MNI US OPEN - BRICS Summit Begins with Expansion on the Agenda

NEWS

MNI POLITICAL RISK ANALYSIS - BRICS Summit Preview

The 15^th annual BRICS summit is due to take place August 22-24 in Johannesburg, South Africa. It will be the first in-person summit since 2019 after virtual editions during the COVID-19 pandemic. The summit is set to be the largest yet, with the attendance of around forty heads of state confirmed and up to ten more pending, and a queue of countries lining up to formally apply for membership. MNI's Political Risk team presents a preview of the summit with a roundup of the key objectives, the prospect of expansion of the bloc, intra-bloc relations, the implications for trade, and the question of de-dollarisation.

US/CHINA (BBG): US Lifts Restrictions on Some China Firms Ahead of Raimondo Trip

The US lifted restrictions on 27 Chinese companies and organizations, a sign Washington is extending an apparent olive branch ahead of Commerce Secretary Gina Raimondo’s planned trip to Beijing this month. The US Department of Commerce on Monday removed the Chinese entities — such as chemical firm and lithium battery material maker Guangdong Guanghua Sci-Tech Co., and sensor maker NanJing GOVA Technology Co. — from its “unverified list,” which restricts a company’s ability to buy American technology.

US (BBG): Trump to Surrender Aug. 24 for Booking in Georgia 2020 Case

Donald Trump said he’d surrender to authorities in Atlanta on Aug. 24 to be booked on state charges that he led a criminal conspiracy to overturn the results of the 2020 presidential election. The former president announced the booking in a post on social media Monday evening, hours after he agreed to a $200,000 bond in the case brought against him by Fulton County District Attorney Fani Willis. It’ll be the fourth time this year that Trump has been booked on criminal charges.

CHINA (BBG): China Ramps Up Yuan Defense with Most Forceful Fixing Ever

The PBOC steps up its support for the yuan by setting the daily reference rate for the yuan at the strongest bias versus estimates in a Bloomberg survey. The PBOC sets the yuan fixing at 7.1992 per dollar, versus the average estimate of 7.3103 in a Bloomberg survey of analysts and traders. The gap of 1111 pips from average estimate, would be the strongest on record, in data going back to 2018.

JAPAN (MNI): BOJ Sees Banks Coping Well as Yield Control Eased

Japanese commercial banks will avoid taking big losses on government bond holdings as the Bank of Japan loosens its yield curve control framework by holding the securities to maturity as they rebalance their portfolios towards higher-yielding debt, BOJ analysis ahead of October’s Financial System Report shows. The effect of rising yields since the BOJ raised the effective upper limit on the 10-year bond to 1% in July has been limited, with banks able to cope with a gradual change without needing to offload bonds in a hurry, the analysis shows, MNI understands.

RBNZ (MNI): Rates to Hold, but Upside Risks - RBNZ's Conway

The Reserve Bank of New Zealand’s Official Cash Rate will likely hold at 5.5% well into 2024 unless data surprises force changes to projections, though short-term risks are skewed to the upside, RBNZ Chief Economist Paul Conway told MNI. Holding the OCR steady at 5.5% for the second consecutive meeting last week, the RBNZ’s monetary policy committee was focused on the deteriorating Chinese economy, though resilient export volumes, a stabilising real-estate market and services sector price rises showed inflationary pressure persisted, Conway said.

NEW ZEALAND (MNI): Support for Labour and PM Hipkins Falls Further Ahead of Election

The latest 1News-Verian poll is showing the chances of PM Hipkins holding government following the October 14 election continue to fall. Support for his Labour party fell 4 points to 29% while the Nationals increased 2pp to 37% and its ally ACT +1pp to 13%. This would give Nationals/ACT 65 seats in parliament while Labour/Greens/Te Pati Maori would win 55 seats. 61 seats are needed for a majority.

DATA

UK JUL PSNB GBP+3.48 BN (MNI)
UK JUL PSNB-X GBP+4.3 BN (MNI)
UK JUL PSNCR GBP-7.47 BN (MNI)
UK JUL CGNCR GBP9.98 BN (MNI)

NORWAY JUN MAINLAND GDP +0% M/M, AGG GDP +0% M/M (MNI)

JAPAN DATA (MNI): Japan's Trimmed Mean Rises 3.3% vs. June 3.0%

Japan's trimmed mean measure of underlying inflation accelerated to 3.3% y/y in July from June's 3.0%, showing pass-through of cost increases continues, although the import price fell y/y for the fourth straight month, Bank of Japan data showed Tuesday. Data released Friday showed Japan's annual core consumer price index rose 3.1% in July, decelerating from June's 3.3%. The print represented the 16th straight month above 2%.

FOREX: Dollar Led by Yields, as US10y Rolls Off Cycle High

• The greenback is the poorest performer so far Tuesday, with markets receiving a dose of risk-on as US 10y yields rolled off the cycle high printed just ahead of the European open at 4.3618%. Equities gained, while the dollar faded, allowing the e-mini S&P to show above the Monday high having built off the 100-dma support line last week.
• USD weakness has favoured the major pairs, putting EUR/USD on course for a test of 1.0931 resistance and GBP/USD within range of 1.2800. A break and close above this mark would be the first since early August.
• AUD and NZD are furtively the strongest performers, extending the bounce off last week's lows. Nonetheless, the broader downtrend remains intact, with AUD/USD eyeing 0.6365 and NZD/USD watching 0.5897 as the next key downside levels.
• US existing home sales and Richmond Fed Manufacturing data is top of the docket Tuesday, as well as the beginning of the BRICS summit in South Africa. Fedspeak picks up ahead of the Jackson Hole summit later in the week. Barkin, Goolsbee and Bowman are set to speak across US hours.

EGBS: Bunds Bull Flatten, BTPs Outperform

Bund futures only managed a brief and limited foray above 131.00, before fading from best levels to trade +35 last.

• The major German cash benchmarks sit 1.5-3.5bp richer as the curve bull flattens.
• Cross-asset moves have been eyed, with tech stocks leading a bid in equities and the USD on the defensive.
• Italian paper outperforms European peers early on Tuesday.
• This comes despite BBG sources suggesting that “Italy may slow down its deficit-reduction plans after the economy unexpectedly shrank,” in a report published late on Monday.
• The remainder of the major EGB spreads that we monitor (vs. 10-Year Bunds) are little changed, trading within 1bp of Monday’s closing levels.
• Liquid ECB-dated OIS contracts ease by 0.5-1.5bp.
• The regional data docket and central bank speaker slate is virtually non-existent for the remainder of Thursday’s session.
• We are still on the lookout for the latest round of issuance from the EFSF.

GILTS: Firmer as Wider Core FI Rallies

Gilts have also benefitted from the broader rally in core global FI markets and cross-asset moves, leaving futures +35 or so, while the major cash benchmarks are 4-5bp richer.

• Note that Gilt futures remain comfortably within yesterday’s range.
• Lower than expected UK public sector borrowing figures for the month of July may have provided some support after what proved to be a relatively two-way open on the flow front.
• SONIA futures are flat to +5.5 through the blues, with the reds outperforming.
• BoE-dated OIS pricing has also flattened, running 1-6bp lower on the day. That leaves ~31.5bp of tightening showing for next month, while terminal policy rate pricing is a little below 6.10%.
• The Nov-33 I/L auction saw the average price print below pre-auction mids, while the coverage was in line with what was seen at the previous offering of the line back in June (which represented the launch). Ultimately, value on fly structures, coupled with the allure of the line moving to benchmark status at some point in the relatively near future and prevailing real yield levels seemingly provided enough demand so that the line didn’t struggle in initial post-auction trading, even with the aforementioned price dynamics observed.

EQUITIES: Bearish Threat in E-Mini S&P Intact Despite Latest Recovery

A bearish theme in Eurostoxx 50 futures remains present and last week’s sell-off reinforces current conditions. The contract has breached support at 4276.00, the Aug 8 and 15 low and cleared 4220.00, the Jul 7 low. This opens 4177.40, a Fibonacci retracement. Key short-term resistance is unchanged at 4420.00, the Aug 10 high. Initial firm resistance is 4343.80, the 50-day EMA. A bearish theme in the E-mini S&P contract remains intact and last week’s price action reinforces this theme. The move lower resulted in a break of the 50-day EMA and the contract breached channel support drawn from the Mar 13 low. 4368.50, the Jun 26 low, was breached last Friday and attention turns to 4344.28, a Fibonacci retracement. Initial firm resistance to watch is at the 50-day EMA - at 4454.24.

• Japan's NIKKEI closed higher by 291.07 pts or +0.92% at 31856.71 and the TOPIX ended 24.22 pts higher or +1.08% at 2265.71.
• Elsewhere, in China the SHANGHAI closed higher by 27.356 pts or +0.88% at 3120.334 and the HANG SENG ended 167.72 pts higher or +0.95% at 17791.01.
• Across Europe, Germany's DAX trades higher by 139.85 pts or +0.9% at 15743.32, FTSE 100 higher by 18 pts or +0.25% at 7275.7, CAC 40 up 71.16 pts or +0.99% at 7269.22 and Euro Stoxx 50 up 45.97 pts or +1.09% at 4270.84.
• Dow Jones mini up 51 pts or +0.15% at 34575, S&P 500 mini up 13.5 pts or +0.31% at 4426, NASDAQ mini up 66.75 pts or +0.45% at 15052.5.

COMMODITIES: Recent Weakness in WTI Futures Deemed Corrective

The uptrend in WTI futures remains intact and recent weakness appears to be a correction. Firm support to watch lies at $78.33, the Aug 3 low. A clear breach of this level would signal scope for a deeper short-term retracement. For bulls, a resumption of gains would refocus attention on the next objective at $85.24, a Fibonacci projection. Moving average studies are in bull-mode condition that continues to highlight an uptrend. Gold is trading closer to its recent lows and the outlook remains bearish. The yellow metal has breached key support at $1893.1, the Jun 29 low. The clear break strengthens bearish conditions and signals scope for $1865.8, a Fibonacci retracement. Moving average studies remain in bear mode condition, highlighting current bearish sentiment. On the upside, initial firm resistance to watch is $1934.1, the 50-day EMA.

• WTI Crude down $0.13 or -0.16% at $80.59
• Natural Gas down $0.04 or -1.41% at $2.594
• Gold spot up $4.17 or +0.22% at $1899.42
• Copper up $3.95 or +1.05% at $379
• Silver up $0.05 or +0.2% at $23.355
• Platinum up $4.1 or +0.45% at $919.95