MNI US OPEN: China Slowdown Casts Cautious Global Tone

MNI BRIEF: China July Macro Data Misses Forecasts

China's economy struggled in the resumption of normality in July, as sporadic outbreaks of Covid-19 and unfavorable hot and rainy weather weighed, helping economic indicators fall short of expectations, data by the National Bureau of Statistics released Monday showed.

Industrial production rose 3.8% y/y in July, decelerating from June's 3.9%, missing the forecast 4.5%. Retail sales eased moderately to 2.7% y/y in July from June's 3.1%, underperforming the forecast 5.0% gain. The surveyed urban unemployment rate stood at 5.4% in July, down 0.1 percentage point from June. Youth unemployment set a new high of 19.9%.

Fixed-asset investment eased to 5.7% y/y in the first seven months, from the 6.1% gain in H1, also lower than the 6.2% forecast. Property investment fell 6.4% y/y to hit the lowest level since March 2020, sliding further from the previous 5.4% fall. Infrastructure investment accelerated to 7.4% y/y from the previous 7.1% growth, while manufacturing investment decelerated to 9.9% from the previous 10.4% growth.

FIXED INCOME: Trading at intraday highs

• EGBs and Bund continues to recover from their overnight lows, although volumes are very limited with plenty of European countries on holiday (Assumption day), Bund is trading in a 114 ticks range.
• In peripherals, semi core are wider, while Italy leads, by 3.9bps against the German 10yr.
• BTP/Bund spread has so far found support just ahead of 203.57bps, now at 207.8bps.
• Gilt future underperforms Bund somewhat, but overall, the Yield spread, is trading close to flat (0.6bp tighter).
• Volumes in Treasuries have also been subdued, 140k lots traded at the time of typing, and US curves lean bull flatter.
• Looking ahead, there's no tier 1 data to start the week.
• Notable data for this week, sees UK employment, Canada CPI, US IP (tue), UK CPI, EU GDP, US retail sales (wed), Australia employment, Norway GDP, EU final CPI (thu), Japan CPI, UK retail sales (fri).
• Sep Bund futures (RX) up 77 ticks at 156.11 (L: 155.08 / H: 156.22)
• Germany: The 2-Yr yield is down 2.7bps at 0.581%, 5-Yr is down 3.7bps at 0.718%, 10-Yr is down 4.8bps at 0.939%, and 30-Yr is down 5.5bps at 1.182%.
• Sep Gilt futures (G) up 57 ticks at 116.54 (L: 115.94 / H: 116.64)
• UK: The 2-Yr yield is down 1.7bps at 2.036%, 5-Yr is down 5.2bps at 1.879%, 10-Yr is down 5.5bps at 2.056%, and 30-Yr is down 6.6bps at 2.47%.
• Sep BTP futures (IK) up 63 ticks at 127.92 (L: 126.91 / H: 128.05)
• Sep OAT futures (OA) up 72 ticks at 145.14 (L: 144.25 / H: 145.25)
• Italian BTP spread up 0.7bps at 209bpsSpanish bond spread unchanged at 111.1bps
• Portuguese PGB spread down 0.1bps at 100.7bps
• US 2-Yr yield is up 1.3bps at 3.255%, 5-Yr is up 0.2bps at 2.958%, 10-Yr is down 0.5bps at 2.8258%, and 30-Yr is down 1.1bps at 3.0964%.The Sep 22 T-Note future is up 5/32 at 119-13+, having traded in a range of 119-04+ to 119-14

FOREX: Sour China Data Undermines Commodity-Tied Currencies

• The greenback continues to bounce off the post-CPI lows, with the USD Index close to 1.5% off last week's lows. A sour set of economic data from China has prompted a wave of risk-off across currency markets. The price action has favoured the USD, JPY and CHF, with AUD and NZD the biggest losers in G10.
• Both industrial production and retail sales data from China fell below expectations for June, with retail sales now in negative territory on a YTD basis. In response, the Chinese central bank cut both the 7-day reverse repo and the 1-year MLF rate by 10bps apiece, looking to arrest the slowing economy.
• In response, the CNH is sliding, putting USD/CNH north of 6.78 and within range of next resistance at the 6.7954 August high. A clean break above here would be the highest level for the pair since early May.
• Commodity- and high-beta currencies are sliding alongside the weakness in Chinese economic data, putting AUD/USD below 0.7050 and within range of 0.7030 support (23.6% retracement for the Jul - Aug upleg). CAD is exhibiting similar price action, with USD/CAD now just shy of the 1.2888 50-dma.
• US Empire manufacturing crosses later today, with the index expected to slow to 5.0 from 11.1 prior. Canadian manufacturing sales also crosses as well as the NAHB housing market index. There are no notable central bank speakers due.

EQUITIES: Defensives Outperform In Holiday-Thinned European Trade

• Japan's NIKKEI closed up 324.8 pts or +1.14% at 28871.78 and the TOPIX ended 11.78 pts higher or +0.6% at 1984.96. China's SHANGHAI closed down 0.801 pts or -0.02% at 3276.087 and the HANG SENG ended 134.76 pts lower or -0.67% at 20040.86.
• European equities are near session lows, though with holidays throughout Europe today, trading is unusually thin: defensives are leading (utilities, healthcare, consumer staples) with the German Dax up 18.39 pts or +0.13% at 13810.49, FTSE 100 up 14.41 pts or +0.19% at 7514.56, CAC 40 up 19.81 pts or +0.3% at 6570.59 and Euro Stoxx 50 up 8.75 pts or +0.23% at 3784.95.
• U.S. futures are a little softer, with the Dow Jones mini down 116 pts or -0.34% at 33602, S&P 500 mini down 17.25 pts or -0.4% at 4263.75, NASDAQ mini down 53.75 pts or -0.4% at 13524.

COMMODITIES: Copper Drops On Weak China Data

• WTI Crude down $1.95 or -2.12% at $90.13
• Natural Gas down $0.15 or -1.75% at $8.639
• Gold spot down $16.74 or -0.93% at $1787.1
• Copper down $7.35 or -2% at $358.9
• Silver down $0.32 or -1.54% at $20.5372
• Platinum down $18.8 or -1.95% at $950.27