EXECUTIVE SUMMARY
- BIDEN’S TOP SECURITY ADVISER LANDS IN CHINA FOR OFFICIAL TALKS
- FRANCE’S MACRON CONTINUES PREMIER TALKS AFTER REJECTING LEFTIST PICK
- WEAK CAPITAL INVESTMENT DRAGS GERMAN GDP LOWER
- UK SHOP PRICE INFLATION REMAINS LOWEST SINCE OCT'21
Figure 1: French National Assembly, seats (potential coalition formation)
Source: Le Monde/MNI
NEWS
US/CHINA (BBG): Biden’s Top Security Adviser Lands in China for Official Talks
US President Joe Biden’s top national security aide Jake Sullivan arrived in Beijing for a three-day visit as the world’s two largest economies seek to manage their rivalry through dialogue. Sullivan landed in the Chinese capital on Tuesday as the first US national security adviser to visit China since 2016. He is expected to meet the country’s top diplomat, Wang Yi, over two days of talks and meals in the outskirts of Beijing.
US (BBG): Harris Is ‘Pro-Capitalism’ But Will Curb Cheaters, Emhoff Says
Vice President Kamala Harris is a pro-growth capitalist who wants a “forward-looking economy that helps everyone,” her husband Doug Emhoff told donors, in what were some of the most revealing comments yet from the Democratic nominee’s allies about her economic vision. The Second Gentleman, speaking at a Sag Harbor, New York, fundraiser on Monday evening, pointed to his own career as a business and media lawyer, and said Harris “understood exactly what I was doing with these clients.”
FRANCE (MNI): Macron to Resume PM Talks After Ruling Out Leftist Gov't
President Emmanuel Macron is set to resume talks today (27 Aug) with political leaders as he seeks to find a way through an extremely difficult political situation. In recent days, Macron has held talks with political leaders from various political camps in an effort to find a new PM nearly two months after the second round of legislative elections took place on 7 July. The deeply divided National Assembly delivered by those elections, combined with a lack of experience in coalition building within the French political system, has made reaching an agreement on a new PM and gov't impossible to date.
UK (MNI): PM Starmer - "Things Will Get Worse Before They Get Better"
Prime Minister Sir Keir Starmer is currently delivering a televised address in the Downing St. rose garden, under the heading of 'fixing the foundations' of the United Kingdom. Starmer is using the address as an opportunity to set the political landscape before what is expected to be an autumn of tough economic decisions for the gov't. Starmer says "Things will get worse before they get better." Says "If we don't take tough actions across the board we will not be able to fix the foundations of our country." Starmer: "I won't shy away from unpopular decisions now" if it results in benefits in the long term. This is expected to result in a budget statement on 30 Oct that includes tax increases (inheritance tax and CGT seen as the most likely to be hiked) and effective spending cuts to gov't departments.
UK (BBG): UK Banks Brace for Lending Boost on Labour Housebuilding Pledge
UK banks are preparing for a red-hot corner in the lending market as the new Labour government’s plan to address a housing shortage prompts developers to boost supply of homes. Three prominent residential development finance lenders surveyed by Bloomberg News said they expected the outlook for housebuilding loans to improve in the coming five years, especially once Labour’s planning policies start to take effect. A surge in borrowing would provide a shot in the arm for those divisions within banks that have been weathering a slump from high inflation, rate hikes and labor shortages.
CHINA/JAPAN (BBG): Chinese Military Plane Breaches Japan Airspace in a First
A Chinese military aircraft entered Japanese airspace in an unprecedented move, suggesting Beijing’s willing to take a harder stance as the rivals spar over territory, trade and detained citizens. Japan’s top government spokesman Yoshimasa Hayashi called the incursion unacceptable, adding “this is not just a serious violation of our territory but also a threat to our security.” China has yet to comment on the incident. The incursion took place before noon on Monday. Japan scrambled fighter jets to warn off a Chinese Y-9 intelligence-gathering aircraft that spent two minutes in Japanese territorial airspace near uninhabited islands off Japan’s south coast.
CHINA (BBG): Country Garden Mulls Further Delays to Yuan Bond Payments
Country Garden Holdings Co. told some investors that it is considering further extending payments on some of its yuan bonds, according to people familiar with the matter, as a prolonged sales slump adds to the Chinese developer’s financial stress. In an effort to gain more time to map out a debt overhaul, Country Garden’s main onshore unit may push back payments on several yuan bonds due in September by six months, the people said, citing private conversations. That would include 10% of the principal on its 4.38% notes due September 2026, the people added.
CHINA (BBG): China’s Sichuan Sees Blistering Heat Stress Grid and Stunt Crops
Temperatures over 40C (104F) in China’s southwestern province of Sichuan are putting pressure on the electricity grid and damaging crops at an important stage of their growth. Maximum power demand in the province the size of Germany hit a record 68 gigawatts last week, 13% higher than the previous year’s peak. Officials in some cities have ordered energy conservation measures, such as reducing air conditioning use, disabling escalators and turning off landscape lighting.
AUSTRALIA (BBG): Australia Caps Foreign Students in Bid to Curb Migration
Australia will limit visa approvals for foreign students from next year as part of a migration crackdown. Under the policy, the government will cap new international students at 175,000 for higher education courses and 95,000 for the skills training sector, taking the total to 270,000, Education Minister Jason Clare said Tuesday. Overall, there will be about 15% more students allowed for universities and 20% fewer for vocational colleges in 2025, Clare said. The government was writing to individual universities to inform them of their caps on Tuesday.
RUSSIA/UKRAINE (BBG): Russia Hits Ukraine With Over 100 Missiles Targeting Energy
Ukraine said Russia fired more than 100 missiles and nearly as many drones at cities across the country on Monday in a massive attack against power infrastructure that caused blackouts and left at least three people dead. The energy sector has sustained significant damage, President Volodymyr Zelenskiy said in a post on the X social media network, calling the strike one of the largest since the Kremlin’s invasion of his country began more than two years ago.
MEXICO (BBG): AMLO’s Judicial Reform Jumps First Hurdle in Mexico Congress
A key congressional committee approved President Andres Manuel Lopez Obrador’s plan to overhaul the Mexican judicial system Monday, paving the way for Congress to consider the controversial proposal that opponents say will put democracy at risk. The lower house’s constitution committee voted to advance the general text of the plan, which would require that all federal judges in Mexico, including members of the Supreme Court, are elected by popular vote.
OIL/LIBYA (BBG): Libya’s El-Feel Oil Field Is Said to Halt Production
Oil production from El-Feel oil field in Libya was shut down, according to two people with knowledge of the situation who spoke on condition of anonymity. El-Feel oil field produces about 70k b/d.
COMMODITIES (BBG): Iron Ore Reaches Two-Week High as China Steel Prices Tick Higher
Iron ore futures in Singapore have gained almost 6% so far this week — reclaiming a foothold above $100 a ton — as investors bet that China’s steel output may have found a floor after a severe slowdown in demand. Steel consumption and production in China have come under intense pressure in recent months, with the country’s top supplier warning of some of the most severe market conditions this century. On Tuesday, the world’s biggest miner, BHP Group Ltd., said the key property sector remained “weak.”
DATA
GERMANY DATA (MNI): Weak Capital Investment Drags GDP Lower
- GERMANY FINAL Q2 GDP SA -0.1% Q/Q, WDA 0.0% Y/Y
German Q2'24 final GDP growth was -0.1% Q/Q as expected (+0.1% prior). Underlying drivers were released, and some revisions altered the picture from last quarter also. Private Consumption -0.2% Q/Q vs 0.0% cons; +0.3% prior, a strong upward revision from -0.4%. Strong Q1 real wage gains suggest some upside potential here looking forward. The weak figure indicates consumer caution, though - which appears to consist considering today's drop in GfK consumer confidence (-22.0 vs -18.2 cons; -18.6 prior). Capital Investment -2.2% Q/Q vs -1.5% cons; +0.1% prior, downwardly revised from +1.2%. The fact that capital investment was weak hardly comes as a surprise as it was mentioned by Destatis as the main downward contributor in the flash release.
UK DATA (MNI): Shop Price Inflation Remains Lowest Since Oct'21 - BRC-NielsenIQ
- UK AUG BRC SHOP PRICES +0% M/M, -0.3% Y/Y
BRC-NielsenIQ Shop Prices fell 0.3% Y/Y in August for the first year-on-year decline since October 2021, having increased just 0.2% in July. On a monthly basis, Shop Prices were flat at 0% M/M (vs -0.1% prior). The Non-Food component remained in deflation for the fifth consecutive month at -1.5% Y/Y after -0.9% Y/Y in July, whilst food price inflation saw a sixteenth consecutive monthly moderation to 2.0% Y/Y from 2.3% Y/Y. On a monthly basis, the food component rose 0.2% (vs 0.1% prior) - albeit
somewhat softer than pre-pandemic readings for August - whilst the non-food component fell 0.1% (vs -0.2% prior).
SWEDEN DATA (MNI): July Input Price Data Supportive of Optimistic Tone in Minutes
Swedish July input price data appears supportive of the sentiment from yesterday's August meeting minutes, where Executive Board members cited diminishing upside risks to future inflation. The price index for domestic supply, which combines domestic producer prices and import prices (thus provides a better gauge of pipeline pressures than
the headline PPI metric) was -0.5% Y/Y (vs 1.0% prior) and -1.5% M/M. Domestic electricity prices fell 0.7% M/M in July, pulling the headline rate lower.
JAPAN DATA (MNI): Japan July Services PPI Rises 2.8% vs. June's 3.1%
- JAPAN JULY SERVICES PPI +2.8% Y/Y; JUNE REV +3.1%
- JAPAN JULY SERVICES PPI +0.3% M/M: JUNE REV +0.1%
Japan’s services producer price index rose 2.8% y/y in July, slowing from June’s revised 3.1%, showing that corporate pass-through of cost increases remained solid but the pace is slowing, preliminary data released by the Bank of Japan on Tuesday showed. The index rose 0.3% m/m in July, accelerating from June’s 0.1%. Advertising services (+5.7% vs. +6.7%) and other services, including hotels, (+3.5% vs. +4.0%) drove the result despite a slower pace.
JAPAN DATA (MNI): Japan's July Trimmed Mean Rises 1.8% vs. 2.1% - BOJ
Japan’s trimmed mean measure of underlying inflation rose 1.8% in July, slowing from 2.1% in June, indicating the pace of the pass-through of cost increases caused by the weak yen is slowing, data released by the Bank of Japan showed on Tuesday. Bank officials are focused on how the recent rise in import price, which increased 10.8% y/y in July for the sixth third straight rise, will impact corporate price-setting over the coming months.
FOREX: GBP Inches to a New Cycle High
- GBP modestly outperforms, gaining against all others in G10 as UK market participants return from the bank holiday on Monday. While activity is picking up, overall volumes remain below recent averages as the Tuesday calendar leaves little to inspire markets in either direction.
- Nonetheless, GBP outperformance has resulted in a new cycle high for GBP/USD at 1.3247, keeping bullish conditions intact and reinforcing the current trend set-up. The pair has traded through two important resistance points; 1.3142/43, the Jul 14 ’23 high and the top of a bull channel drawn from the Oct 4 ‘23 low. This strengthens bullish conditions and paves the way for a climb towards 1.3261, a Fibonacci projection.
- JPY is at the other end of the table, slipping against most others as US yields inch higher in the belly of the curve. We note overnight demand for AUD/JPY upside protection via options, with markets seemingly targeting the horizontally-trending 200-dma of 99.98. Most legs are shorter-dated, targeting an expiry of mid-September, therefore rolling off well ahead of the next BoJ, RBA meetings.
- Tuesday trade is headlined by August US consumer confidence stats and the Richmond Fed Manufacturing Index - although broader focus remains on the European inflation picture later in the week, with prelim German, French and Eurozone-wide CPI estimates. ECB speakers today include Knot and Nagel.
BONDS: EGB Supply, Gas Prices And Downside Momentum Weigh on Tuesday
Bund futures are weaker again this morning, while Gilts have caught up with yesterday’s wider core FI sell-off as UK markets return from the Bank Holiday. European supply burdens and an uptick in natural gas prices will have weighed in the absence of market-moving data releases.
- Bund futures are -35 ticks today at 133.97, through the first support at 134.16 (20-day EMA).
- In Gilts, U4 remains the active contract, though the roll to Z4 will likely be complete by tomorrow/Thursday. U4 currently trades -55 ticks today at 99.39
- The German and UK cash curves have bear steepened, while major 10-year EGB spreads to Bunds are wider.
- E2.5bln of 3.10% Aug-26 BTP Short Term supply was digested smoothly, as was E4bln of the 2.50% Oct-29 Bobl is at 1030BST.
- This morning, German Q2 GDP confirmed flash estimates at -0.1% Q/Q, while GfK consumer confidence was weaker than expected.
- ECB-speak headlines the remainder of today’s regional calendar, with the usually hawkish Knot (1145BST/1245CET) and Nagel (1500BST) both scheduled.
EQUITIES: Bullish Theme in E-Mini S&P Remains in Play
A bullish theme in S&P E-Minis remains intact and the contract traded to a fresh cycle high Monday. Price has cleared resistance at 5600.75, the Aug 1 high and this signals scope for an extension towards key resistance and the bull trigger at 5721.25, the Jul 16 high. A break would resume the primary uptrend. On the downside, support to watch lies at 5499.15, the 50-day EMA. A clear break of it is required to instead highlight a potential bearish threat. Eurostoxx 50 futures are unchanged. The contract traded higher last week and price is holding on to its latest gains. The contract has pierced the 50-day EMA, at 4873.86. An extension higher would undermine the recent bearish theme and highlight a stronger reversal. Sights are on 4951.00 next, the Jul 31 high. For bears, a reversal lower would refocus attention on the bear trigger at 4494.00, the Aug 5 low.
- Japan's NIKKEI closed higher by 178.4 pts or +0.47% at 38288.62 and the TOPIX ended 19.39 pts higher or +0.73% at 2680.8.
- Elsewhere, in China the SHANGHAI closed lower by 6.789 pts or -0.24% at 2848.731 and the HANG SENG ended 75.94 pts higher or +0.43% at 17874.67.
- Across Europe, Germany's DAX trades higher by 74.29 pts or +0.4% at 18691.65, FTSE 100 higher by 48.85 pts or +0.59% at 8376.5, CAC 40 up 32.48 pts or +0.43% at 7623.28 and Euro Stoxx 50 up 18.03 pts or +0.37% at 4915.07.
- Dow Jones mini up 39 pts or +0.09% at 41373, S&P 500 mini up 7.25 pts or +0.13% at 5644.25, NASDAQ mini up 44 pts or +0.22% at 19636.
COMMODITIES: WTI Futures Continue to Trade Above Resistance at 50-Day EMA
WTI futures have recovered from their recent lows and the contract traded sharply higher Monday. The move is considered corrective, however, price has breached resistance at $76.30, the 50-day EMA. The clear break of the average undermines the recent bearish theme and attention turns to key resistance at $78.54, the Aug 12 high. For bears, a reversal lower would refocus attention on $70.88 key support. Gold remains in a bull-mode condition and the yellow metal is trading at its recent highs. The recent breach of resistance at $2483.7, the Jul 17 high, confirmed a resumption of the primary uptrend. Note that moving average studies remain in a bull-mode set-up and this continues to highlight a dominant uptrend. The focus is on a climb towards $2536.4 next, a Fibonacci projection. Initial support to watch lies at $2466.7, the 20-day EMA.
- WTI Crude down $0.38 or -0.49% at $77.06
- Natural Gas down $0.04 or -1.99% at $1.916
- Gold spot down $6.86 or -0.27% at $2510.69
- Copper up $1.2 or +0.28% at $429.25
- Silver up $0.04 or +0.15% at $29.9367
- Platinum down $2.45 or -0.25% at $960.9
MNI (LONDON)
| Date | GMT/Local | Impact | Country | Event |
| 27/08/2024 | 1255/0855 | ** |  US | Redbook Retail Sales Index |
| 27/08/2024 | 1300/0900 | ** | US | S&P Case-Shiller Home Price Index |
| 27/08/2024 | 1300/0900 | ** | US | FHFA Home Price Index |
| 27/08/2024 | 1300/0900 | ** | US | FHFA Home Price Index |
| 27/08/2024 | 1300/0900 | ** | US | FHFA Quarterly Price Index |
| 27/08/2024 | 1300/0900 | ** | US | FHFA Quarterly Price Index |
| 27/08/2024 | 1400/1000 | *** | US | Conference Board Consumer Confidence |
| 27/08/2024 | 1400/1000 | ** | US | Richmond Fed Survey |
| 27/08/2024 | 1430/1030 | ** | US | Dallas Fed Services Survey |
| 27/08/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 27/08/2024 | 1700/1300 | * | US | US Treasury Auction Result for 2 Year Note |
| 28/08/2024 | 0130/1130 | *** |  AU | Quarterly construction work done |
| 28/08/2024 | 0130/1130 | *** | AU | CPI Inflation Monthly |
| 28/08/2024 | 0515/0115 | US | Fed Governor Christopher Waller | |
| 28/08/2024 | 0600/1400 | ** |  CN | MNI China Liquidity Index (CLI) |
| 28/08/2024 | 0645/0845 | ** |  FR | Consumer Sentiment |
| 28/08/2024 | 0800/1000 | ** |  EU | M3 |
| 28/08/2024 | 0900/1000 | * |  GB | Index Linked Gilt Outright Auction Result |
| 28/08/2024 | 1100/0700 | ** | US | MBA Weekly Applications Index |
| 28/08/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 28/08/2024 | 1530/1130 | ** | US | US Treasury Auction Result for 2 Year Floating Rate Note |
| 28/08/2024 | 1700/1300 | * | US | US Treasury Auction Result for 5 Year Note |
| 28/08/2024 | 2200/1800 | US | Atlanta Fed's Raphael Bostic |