MNI US OPEN - Dovish BOJ Rhetoric Stokes Further Volatility

EXECUTIVE SUMMARY

• BOJ WILL NOT HIKE DURING UNSTABLE MARKETS, DEPUTY GOVERNOR SAYS
• HARRIS, WALZ LAUNCH SWING-STATE BLITZ TO GAIN EDGE OVER TRUMP
• CHINA JULY EXPORTS SLOW UNEXPECTEDLY TO 7% Y/Y
• NEW ZEALAND UNEMPLOYMENT RISES LESS THAN EXPECTED

MNI (LONDON) - Figure 1: China oil import volumes slowing

Source: MNI/Bloomberg

NEWS

US (BBG): Harris, Walz Launch Swing-State Blitz to Gain Edge Over Trump

Vice President Kamala Harris kicked off a critical campaign stretch aimed at putting Republican Donald Trump on the defensive in key swing states as she took the stage for the first time with her new running mate, Minnesota Governor Tim Walz. Harris personally introduced Walz on stage, hailing him as a “fighter for the middle class” and touting a biography Democrats hope will broaden the ticket’s appeal to working-class voters during a rally in Philadelphia.

US (MNI): US Delinquency Rates Remained Elevated in 2Q-NY Fed

U.S. delinquency transition rates for credit cards, auto loans and mortgages remained elevated and increased little in the second quarter, the New York Fed said in a report Tuesday. Overall consumer debt is overwhelmingly high quality and bankruptcies and foreclosures are low compared to historical values, meaning consumers are still in a decent place, Fed bank researchers told reporters. 

MIDEAST (BBG): Hamas Makes Sinwar Political Chief, Dashing Cease-Fire Hopes

Hamas named Yahya Sinwar, a key mastermind of the group’s Oct. 7 assault, as its new political leader, the latest blow to multilateral efforts to reach a cease-fire agreement in Gaza. Sinwar succeeds Ismail Haniyeh, one of the group’s main mediators, whose assassination in Iran last week had already put strain on talks - which have dragged for months - aimed at bringing the 10-month old war to an end. Iran’s said it is preparing to attack Israel as punishment for Haniyeh’s killing, which Israeli officials haven’t confirmed or denied having a role in.

BOE (MNI): NIESR See Bank Rate, Inflation Above BOE Forecasts

The Bank of England key policy rate will follow a higher path than current market expectations, as inflation will exceed the Bank’s predictions the National Institute of Economic and Social Research’s quarterly release says. NIESR forecast “output to grow at around 1.2% per annum and the unemployment rate to remain around 4.5%", while inflation rises over the second half of this year. The average bank rate is expected to fall to 4.6% in 2025 and 4.1% in 2026, which seems to imply no further rate cuts this year and only two or three next year.

UK (BBG): UK House Prices Rise the Most Since January, Halifax Says

UK home prices resumed growth after a three-month lull, gaining at the strongest pace since January in a further sign that the market is coping with elevated interest rates, one of the nation’s biggest mortgage lenders said. Halifax said the average price of a typical UK house rose 0.8% in July to £291,268 ($370,040) after no change for the previous three months. It supports figures reported earlier from Nationwide Building Society showing prices up 0.3% on the month.

FRANCE (MNI): Possible 'National Emergency Gov't' Faces Its Own Hurdles

Media speculation surrounding potential candidates to become head of a 'national emergency gov't' has circled in recent days, with figures from the centre-right of French politics potentially in the frame. While there is unlikely to be any significant movement on the political front in August, with the National Assembly on its summer break until 2 September at the earliest, behind-the-scenes negotiations could take place between senior figures from various parties over the coming weeks. 

BOJ (MNI): BOJ Will Not Hike During Unstable Markets - Uchida

Bank of Japan Deputy Governor Shinichi Uchida said on Wednesday that the BOJ will not raise its policy interest rate while financial and capital markets are unstable. “In contrast to the process of policy interest rate hikes in Europe and the United States, Japan's economy is not in a situation where the BOJ may fall behind the curve if it does not raise the policy interest rate at a certain pace,” Uchida told business leaders in Hakodate City. “Therefore, the Bank will not raise its policy interest rate when financial and capital markets are unstable.”

JAPAN (MNI): Japan Conducts Forex Interventions Apr 29, May 1

Japanese authorities conducted yen buying interventions on April 29 and May 1, purchasing JPY5.9 trillion and JPY3.9 trillion respectively when the yen fell to JPY160 for the lowest level in 34 years, data released by the Ministry of Finance showed on Wednesday. The dollar traded at around JPY145.20 in early Wednesday after rising to a JPY141 level on Monday following concerns the U.S. Federal Reserve could lower rates to support the economy.

CHINA (RTRS): Chinese Regulators Restrict Duration of New Bond Funds, Sources Say

Chinese regulators have moved to restrict the duration of new bond funds, sources told Reuters, in an apparent attempt to curb investment in long-dated treasuries as authorities ramp up efforts to cool a sizzling bond rally. China's securities watchdog has recently asked major mutual fund companies to cap the duration of their new bond funds to two years, according to three sources with direct knowledge of the guidance. Duration measures a bond's interest rate risks, and the ceiling would prod fund managers to limit their exposure to long-dated bonds.

CHINA (BBG): PBOC Decides to Forgo Cash Injections for First Time Since 2020

China’s economy is so flush with funds that the central bank chose not to make any short-term cash injections into the financial market for the first time since 2020. The People’s Bank of China said it refrained from pumping cash into the financial system via its open-market operations because “the overall amount of liquidity is reasonable and abundant.” The decision was made based on the demand from primary dealers in the money market, it said in a statement.

INDIA (BBG): India Considering Major Cut to Food Weighting in CPI Basket 

An Indian government panel tasked with revising the nation’s consumer price index is considering a substantial cut in the weighting of food, according to a person familiar with the matter, a move that could curb inflation spikes in the South Asian nation. The panel, under the statistics ministry, is discussing a proposal to reduce the weight of food in the consumer price basket by as much as 8 percentage points, according to the person, who asked not to be identified as the discussions are private. The food and beverage category makes up 45.86% of the current CPI basket. 

THAILAND (BBG): Thai Court Disbands Main Opposition Party Over Royal Reform Push

Thailand’s Constitutional Court ordered the dissolution of the nation’s largest opposition party after finding it guilty of breaching election rules with its campaign to amend a stringent royal defamation law. The court ruled that Move Forward’s bid to amend the lese majeste law, also known as Article 112 of the Thai penal code, violated the poll rules. The country’s Election Commission sought the progressive party’s dissolution after a ruling earlier this year that the group’s bid to amend the royal insult law amounted to an attempt to overthrow Thailand’s constitutional monarchy.

EQUITIES (BBG): Asian Stocks Rise as BOJ Comments Helps Lift Japan, Korea

Asian equities advanced for a second session following Monday’s global rout, after the Bank of Japan said it won’t raise interest rates if financial markets are unstable. The MSCI Asia Pacific Index climbed as much as 1.8%. Japan’s Topix index pared earlier gains to close 2.3% higher as the BOJ Deputy Governor Shinichi Uchida noted the recent volatility in the nation’s markets and said its rate path will shift if there’s an impact on the policy outlook. Benchmarks in South Korea and Taiwan also climbed, with the Taiex index logging its biggest single-day rally since May 2021.

COMMODITIES (BBG): Iron Ore Falls on Weaker Export Data From China, Higher Supplies

Iron ore dropped for a second day as an unexpected slowdown in Chinese exports increased investors’ concerns about the health of the global economy, while increased supplies of the raw material continued to cloud the market outlook. Official trade data showed China’s imports in July grew the most in three months, but exports growth was below forecasts, in a sign of cooling global demand. According to Bloomberg Economics, it signals that the nation’s 2024 economic expansion is likely to undershoot the official 5% target “unless more effective stimulus is adopted.”

DATA

GERMAN DATA (MNI): IP Beat Not Enough to Change Narrative Around Industry Weakness

• GERMANY JUN IND PROD +1.4% M/M

German June industrial production was stronger than expected at 1.4% M/M SWDA (vs 1.0% cons), though May's reading was revised 6 tenths lower to -3.1% M/M. The June reading followed a better-than-expected factory orders print yesterday. One months' worth of data is not enough to buck the recent trend in German industry though, with sentiment data up to July still indicative of weak conditions. Indeed, the less volatile 3m/3m SWDA IP reading deepened further into negative territory at -1.3% non-annualized in June vs -0.2% in May, reversing the nascent recovery that had been seen in the metric between December 2023 and April 2024 which had seen quarterly growth of 0.4% in Q1.

GERMANY JUN TRADE BALANCE EUR +20.4BLN (MNI)
GERMANY JUN EXPORTS -3.4% M/M; IMPORTS +0.3% M/M (MNI)

CHINA DATA (MNI): China July Exports Slow Unexpectedly to 7% Y/Y

• CHINA JUL TRADE SURPLUS +$84.65 BLN VS JUN +$99.05 BLN
• CHINA JUL EXPORTS +7.0% Y/Y VS MEDIAN +9.9% Y/Y
• CHINA JUL IMPORTS +7.2% Y/Y VS MEDIAN +4.2% Y/Y

MNI (Beijing) China's exports rose for the fourth consecutive month by 7.0% y/y in July, though missing the 9.9% market consensus and decelerating from June’s 8.6%, with expansion in the first seven months totalling 4.0%, data released by Customs on Wednesday showed. Imports grew by 7.2% y/y, reversing June's 2.3% decline and beating the 4.2% forecast. Imports increased 2.8% y/y over the Jan-Jul period, quickening from 2.0% in H1. China’s trade surplus in the first seven months hit USD518 billion, with July contributing USD84.65 billion.

CHINA DATA (MNI): China Iron-Ore Imports Up in July

MNI (Beijing) China’s imports of iron-ore reached 103 million metric tonnes in July, up 5.3% m/m, according to customs statistics released on Wednesday. Beijing’s inbound shipments of iron-ore now total 713 million metric tonnes during the first seven months of the year, up 6.7% y/y, accelerating from 6.2% during the first six months.

CHINA DATA (MNI): China FX Reserves Up 1.1% Since June

MNI (Beijing) China’s foreign exchange reserves reached USD3.25 trillion at the end of July, up 1.1% since the end of June, China's State Administration of Foreign Exchange said on Wednesday. Reserves had increased due to changes in conversion rates and asset prices, a statement on the administration's website said, noting the outlook for China’s economic operation and foreign currency reserves was generally stable.

NEW ZEALAND DATA (MNI): Labour Market Softening But Wage Growth Elevated

The NZ labour market continues to ease but not by as much as consensus expected for Q2. The unemployment rate rose 0.3pp to 4.6%, its highest since Q1 2021 but in line with the RBNZ's May expectation. Employment growth and the participation rate were stronger than expected as were private sector wages. Public sector agreements boosted overall earnings. With the labour market developing broadly as the RBNZ expects and some domestic inflation still strong, it will likely want to see Q3 CPI on October 16 before cutting rates. Employment rose 0.4% q/q with the annual rate slowing to 0.6% from 1.3% in Q1 and 4.5% in Q2 2023. Jobs growth was driven by the part-time sector (+1.9%  q/q) with full-time falling (-0.1% q/q).

FOREX: Yen Consolidates Weakness Post Dovish BOJ Rhetoric, NZD Outperforms

• Dovish remarks from BOJ Deputy Governor Uchida overnight stoked a strong reversal lower for the Japanese Yen, and despite a moderate pullback, USDJPY trades close to the 147 handle, consolidating near 2% gains on the session. 
• As a reminder, BOJ’s Uchida stated that rates won't be raised if the market is unstable, and the rate path will shift if market moves affect the economic outlook. This offset earlier comments that rates would continue to rise if projections unfolded as expected.
• The latest USDJPY recovery - a correction - is allowing an oversold condition to unwind and initial resistance is seen at 149.77, the Aug 2 high.
• NZDJPY stands out as the key outperforming cross, rising over 3% on the day. This follows the earlier Q2 employment data beat, which prompted RBNZ easing expectations for next week's meeting to considerably diminish.
• NZD/USD remains up 1% and is back above 0.6000, while AUDNZD (-0.45%) continues to grind lower, hovering around the 1.0900 mark.
• Higher core yields and the associated pressure on the yen has also filtered through to the Swiss Franc, with both EURCHF and USDCHF rising around 0.75%. 
• Other major pairs such as EURUSD and GBPUSD remain in very tight ranges as the action remains on the low yielders that have been most sensitive to carry unwinds in recent sessions.
• Canada Ivey PMI and BOC minutes highlight a relatively quiet economic calendar on Wednesday. Despite remarks not being expected, it is worth noting that Boston Fed President Susan Collins will travel to Rhode Island to meet with a wide range of participants in the economy.

EGBS: Spreads Tighten as Risk Sentiment Recovers

EGBs have been pressures alongside wider core FI this morning, with an ongoing recovery in risk sentiment seeing Bunds underperform peers.

• Dovish commentary from BoJ Deputy Governor Uchida did not materially impact Bund futures overnight, nor did the stronger-than-expected German industrial production reading earlier.
• 10-year spreads to Bunds have tightened amid the rally in European equities, with the BTP/Bund spread 2bps tighter at 143bps and the OAT/Bund spread back at 74bps (from over 80bps on Monday).
• Bund futures are 101 ticks lower today at 134.02, through the first support of 134.39 (Aug 2 low). The 20-day EMA at 133.25 provides the next target for bears.         
• The German and French cash curves have bear steepened, with the German 2s10s at its steepest since December 2022 at -15.9bps.
• Today’s 15-year Bund supply was digested smoothly. 
• The remainder of today’s macro calendar is light.

GILTS: Extension of Equity Recovery Weighs

Gilts are weaker again, with equity benchmarks recovering further from Monday’s lows.

• Futures -52 at 99.44, although bears have been unable to test initial support at the Jun 21 high (99.23).
• Yields 2-4bp higher across the curve, bear steepening. Benchmarks are 19-25bp off Monday’s lows.
• SONIA futures flat to -7.0.
• BoE-dated OIS shows ~10bp of cuts for next month’s meeting & ~43bp of easing through year-end.
• Dec ’24 MPC pricing showed a little over 65bp of cuts at one point on Monday.
• 5-Year gilt supply saw disappointing demand, with the cover ratio running comfortably below average and low price printing below pre-auction mids.
• The local data calendar is limited until next week’s labour market and inflation readings, leaving wider market sentiment at the fore.

EQUITIES: E-Mini S&P Extends Recovery From Monday's Lows

A bear threat in Eurostoxx 50 futures remains present and the contract traded lower Monday having started the week on a bearish note. Last week’s sell-off resulted in a break of 4846.00, the Apr 19 low. The breach highlights a stronger reversal and signals scope for an extension towards 4478.81 next, a Fibonacci projection. Firm resistance is 4913.13, the 50-day EMA. First resistance is 4663.00, the Aug 6 high. S&P E-Minis traded lower late last week and the contract started this week on a bearish note - Monday’s move lower marks an extension of the bear cycle. The move down has resulted in a print below 5185.50, 76.4% of the Apr 19 - Jul 16 bear leg. A clear break of this level would open 5092.00 next, the May 2 low. Monday’s intraday high of 5345.50 marks initial resistance. The 50-day EMA, a firmer level, is at 5474.83. Gains are considered corrective - for now.

• Japan's NIKKEI closed higher by 414.16 pts or +1.19% at 35089.62 and the TOPIX ended 55 pts higher or +2.26% at 2489.21.
• Elsewhere, in China the SHANGHAI closed higher by 2.55 pts or +0.09% at 2869.834 and the HANG SENG ended 230.52 pts higher or +1.38% at 16877.86.
• Across Europe, Germany's DAX trades higher by 127.69 pts or +0.74% at 17482.39, FTSE 100 higher by 45.03 pts or +0.56% at 8072.11, CAC 40 up 70 pts or +0.98% at 7200.04 and Euro Stoxx 50 up 46.14 pts or +1.01% at 4621.36.
• Dow Jones mini up 225 pts or +0.57% at 39373, S&P 500 mini up 41.5 pts or +0.79% at 5308, NASDAQ mini up 178 pts or +0.98% at 18359.75.

Time: 09:50 BST

COMMODITIES: Bear Threat in WTI Futures Remains Present

A bear threat in WTI futures remains present and the contract traded lower Monday, extending the current downtrend. Sights are on the next key support at $72.23, the Jun 4 low. It has been pierced, a clear break would reinforce bearish conditions and pave the way for an extension towards $70.73, the Feb 5 low. Key resistance is seen at $78.88, the Aug 1 high. Short-term gains would allow an oversold condition to unwind. Recent weakness in Gold appears to be a correction - for now. However, note that the yellow metal has managed to pierce support at the 50-day EMA - at $2375.3. A clear break of this average would signal scope for a deeper retracement towards $2277.4, the May 3 low and a key support. For bulls, a resumption of gains would open $2483.7, the Jul 17 high and a bull trigger. Clearance of this hurdle would resume the uptrend.

• WTI Crude up $0.27 or +0.37% at $73.49
• Natural Gas up $0.02 or +0.85% at $2.026
• Gold spot up $2.18 or +0.09% at $2392.99
• Copper down $6.9 or -1.71% at $395.9
• Silver down $0.09 or -0.33% at $26.9035
• Platinum up $5.99 or +0.65% at $921.22

Time: 09:50 BST

Date	GMT/Local	Impact	Country	Event
07/08/2024	1100/0700	**	US	MBA Weekly Applications Index
07/08/2024	1400/1000	*	CA	Ivey PMI
07/08/2024	1430/1030	**	US	DOE Weekly Crude Oil Stocks
07/08/2024	1700/1300	**	US	US Note 10 Year Treasury Auction Result
07/08/2024	1730/1330		CA	BOC Minutes (Summary of Deliberations)
07/08/2024	1900/1500	*	US	Consumer Credit
08/08/2024	2301/0001	**	GB	KPMG/REC Jobs Report
08/08/2024	0500/1400		JP	Economy Watchers Survey
08/08/2024	1230/0830	***	US	Jobless Claims
08/08/2024	1230/0830	**	US	WASDE Weekly Import/Export
08/08/2024	1400/1000	**	US	Wholesale Trade
08/08/2024	1430/1030	**	US	Natural Gas Stocks
08/08/2024	1530/1130	*	US	US Bill 08 Week Treasury Auction Result
08/08/2024	1530/1130	**	US	US Bill 04 Week Treasury Auction Result
08/08/2024	1700/1300	***	US	US Treasury Auction Result for 30 Year Bond
08/08/2024	1900/1500	***	MX	Mexico Interest Rate
08/08/2024	1900/1500		US	Richmond Fed's Tom Barkin