MNI US OPEN - RBA Holds at 4.35%, Maintains Hawkish Stance

EXECUTIVE SUMMARY

• FED’S DALY SAYS ADJUSTMENTS NECESSARY IN COMING QUARTERS
• MINNESOTA GOV. WALZ SPIKES IN DEMOCRATIC VP BETTING MARKET ODDS
• RBA HOLDS AT 4.35%, MAINTAINS STANCE
• JAPAN’S STOCKS RALLY MORE THAN 9% AFTER PLUNGE INTO BEAR MARKET

MNI (LONDON) - Figure 1: Political betting market implied probability of Democratic Party VP candidate (%)

Source: electionbettingodds.com

NEWS

FED (MNI): Fed Adjustments Necessary in Coming Quarters - Daly

San Francisco Federal Reserve President Mary Daly said Monday the Fed will need to make adjustments to the fed funds rate in the coming quarters, but indicated a need for more data and patience while waiting until the next FOMC meeting in September. "Policy adjustments will be necessary in the coming quarters. How much that needs to be done and and when it needs to take place, I think that's going to depend a lot on the incoming information. But for my mind, we've now confirmed that the labor market is slowing and it's extremely important that we not let it slow so much that it tips itself into a downturn. We just don't want to see that - we don't see it yet," Daly said in Q&A at a Hawaii Executive Collaborative event.

US (MNI): Minnesota Gov. Walz Spikes in Democratic VP Betting Market Odds

Overnight, political betting markets have recorded a sharp increase in the implied probability of Minnesota Governor Tim Walz being selected as Vice President and presumptive Democratic presidential nominee Kamala Harris' running mate. According to electionbettingodds.com, which compiles data from Betfair, Smarkets, Polymarket, and PredictIt, Walz has a 41.5% implied probability of being named the Democratic VP candidate, behind only Pennsylvania Gov. Josh Shapiro at 54.1%. The spike in betting market activity on 5 August may have been due to a video circulated on social media showing several black SUVs at Walz's Minnesota residence. A similar increase in security was seen around Republican VP candidate JD Vance before his selection as former President Donald Trump's running mate. However, Tyler Pager at WaPo posted on X that he had received confirmation that the vehicles were part of Walz's home state security detail and not a sign that Harris had already picked him. 

US/MIDEAST (BBG): US, Allies Make Frantic Push to Avert Possible Mideast War

The US and its allies worked to head off an Iranian attack on Israel and avert a wider regional war as concerns grew that a strike may come at any moment in retaliation for the killing of a top Hamas leader in Tehran. The Biden administration moved additional forces to the region, and Secretary of State Antony Blinken conferred with top officials from Qatar and Egypt - the two countries helping lead negotiations for a cease-fire between Israel and Hamas militants - on Monday, according to State Department spokesman Matthew Miller.

MIDEAST (MNI): Hezbollah Leader to Deliver Address at 1700 Local Time Amid High Tensions

Lebanese Hezbollah leader Hassan Nasrallah is set to deliver an address at 1700 local time (1000ET, 1500BST, 1600CET) amid still sky-high tensions as the region awaits what is likely to prove an inevitable Iranian-led response to the killing of Hezbollah commander Fouad Shukr in Beirut and Hamas political leader Ismail Haniyeh in Tehran, an act the Iranian gov't blames Israel for. US President Joe Biden convened a meeting of his national security council on 5 August to discuss the situation. Axios reports that Biden was informed by officials, including Secretary of State Antony Blinken, that it remains unclear regarding the timing or nature of Iran's response.

US (BBG): Kamala Harris Formally Wins Democratic Presidential Nomination

Vice President Kamala Harris secures the Democratic presidential nomination in a virtual roll call vote by party delegates, according to an emailed statement from the DNC. Democrats meet later this month in Chicago for the party’s convention.

EQUITIES (BBG): JPMorgan Strategists Saw Institutional Stock Buyers on Monday

Institutional investors bought the dip on Monday, while retail were aggressive sellers, JPMorgan says. Quantitative and derivatives strategists including Emma Wu saw $14b of institutional net buying during market hours and $6.7b selling on close. Note most of the retail selling flow was concentrated in first hour of trading, with total -$1b imbalance on the day, including $472m inflow in ETFs largely offset by $1.4b selling flow on single stocks.

RBA (MNI): RBA Holds at 4.35%, Maintains Stance

The Reserve Bank of Australia board kept its cash rate on hold at 4.35% and maintained its hawkish tone following the August meeting, despite revisions to its peak headline CPI forecast and interest rate assumptions. The RBA expects headline CPI to fall back to the top of the 2-3% target by the December quarter, down 80 basis points from May’s predictions, while it lowered its cash rate assumption – based on market pricing – by 10bp to 4.3% by Q4, according to the Statement on Monetary Policy. The RBA, however, expects trimmed mean inflation to rise 10bp by December to 3.5% before reaching 2.9% by Q4 2025, 10bp higher than May’s forecast. The bank also updated its unemployment prediction 10bp higher to 4.3% by Q4.

UK (BBG): UK’s Reeves Declines to Rule Out Increase in Capital Gains Tax

UK Chancellor of the Exchequer Rachel Reeves declined to rule out increasing the capital gains tax after warning that difficult decisions will be taken to fill a £22 billion ($28 billion) budget black hole. Reeves, in an interview with Bloomberg Television Monday, said that the UK will strike the “right balance” on tax at the budget due Oct. 30, after speculation that she could target the capital gains levy.

JAPAN DATA (BBG): Japan’s Stocks Rally More Than 9% After Plunge Into Bear Market

Japanese stocks rallied after their plunge into a bear market during the previous day’s trading brought them down to key technical levels. The Nikkei 225 Stock Average and Topix rebounded more than 9%, the most since October 2008, as exporters such as tech companies and automakers surged after the yen slumped about 1% against the dollar. Banks gained 3.9%, with yields on 10-year government bonds jumping 14 basis points as an auction of new debt met the weakest demand since 2003. All 33 of the Topix’s industry gauges climbed. 

JAPAN (MNI): BOJ, MOF, FSA Officials to Exchange View on Markets

Senior officials at the Bank of Japan, the Ministry of Finance and the Financial Services Agency will hold their regular meeting at 1500 JST (0600 GMT) to exchange views on recent volatile financial markets and global economic conditions, the BOJ said on Tuesday. The Nikkei Stock Average surged nearly 10% this morning, while the yen weakened to JPY146 against the dollar after U.S. service-sector data for July eased concerns of a recession. The yen was trading at around 145.70 to USD after trading at around JPY141.

BOJ (BBG): BOJ’s Ueda Called to Speak at Diet Committee This or Next Week

Governor Kazuo Ueda will be called to a parliamentary committee meeting either this week or early next week to be questioned about the Bank of Japan’s latest policy decision, opposition party senior member Jun Azumi tells reporters. Finance Minister Shunichi Suzuki will also be called. Opposition party came to an agreement with the ruling party on Ueda’s appearance.

CHINA (MNI): China Seen Growing 5% in 2024 - Former Official

MNI (Beijing) The Chinese economy is likely to grow by 4.5-5% in 2025, following 5% growth this year, former vice minister of finance Zhu Guangyao said on Monday. Thanks to its accumulated national wealth and capacity to boost the total factor productivity, China is confident of achieving its 2035 goal of doubling per capita GDP from 2020 levels to USD20,000, which will only require an average of 4.3% growth in the next 11 years, Zhu said at an international forum held by the Chongyang Institute for Financial Studies, Renmin University.

CHINA (BBG): PBOC Branch Said to Ask Rural Banks to Limit Risk in Bond Bets

A subsidiary of the People’s Bank of China asked rural lenders to be mindful of risks in government-bond trading and refrain from buying the securities in large sizes, according to people familiar with the matter. The Jiangsu branch of the monetary authority - located in one of China’s wealthiest provinces and close to financial center Shanghai - this week told rural commercial lenders to control risks associated with their positions in long-term sovereign notes, the people said. The banks were told not to aggressively buy the bonds when state lenders are selling them, they added.

CHINA (MNI): China Soft Lithium and Cobalt Demand Expected

MNI (Beijing) Lithium carbonate prices in China are expected to remain weak in the short term due to poor demand, Mysteel, a Shanghai based commodity research firm said in a note on Tuesday wriiten after a 4.2% price drop last week. Buy side weakness meant the cobalt outlook remained bearish in August, with prices of cobalt sulfate and chloride expected around CNY29,000 and CNY35,500 per tonne in the short term, the note said.

COMMODITIES (BBG): Oil Climbs From Seven-Month Low as Equities Claw Back Losses

Oil advanced from a seven-month low as equities rebounded and the halting of production from Libya’s biggest field refocused attention on the Middle East. Brent rose above $77 a barrel after tumbling more than 5% over the previous three sessions, and West Texas Intermediate traded near $74, as Japanese stocks and US equity futures gained following a global rout on Monday. Output from Libya’s Sharara field stopped completely, with dueling administrations battling for control over the North African nation.

CORPORATE (BBG): Nvidia’s Next-Gen AI Chip Rollout Slowed by Engineering Snags

Nvidia Corp. hit engineering snags in the development of two new advanced chips, slowing the release of some products designed to extend its lead in the market for artificial intelligence computing. The delays affected the company’s highly anticipated Blackwell lineup, which Nvidia announced in March, according to people familiar with the situation. A version of the chip — known as an AI accelerator — is being reworked to better work with data center infrastructure designed for an earlier chip, the Hopper H100. 

DATA

EUROZONE DATA (MNI): Retail Trade Disappoints, Y/Y Lowest Since Feb-24

• EUROZONE JUN RETAIL SALES -0.3% M/M, -0.3% Y/Y

Eurozone volume of retail trade growth came below expectations at -0.3% M/M in June (vs -0.1% consensus, 0.1% prior) - the weakest since December 2023. On an annual basis, volumes of retail trade also disappointed at -0.3% Y/Y (vs 0.1% consensus, +0.5% prior revised from 0.3%) - returning the annual print to a negative reading for the first time since February 2024. The decline was driven by a large fall in 'food, drinks, tobacco' volume of  retail trade which printed a fall of 0.7% M/M (vs an increase of 1.0% last  month). This was followed by a 0.1% fall in 'Non-food products (except  automotive fuel)' volumes after -0.3% in May.

EUROZONE JUL CONSTRUCTION PMI 41.4; JUN 41.8 (MNI)

GERMAN DATA (MNI): June Factory Orders Beat Defies Weaker Sentiment Data

• GERMANY JUN FACTORY ORDERS +3.9% M/M

Germany factory orders surprised to the upside in June, rising 3.9% M/M SWDA (vs 0.5% cons, a one tenth downwardly revised -1.7% prior). The beat follows five consecutive months of downside surprises (and also five consecutive negative sequential monthly readings) and comes against a backdrop of weakening industrial sentiment data (e.g. the manufacturing PMI, IFO and EC industry survey).

UK DATA (MNI): BRC-KPMG Retail Sales Rebounds With Improving Weather

• UK BRC JUL BY VALUE SHOP SALES LFL +0.3% YY, TOTAL +0.5% YY 

UK Total retail sales rebounded in July, albeit with a still sluggish 0.5% Y/Y after -0.2% Y/Y in June. Similarly, Like-For-Like sales reversed part of June's fall as they increased 0.3% (vs 0.2% consensus, -0.5% prior). Whilst this is a value rather than volume series, the rebound in sales combined with other recent data including firmer than expected PMIs suggests growing demand in the economy, and potential upside risk for core goods inflation. Total retail sales remains above the 3-month average reading of 0.3% Y/Y but below the 12-month average growth of 1.4% Y/Y.

UK JUL CONSTRUCTION PMI 55.3 (FCST: 52.5); JUN 52.2 (MNI)

SWISS JUN RETAIL SALES -0.1% M/M, -2.2% Y/Y (MNI)

JAPAN DATA (MNI): Japan June Real Wages Turn Positive; 1st in 27 Months

Inflation-adjusted real wages, a barometer of households' purchasing power, turned positive in June for the first time in 27 month, up 1.1% against May's 1.4% fall, preliminary data released by the Ministry of Health, Labour and Welfare on Tuesday showed. Summer bonuses (+7.6% in June vs. +0.1% in May) following high corporate profits boosted June’s result., which showed households’ income had caught up with price rises, easing the impact of inflation on consumers. BOJ officials are focused on whether weak private consumption will recover in the coming months.

JAPAN JUNE HOUSEHOLD SPENDING -1.4% Y/Y; MAY -1.8% (MNI)
JAPAN JUNE HOUSEHOLD SPENDING +0.1% M/M; MAY -0.3% (MNI)

FOREX: Markets on Watch for Next USD Strength Trigger

• The greenback is firming further headed into the NY crossover, with volumes picking up to match the price action over the past 20 minutes or so. Move coincides with a very moderate drift in equity prices, as the e-mini S&P continues to gradually chew through the bounce off the Monday low. 
• Dollar's haven status clearly playing out here, with the greenback firmer against all others in G10 - leaving markets on watch for any further deterioration in market conditions, and any trigger from global tech names (NVidia shares lower by 2% already pre-market), geopolitics in the Middle-east or any resumption in the JPY short-covering rally.
• Importantly, GBP/USD is testing key support at the Monday/Friday lows of 1.2711/1.2707, and a break below here would again be the lowest levels since early July. 
• There is no scheduled Fedspeak today, however we wouldn’t be surprised to see further commentary cautioning on overreacting to last Friday's NFP print, but we suspect there is only so much reaction this can now have. That said, today’s data is limited to international trade -- we likely have to wait for Thursday’s weekly jobless claims for the next US macro steer -- which leaves sentiment in the driving seat for now.

BONDS: Core FI Off Lows But Still Well Short of Monday High

Renewed fragility in global equity futures have supported core bond markets off the lows and the particularly risk-sensitive tech sector (NVidia already lower by as much as 2% pre-market) is underpinning the bounce.

• Bund futures have recovered around 80 ticks from overnight lows and while Gilt futures are also off the week's lowest levels, are underperforming Bunds by a notable margin
• The Gilt curve has bear flattened, while German cash yields are flat to 2bps lower. This has allowed the 10-year Gilt/Bund spread to move back above 170bps. This is mirrored in the more sizeable recovery for year-end OIS-implied rates, as BoE rates claw back 20bps of dovish pricing off the Monday low, relative to ECB's 14bps. Weaker EZ retail sales will have also helped at the margin.
• Today’s supply featured a strong 20-year Gilt auction from the UK and an acceptable Bobl auction from Germany. Austria also issued 10/15-year RAGBs.
• Although European equity futures have drifted away from intraday highs, 10-year peripheral spreads to Bunds are generally tighter, while the OAT/Bund spread is now around 77bps (vs over 80bps yesterday morning).

EQUITIES: E-Mini S&P Rebounds Following Monday's Sell-Off

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 4926.40, the 50-day EMA. First resistance is 46636.00, today’s intraday 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 5483.35. Gains are considered corrective - for now.

• Japan's NIKKEI closed higher by 3217.04 pts or +10.23% at 34675.46 and the TOPIX ended 207.06 pts higher or +9.3% at 2434.21.
• Elsewhere, in China the SHANGHAI closed higher by 6.586 pts or +0.23% at 2867.284 and the HANG SENG ended 51.02 pts lower or -0.31% at 16647.34.
• Across Europe, Germany's DAX trades higher by 62.82 pts or +0.36% at 17402.9, FTSE 100 higher by 16.66 pts or +0.21% at 8026.42, CAC 40 down 4.89 pts or -0.07% at 7145.15 and Euro Stoxx 50 up 10.86 pts or +0.24% at 4583.45.
• Dow Jones mini up 194 pts or +0.5% at 39039, S&P 500 mini up 41.5 pts or +0.8% at 5258, NASDAQ mini up 157 pts or +0.87% at 18165.75.

Time: 09:55 BST

COMMODITIES: WTI Futures Recover From Multi-Month Low, Bearish Threat Remains

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 $2374.6. 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 resumes the uptrend.

• WTI Crude up $0.17 or +0.23% at $73.05
• Natural Gas down $0 or -0.1% at $1.941
• Gold spot up $1.98 or +0.08% at $2411.96
• Copper down $0.75 or -0.19% at $398.95
• Silver down $0.29 or -1.05% at $26.9648
• Platinum up $6.04 or +0.66% at $918.24

Time: 09:55 BST

Date	GMT/Local	Impact	Country	Event
06/08/2024	1100/1200		GB	APF Quarterly Report
06/08/2024	1230/0830	**	US	Trade Balance
06/08/2024	1230/0830	**	CA	International Merchandise Trade (Trade Balance)
06/08/2024	1255/0855	**	US	Redbook Retail Sales Index
06/08/2024	1530/1130	*	US	US Treasury Auction Result for Cash Management Bill
06/08/2024	1530/1130	**	US	US Treasury Auction Result for 52 Week Bill
06/08/2024	1700/1300	***	US	US Note 03 Year Treasury Auction Result
07/08/2024	2245/1045	***	NZ	Quarterly Labor market data
07/08/2024	0600/0800	**	DE	Trade Balance
07/08/2024	0600/0800	**	DE	Industrial Production
07/08/2024	0645/0845	*	FR	Foreign Trade
07/08/2024	0900/1000	**	GB	Gilt Outright Auction Result
07/08/2024	1100/0700	**	US	MBA Weekly Applications Index
07/08/2024	-	***	CN	Trade
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