than a century, as officials warned the death toll may rise further amid concerns about the effectiveness of an emergency alarm system. The number of fatalities reached 96, and Hawaii Governor Josh Green said over the weekend that the figure would likely increase as search and rescue efforts continue. Officials said that just a fraction of the area had been checked and that they were bringing in more cadaver dogs to help with efforts. It was still unclear when residents may return to the area. (BBG)
YELLEN: Treasury Secretary Janet Yellen called China’s economic woes a “risk factor” for the US, but one that doesn’t significantly dent her optimism for the American economy. “China’s slowdown will have the largest impact on its Asian neighbors, but there will be some spillovers to the United States,” Yellen told reporters following a speech in Las Vegas, where she’s touting the economic policy accomplishments of the Biden administration. (BBG)
BANKS: US regulators will soon propose requiring banks with as little as $100 billion in assets to issue enough long-term debt to cover capital losses if they ever failed. The Federal Deposit Insurance Corp., the Federal Reserve and the Office of the Comptroller of the Currency are working on the plan as part of Washington’s response to this year’s failures of midsize lenders, according to FDIC Chairman Martin Gruenberg. The move could lead to more options for bank resolutions and reduces incentives for uninsured depositors to yank their cash, he said. (BBG)
OTHER
JAPAN: Japanese private consumption is expected to continue rising on the back of favourable income and sentiment trends but the government continues to keep a close eye on the impact of high prices on spending, a senior official at the Cabinet Office said on Tuesday. (MNI)
JAPAN: Japan's economy grew for a second straight quarter in Q2, boosted by stronger net exports, although capital investment and private consumption slowed, preliminary GDP data released by the Cabinet Office Tuesday showed. Q2 GDP rose 1.5% q/q, or an annualized 6.0%, following a revised 0.9% q/q gain in Q1. (MNI)
JAPAN: Japan’s economy expanded at a much faster clip than forecast, as a surge in exports more than offset weaker-than-expected results for both business investment and private consumption. Gross domestic product grew at an annualized pace of 6% in the second quarter, marking the strongest growth since the last quarter of 2020, Cabinet Office data showed Tuesday. The figure exceeded economists’ forecast of 2.9% growth. Net exports contributed 1.8 percentage points to the expansion versus consensus estimates of 0.9 point. (BBG)
RUSSIA: Russia’s central bank called an extraordinary meeting Tuesday after the ruble crashed through the level of 100 to the dollar for the first time since March of last year as Russia’s war in Ukraine drags on and international sanctions hit trade. Policy makers will publish a statement on the key rate at 10:30 a.m. after the meeting, the Bank of Russia said in a statement, without giving any further details. The central bank hiked its key rate by a percentage point to 8.5% last month, the first increase since emergency measures imposed immediately after the invasion of Ukraine in February 2022. (BBG)
ARGENTINA: After years of trying to avoid a currency devaluation that would add to soaring inflation and reduce its popularity with voters, on Monday it did just that. The move was an admission by President Alberto Fernandez that his administration had run out of options — and money — to defend an unsustainable exchange rate after suffering a stinging defeat in a crucial primary election on Sunday. (BBG)
CHINA
ECONOMIC ACTIVITY: China's production, consumption and investment slowed more than expected in July despite efforts to boost domestic demand, data released by the National Bureau of Statistics on Tuesday showed.(MNI)
RATE CUTS: The People’s Bank of China unexpectedly cut two key policy rates for a second time in three months Tuesday, as recent disappointing financial and economic indicators pointed to stronger headwind s. The central bank cut the rate of one-year medium-term lending facility by 15bp to 2.5% when rolling over the maturing CNY400 billion MLF with a renewed CNY401 billion facility. It also lowered the rate on the 7-day reverse repo rate by 10bp to 1.8%, while injecting a net of CNY198 billion via the instrument. (MNI)
JOBLESS RATE: China will pause publishing data on its soaring youth unemployment rate to iron out complexities in the numbers, fanning investor fears about data transparency in the world’s second-largest economy. The jobless rate for people aged between 16 and 24 won’t be released from August until surveying methods have been improved, the National Bureau of Statistics said at a Tuesday briefing. That means July’s data will not be released. (BBG)
SHADOW BANKS: Founded in 1995 as a lumber business, Zhongzhi Enterprise Group Co. grew to become a financial conglomerate with more than 1 trillion yuan ($138 billion) under management. Now it risks becoming the latest Chinese financial giant to fail.(BBG)
CHINA MARKETS
MNI: BOC Injects Net CNY199 Bln Tues
The People's Bank of China (PBOC) conducted CNY204 billion via 7-day reverse repos and CNY401 billion via 1-year MLF on Tuesday, with the rates lowering to 1.80% and 2.50%, respectively. The operation has led to a net injection of CNY199 billion after offsetting the maturity of CNY6 billion reverse repo and CNY400 billion MLF today, according to Wind Information.
- The operation aims to hedge the impact during tax payment period and to keep banking system liquidity reasonable and ample, the PBOC said on its website.
- The 7-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.9000% at 09:30 am local time from the close of 1.8231% on Monday.
- The CFETS-NEX money-market sentiment index closed at 45 on Monday, compared with the close of 49 on Friday.
PBOC Yuan Parity Higher At 7.1768 Tuesday Vs 7.1686 Monday
The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.1768 on Tuesday, compared with 7.1686 set on Monday.
MARKET DATA
JAPAN Q2, P GDP 1.5% Q/Q; PRIOR 0.9%
JAPAN Q2, P Deflator 3.4% Y/Y; PRIOR 2.0%
JAPAN Q2, P Private Consumption -0.5% Q/Q; PRIOR 0.6%
JAPAN Q2, P Business Spending 0.0% Q/Q; PRIOR 1.8%
JAPAN Q2, P Inventory Contribution -0.2%; PRIOR 0.4%
JAPAN Q2, P Net Exports Contribution 1.8%; PRIOR -0.3%
CHINA 1-Year Medium-Term Lending Facility 2.50%; PRIOR 2.65%
CHINA July Industrial Production 3.7% Y/Y; PRIOR 4.4%
CHINA July Retail Sales 2.5% Y/Y; PRIOR 3.1%
CHINA July Fixed Assets Ex Rural 3.4% Y/Y; PRIOR 3.8%
CHINA July Property Investment -8.5% Y/Y; PRIOR -7.9%
CHINA July Residential Property Sales 0.7% Y/Y; PRIOR 3.7%
CHINA July Surveyed Jobless Rate 5.3%; PRIOR 5.2%
AUSTRALIA Q2 Wage Price Index 0.8% Q/Q; PRIOR 0.8%
MARKETS
US TSYS: Narrow Ranges In Asia
TYU3 deals at 109-28+, -0-03+, a 0-05 range has been observed on volume of ~66k.
- Cash tsys sit little changed across the major benchmarks.
- Tsys have observed narrow ranges with little follow through on moves in a muted Asian session for the space.
- A recovery from early session lows was facilitated by an unexpected cut to two key policy rates by the PBOC, however narrow ranges persisted through the session.
- The highlight flow wise was a block buyer in FV (8.4k lots).
- UK Employment data for June provides the highlight in today's European session. Further out US retail sales, empire manufacturing, business inventories and cross-border investment are due. Fedspeak from Federal Reserve Bank of Minneapolis President Neel Kashkari crosses.
JGBs: Futures Unchanged, Middle Of The Tokyo Range
JGB futures are unchanged, flat compared to the settlement levels, dealing in the middle of the Tokyo session range. The morning session saw the sell-off sparked by the much stronger-than-expected Q2 GDP print unwound. However, lacklustre demand seen at the 5-year auction saw futures weaken again in the Tokyo afternoon session.
- The 5-year auction faced a lacklustre reception with pricing falling short of dealer expectations. The lack of demand was also reflected in the cover ratio falling to the lowest level observed at a 5-year auction since March. Adding to these concerns, the tail also grew longer, marking its most extended length since March.
- Cash JGBs are cheaper across the curve beyond the 1-year, with yield movements ranging from flat (3-4-year zone) to +1.3bp (10-year). The 10-year yield is at 0.625%, above BoJ's YCC old limit of 0.50% but below its new hard limit of 1.0%.
- The swap curve bear steepened, with rates 0.2bp higher to 1.6bp higher. Swap spreads are wider, apart from the 7-10-year.
- Tomorrow the local calendar is light with Department Store Sales as the highlight.
- Tomorrow also sees BoJ Rinban operations covering 1-3-year, 5-10-year and 25-Year+ JGBs.
AUSSIE BONDS :Cheaper, Post-WPI Richening Pared
ACGBs (YM -5.0 & XM -6.5) are weaker but in the middle of the Sydney session’s range. ACGBs spiked richer after the Q2 Wage Price Index (WPI) missed forecasts, printing +0.8% q/q versus expectations of +0.9%, but around half of those gains were subsequently reversed.
- The reversal could reflect that Q3 data is the key print with not only minimum wages increasing on July 1 but also other awards (awards didn’t contribute to Q2 rise). We should see if services were able to pass on higher wages in Q3 CPI data on October 25. The July NAB wage cost component rose sharply.
- The August RBA Minutes were released also but are unlikely to have had a major impact given RBA Governor’s Lowe testimony to Parliament on Friday outlined the key issues.
- Cash ACGBs are flat to 1bp richer after the releases to be 5-6bp cheaper on the day. The AU-US 10-year yield differential is 2bp wider at +6bp.
- Swap rates are 5-6bp higher on the day.
- The bills strip shifts from a post-release twist steepening to a bear steepening with pricing flat to -9.
- RBA-dated OIS pricing is flat out to December and 1-4bp firmer for meetings beyond.
- Tomorrow the local calendar sees the Westpac–MI Leading Index.
NZGBS: Closed Weaker, Mid-Range, Awaits RBNZ Policy Decision Tomorrow
NZGBs closed 3-6bp weaker, in the middle of the local session’s range, with the 2/10 cash curve steeper.
- Swap rates are flat to 4bp higher with implied swap spreads tighter.
- The local calendar saw a couple of releases today. In addition to the previously mentioned REINZ house sales and price data, the RBNZ published Q3 household expectations survey results. The median expected inflation rate in 2 years to be 3.5% down from 5% in Q2. The survey also showed median expected house price inflation in 1 year of 0.0%.
- Tomorrow sees the RBNZ policy decision, with Bloomberg consensus unanimous in expecting the OCR to be kept at 5.50%.
- RBNZ dated OIS is flat across meetings out to Feb’24 and 1-7bp firmer for meetings beyond. The market attaches an 8% chance of a 25bp hike tomorrow.
- Over the past six weeks, terminal OCR expectations have primarily traded within a range of 5.60-5.65%, aside from a brief uptick to 5.81% in early July. This trading pattern aligns with the "watch, worry, and wait" guidance issued by the RBNZ during its May Monetary Policy Statement.
- Later today, US retail sales, empire manufacturing, business inventories and cross-border investment are due.
OIL: Crude Range Trades As China Data Holds Good News
MNI (Australia) - Oil prices have been in a narrow range during APAC trading today after falling almost a percent on Monday. They rose following China’s rate cut announcement with the 1-year MTF reduced to 2.5% from 2.65% and while they are off their highs following that, they were not too adversely affected by the disappointing China data. The USD index is down slightly.
- Brent is up 0.1% to $86.30/bbl after a high of $86.46. It has found support at $86. WTI is flat at $82.54 with the high at $82.72.
- Bloomberg is reporting that China increased refining to its highest in 3 months in July and so apparent crude demand rose 21.2% y/y. OilChem expects refining operating rates to rise further in August. In July they were 81.2%.
- On the supply side, the US and UK warned about increased risks to shipping in the Strait of Hormuz near Iran, an important for crude shipping route. This is in addition to tensions in the Black Sea.
- Given the attention on supply, the US API inventory data out later is likely to be watched closely. It showed a 4.1mn barrel stock build in the latest week, according to Bloomberg.
- Later the Fed’s Kashkari speaks and US July retail sales are forecast to post solid monthly rises. There are also US trade prices for July, June inventories, August Empire manufacturing & NAHB housing. There is also Canadian July CPI and UK wages and labour data.
GOLD: At Support
Gold is little changed in the Asia-Pac session, after closing 0.3% lower on Monday. Bullion came under pressure from the sell-off in US tsys and a strong USD.
- Cash tsys finished 2-7bps cheaper across the major benchmarks, with the curve flatter. Higher bond yields are typically negative for the precious metal, which doesn’t earn interest income.
- The USD dollar index surged higher and closed above the 103.00 level for the first time since July 6. The index climbed to 103.458, rallying against all of its G10 peers.
- According to MNI’s technicals team, the yellow metal touched support at $1902.8 (Jul 6 low) before bouncing as Treasuries pared losses and the USD index pulled back off highs.
FOREX: Greenback Marginally Pressured In Asia
The USD is marginally pressured in Asia, however ranges remain narrow across the G-10 space.
- AUD is the strongest performer in the space at the margins. AUD/USD is ~0.2% firmer and last prints a touch above the $0.65 handle. The pair firmed off session lows after the PBOC cut 2 key policy rates and a weaker than expected WPI as risk sentiment improved through the session.
- Kiwi is also ~0.2% firmer, however ranges remain narrow and NZD/USD sits well within recent ranges.
- Yen is little changed from opening levels, there was a muted reaction to the stronger than forecast Q2 GDP print and USD/JPY respected a ¥145.30/60 range for the most part.
- Elsewhere in G-10, EUR and GBP are marginally firmer and SEK is lagging however liquidity is generally poor in Asia.
- Cross asset wise; e-minis are ~0.2% firmer and US Tsy are little changed across the major benchmarks. BBDXY is ~0.1% lower.
- UK Employment data for June provides the highlight in today's European session.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Flag | Country | Event |
| 15/08/2023 | 0600/0700 | *** |  | UK | Labour Market Survey |
| 15/08/2023 | 0600/0800 | *** |  | SE | Inflation Report |
| 15/08/2023 | 0900/1100 | *** |  | DE | ZEW Current Expectations Index |
| 15/08/2023 | 0900/1000 | ** | | UK | Gilt Outright Auction Result |
| 15/08/2023 | 0900/1100 | *** | | DE | ZEW Current Conditions Index |
| 15/08/2023 | 1230/0830 | *** |  | CA | CPI |
| 15/08/2023 | 1230/0830 | ** | | CA | Monthly Survey of Manufacturing |
| 15/08/2023 | 1230/0830 | *** |  | US | Retail Sales |
| 15/08/2023 | 1230/0830 | ** | | US | Import/Export Price Index |
| 15/08/2023 | 1230/0830 | ** | | US | Empire State Manufacturing Survey |
| 15/08/2023 | 1255/0855 | ** | | US | Redbook Retail Sales Index |
| 15/08/2023 | 1300/0900 | * | | CA | CREA Existing Home Sales |
| 15/08/2023 | 1400/1000 | ** | | US | NAHB Home Builder Index |
| 15/08/2023 | 1400/1000 | * | | US | Business Inventories |
| 15/08/2023 | 1500/1100 | | US | Minneapolis Fed's Neel Kashkari | |
| 15/08/2023 | 1530/1130 | * | | US | US Treasury Auction Result for Cash Management Bill |
| 15/08/2023 | 2000/1600 | ** | | US | TICS |
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.