MNI BRIEF: China Seen Growing 5% In 2024 - Former Official

MNI China Daily Summary: Monday, Aug 5

MNI BRIEF: Taiwan FX Reserves Down In July

MNI BRIEF: China Private Services PMI Up In July

MNI: PBOC Net Drains CNY300.9 Bln via OMO Monday

MNI: PBOC Sets Yuan Parity Lower At 7.1345; -0.35% Y/Y

EZ/UK Bond Supply Calendar: Austria, UK and Germany on Tuesday

EZ/UK T-Bill Calendar: Spain and Belgium Due Tuesday

MNI: US ISM JUL SERVICES COMPOSITE INDEX 51.4

RPT-MNI: Canada Sticks To Fiscal Anchors, Spends Chunk Of Windfall

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MNI US Open: Fed in Focus

EXECUTIVE SUMMARY:

  • EUROPEAN AND UK YIELDS HIT CYCLE HIGHS BEFORE RETREATING
  • EURIBOR FUTURES UNDERPERFORM AFTER SCHNABEL SAID YESTERDAY THAT A RATE HIKE IN JULY IS POSSIBLE
  • FOCUS ON THE FOMC DECISION LATER TODAY

Fig. 1: 10Y Bund Yields Hit New Cycle Highs

Source: MNI, Bloomberg

NEWS:

  • MNI FED PREVIEW: May’s FOMC decision will be the most hawkish in recent memory, with a 50bp hike and the launch of balance sheet reduction. However, already aggressive market hike pricing limits the potential hawkish impact. Focus will be on the FOMC’s openness to 75bp hikes and/or moving above “neutral”, and any hint of asset sales. For the full MNI Fed Preview click here.
  • ECB: SCHNABEL: "A rate increase in July is possible in my view. We of course have to wait and see how the data evolve up to the time of the decision. The first interest rate hike will in any case not take place until after the end of net asset purchases; we have committed to that."
  • EU-RUSSIA (BBG): The European Union plans to ban Russian crude oil over the next six months and refined fuels by the end of the year as part of a sixth round of sanctions to increase pressure on Vladimir Putin over his invasion of Ukraine.

DATA

Strong Service PMIs Confirmed

SPAIN APR SERVICES PMI 57.1 (FORCST 55.9); MAR 53.4

ITALY APR SERVICES PMI 55.7 (FORCST 54.5); MAR 52.1

FRANCE FINAL APR SERVICES PMI 58.9r (FLASH 58.8); MAR 57.4

GERMANY FINAL APR SERVICE PMI 57.6r (FLASH 57.9); MAR 56.1

EUROZONE FINAL APR SERVICES PMI 57.7(=FLASH); MAR 55.6

  • This morning's round of final PMIs saw services come in strong across the Eurozone, keeping composite PMIs for the region afloat.
  • France saw a 0.1-point upwards revision on the flash, whilst Germany ticked down 0.3 points from the prelim number.
  • Spain and Italy both beat expectations, with services PMIs up 3.7 and 3.6 points respectively.
  • Loosened Covid restrictions saw strong recoveries of service sectors in the region in April, despite input and output prices at Euro-era record highs. Eurozone services activity reached an 8-month high.
  • As the manufacturing PMIs were seen faltering across the region due to worsened inflationary pressures and supply-chain issues due to the Ukraine war, the service industry has provided a key boost.
  • Phil Smith, Economic Associate Director at S&P Global warned "The current pace of growth looks unsustainable, however, especially when factoring in a potential drag from manufacturing and a squeeze on real incomes from ever-rising prices."

Retail Sales Slump in March

EUROZONE MAR RETAIL SALES -0.4% M/M, +0.8% Y/Y; FEB +5.2%r Y/Y

  • The March print saw retail sales slump for the Euro area, dipping to -0.4% m/m (0.2pp below forecast) and softening to +0.8% y/y (1.0pp below forecast). This was the lowest year-on-year growth since February 2021.
  • Compared to February, the volume of retail trade fell for automotive fuels (-2.9%) and non-food products (-1.2%). Food, drinks and tobacco sales increased 0.8%.
  • The combination of high inflation squeezing incomes and strong service sector output saw dampened demand shift towards the service industry, leaving March retail to fall.

UK APR M4 MONEY SUPPLY +0.1% M/M, +5.4% Y/Y

UK BOE APR MORTGAGE APPROVALS 70,691

UK BOE APR SECURED LENDING GBP6.97 BLN

UK BOE APR CONSUMER CREDIT GBP1.3 BLN

BONDS: Fed in Focus

Another day, another cycle high for European yields, although Treasuries and gilts have stuck to within yesterday's range.

  • Most of the early moves in European fixed income were delayed reactions to ECB Executive Board member Isabel Schnabel's comments (published yesterday) that in her view a hike in July was possible. Bunds had led the way lower, but have since retraced much of the move, with gilts now the biggest movers of the day.
  • The market is firmly focused on the Fed meeting later, where a 50bp hike is expected (with markets fully pricing with a small probability of a 75bp hike priced). Markets will be looking for any guide on whether 75bp hikes will be on the table at future meetings and also any guide to the pace of QT. For the full MNI Fed Preview click here.
  • TY1 futures are down -0-3+ today at 118-13 with 10y UST yields down -0.5bp at 2.970% and 2y yields up 1.7bp at 2.801%.
  • Bund futures are down -0.78 today at 152.89 with 10y Bund yields up 3.7bp at 1.000% and Schatz yields up 3.1bp at 0.299%.
  • Gilt futures are down -0.39 today at 117.68 with 10y yields up 3.3bp at 1.990% and 2y yields up 2.7bp at 1.663%.

FOREX: All eyes are on the FOMC

  • A mixed start for the USD, with the currency paring some of its overnight gains during the European start.
  • The Dollar trades in the red against all G10s, with DXY unwinding some of the gains, after the index reached its highest level since 2002 last week.
  • Nonetheless, ranges have been fairly limited, with the street waiting on the FOMC and presser later today.
  • Best performer is the AUD, after the overnight retails sales beat, but upside momentum have lacked traction.
  • The CAD also trade on the front foot, helped by the rally in Oil, after comment from EC VDL, that the EU proposed to ban Russian crude oil over the next six months and refined fuels by the end of the year.
  • A fix trade at 09.00BST has helped Cable back above 1.2500, but most of the price action has been more a function of the Dollar.
  • Looking ahead, US ADP is scheduled, but very little correlation for the NFP on Friday.
  • Other data include the US ISM services and Services PMI, but final reading for the latter.
  • For earnings, Moderna, Marathon Oil corp, and after markets, EBay.

EQUITIES: LEVELS UPDATE: Mixed with US futures higher, but lower in Europe

  • The HANG SENG ended 232.37 pts lower or -1.1% at 20869.52
  • German Dax down 28.25 pts or -0.2% at 14016.46, FTSE 100 down 26.37 pts or -0.35% at 7532.02, CAC 40 down 18.68 pts or -0.29% at 6458.21 and Euro Stoxx 50 down 11.96 pts or -0.32% at 3752.54.
  • Dow Jones mini up 85 pts or +0.26% at 33114, S&P 500 mini up 10.5 pts or +0.25% at 4181.5, NASDAQ mini up 22 pts or +0.17% at 13115.75.

COMMODITIES: LEVELS UPDATE: European natgas and oil move higher

  • WTI Crude up $3.61 or +3.53% at $105.98
  • Natural Gas (NYM) down $0.03 or -0.36% at $7.926
  • Natural Gas (ICE Dutch TTF) up $5.4 or +5.44% at $104.925
  • Gold spot down $0.06 or 0% at $1868.7
  • Copper up $3.95 or +0.92% at $432.15
  • Silver up $0.06 or +0.26% at $22.6641
  • Platinum up $11.46 or +1.19% at $978.9

LOOK AHEAD

DateGMT/LocalImpactFlagCountryEvent
04/05/20221100/0700**USMBA Weekly Applications Index
04/05/20221215/0815***USADP Employment Report
04/05/20221230/0830**CAInternational Merchandise Trade (Trade Balance)
04/05/20221230/0830**USTrade Balance
04/05/20221345/0945***USIHS Markit Services Index (final)
04/05/20221400/1000***USISM Non-Manufacturing Index
04/05/20221430/1030**USDOE weekly crude oil stocks
04/05/20221800/1400***USFOMC Statement
05/05/20220130/1130*AUBuilding Approvals
05/05/20220130/1130**AUTrade Balance
05/05/20220145/0945**CNIHS Markit Final China Services PMI
05/05/20220600/0800**DEmanufacturing orders
05/05/20220630/0830***CHCPI
05/05/20220645/0845*FRindustrial production
05/05/20220700/0300*TRTurkey CPI
05/05/20220730/0930**EUIHS Markit Final Eurozone Construction PMI
05/05/20220800/1000***NONorges Bank Rate Decision
05/05/20220830/0930**UKIHS Markit/CIPS Services PMI (Final)
05/05/20221000/1200EUECB Lane Speech on Euro Area Outlook
05/05/20221100/1200***UKBank Of England Interest Rate
05/05/20221130/1230UKBOE post-MPC press conference
05/05/20221230/0830**USJobless Claims
05/05/20221230/0830**USPreliminary Non-Farm Productivity
05/05/20221230/0830**USWASDE Weekly Import/Export
05/05/20221300/1400UKBank of England DMP Survey
05/05/20221340/0940CABOC Deputy Schembri speech to Indigenous group.
05/05/20221430/1030**USNatural Gas Stocks

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