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Free AccessMNI EUROPEAN MARKETS ANALYSIS: USD Nudges Lower, Chinese Stocks Bid
- Asia-Pac trade saw Tsy futures drew support from Friday’s Fedspeak (where only ’22 voter Bullard pointed to the need for a potential 100bp rate hike later this month) and a weekend article from WSJ Fed whisperer Timiraos, who flagged that a 75bp rate hike is the most likely scenario come the end of the central bank’s July meeting. This dynamic also weighed on the broader USD.
- Chinese equities benefitted from the hope of apparent impending support for Chinese property developers, per weekend press reports surrounding comments from a CBIRC official.
- The global data docket remains feather-light after Asia hours. BoE's Saunders is the only G10 central bank member due to speak. Reaction to Timaraos' weekend article and Italian political matters will likely set the tone early in the European day.
US TSYS: Futures Better Bid On Fed Exp., Market Limited By Japanese Holiday
TYU2 deals +0-06 ahead of London hours, printing 118-26+, 0-03 off its session peak, although volume is sub-par running at ~35K lots, with the illiquidity inked to a Japanese national holiday and the resultant close of cash Tsys until London trade limiting wider activity.
- Tsy futures drew support from Friday’s Fedspeak (where only ’22 voter Bullard pointed to the need for a potential 100bp rate hike later this month) and a weekend article from WSJ Fed whisperer Timiraos, who flagged that a 75bp rate hike is the most likely scenario come the end of the central bank’s July meeting.
- Continued COVID worry in China, alongside an early downtick in crude oil futures, also fed into the early bid, although a subsequent recovery in the latter, alongside an uptick in e-minis & Chinese equities (which benefitted from the hope of apparent impending support for Chinese property developers, per weekend press reports surrounding comments from a CBIRC official) limited the early bid, with Tsy futures operating off of best levels into European hours as a result.
- Looking ahead, only second tier domestic data is due later today, while the Fed has entered its pre-FOMC blackout period.
AUSSIE BONDS: Twist Flattening
ACBGs edged away from cheapest levels witnessed after the release of firmer than expected NZ inflation data as we worked our way through the Sydney day, with an uptick in U.S. Tsy futures on previously fleshed-out reactions to Friday’s market moves, Fed expectations and developments in China’s ongoing COVID outbreak lending support to the space. The cash ACGB curve has twist flattened, with the major benchmarks running 0.5bp richer to 5.0bp cheaper across the curve, pivoting around 20s. YM and XM are -2.5 and -1.5, a little below their respective session highs but getting nowhere near to challenging the boundaries of their overnight ranges, while bills run 2 to 5 ticks cheaper through the reds, bear steepening.
- Looking ahead, Tuesday will see the RBA release the minutes of its Jul policy meeting, with a speech by RBA Deputy Gov Bullock (on “How are Households Placed for Interest Rate Increases?”) due to cross after the minutes.
FOREX: Kiwi Draws Incremental Support From Inflation Data, Greenback Sags Lower
New Zealand's expectation-busting inflation print fanned hawkish RBNZ bets, providing a key data input ahead of the August Monetary Policy Statement. Headline inflation accelerated to +7.3% Y/Y (32-year high), surpassing BBG median estimate of +7.1% and the +7.0% forecast in the May MPS.
- The RBNZ's own gauge of core inflation reaffirmed the view that price pressures have intensified. Sectoral factor model inflation quickened to a record high of +4.8% Y/Y, with readings for the three preceding quarters revised higher.
- The market reacted by adding hawkish RBNZ tightening bets, with benchmark NZ 2-year swaps rising to a new monthly high & NZGB yield curve bear flattening.
- Several sell-side desks reconsidered their RBNZ calls. ANZ said they now forecast a terminal OCR level of 4.0% (prev. 3.5%) and warned that "a 75bp hike at the August MPS is a very real possibility," while ASB lifted their projection of OCR peak to 4.75% from 3.50%.
- The kiwi dollar caught a bid as StatsNZ published its CPI report, albeit reaction to sectoral factor model inflation was virtually non-existent. That said, the currency's strength gradually petered out, with AUD/NZD returning to neutral levels.
- The greenback remained the worst performer among major currencies throughout the Asia-Pac session, with regional players playing catch-up with U.S. data/Fedspeak from after local hours Friday.
- Traditional safe havens JPY and CHF struggled for any topside impetus as U.S. e-mini futures crept higher.
- Japanese financial markets were closed in observance of a public holiday, limiting liquidity in the timezone.
- The global data docket remains feather-light after Asia hours. BoE's Saunders is the only G10 central bank member due to speak.
FX OPTIONS: Expiries for Jul18 NY cut 1000ET (Source DTCC)
- EUR/USD: $0.9975(E689mln), $1.0000(E1.1bln), $1.0150-60(E1.1bln)
- USD/CNY: Cny6.7750($1.7bln)
ASIA FX: Weakness In U.S. Dollar Grants Reprieve To Asia EM FX Space
The greenback remained heavy, with Bloomberg/J.P. Morgan Asia Dollar Index (ADXY) creeping higher as a result. The region assessed Fedspeak & U.S. inflation expectations data from after hours Friday, which appeared to play down potential for a full-percentage point hike at the FOMC's August meeting.
- CNH: Offshore yuan started on a softer footing, as China's COVID-19 situation remained worrying, prompting Shanghai authorities to roll out mass testing in nine districts. The redback regained poise as the U.S. dollar lagged, while the PBOC fix came in slightly firmer than expected.
- KRW: The Korean won paced gains in the Asia EM basket, owing to its sensitivity to U.S. Tsy yields. Comments from FinMin Choo may have lent the currency some further support, as the official said inflation might top out in October, while recession this year is unlikely.
- IDR: Spot USD/IDR gapped lower at the re-open, trimming losses thereafter. Participants assessed the interest rate outlook ahead of this week's Bank Indonesia meeting, with most sell-side desks expecting no change to the key policy rate.
- MYR: Spot USD/MYR staged a round trip from its session low of MYR4.4330, reached as a result of the initial nosedive. Malaysian parliament reconvenes today and the focus is on the anti-party hopping bill as well as the cost of living debate.
- PHP: The peso firmed a tad. Domestic headline flow was limited, with participants awaiting the latest update on alert levels from the Philippines' main COVID-19 task force.
- THB: The baht oscillated around unchanged levels, after finishing last week as the second-worst Asia EM performer. The BoT is one of the last dovish holdouts refusing to raise interest rates despite building inflationary pressures.
EQUITIES: Higher In Asia; Chinese Developers Halt Five-Day Slide As Banking Regulator Steps In
Major Asia-Pac equity indices are higher at typing on a positive lead from Wall St. following Friday’s U.S. data, with Chinese and Hong Kong markets outperforming in the wake of statements from PBOC Governor Yi Gang on Saturday and banking regulator China Banking and Insurance Regulatory Commission (CBIRC) re: weaker growth and well-documented woes faced by Chinese developers respectively. Japanese markets are shut for a holiday.
- The Hang Seng leads gains amongst regional peers, dealing 2.6% firmer at typing on the back of gains in almost every constituent. The property (+3.2%) and financial (+2.4%) sub-indices outperformed, with both on track to snap a five-session streak of lower closes, likely catching a bid on a statement from Chinese banking regulator CBIRC on Monday urging banks to provide credit for developers to complete unfinished projects.
- The CSI300 sits 1.2% better off at typing after reversing earlier losses of as much as 0.7%, with the real estate (+2.8%) and financials (+1.9%) sub-gauges contributing the most to gains.
- The ASX200 deals 0.8% firmer, just shy of session highs at writing. Tech stocks lead gains, with the S&P/ASX All Technology Index adding 1.9%, while commodity-related equities tracked a rally in commodity prices higher (BCOM: +0.8%), with the materials and energy sub-indices sitting 1.7% and 2.0% better off respectively.
- E-minis trade 0.3% to 0.7% higher, operating around session highs at typing.
MNI US EARNINGS SCHEDULE - Financials Off to a Mixed Start
EXECUTIVE SUMMARY
- Earnings began on a mixed note, with banks generally missing on expectations
- Focus for the coming week remains on banks & financials, with Goldman Sachs, Bank of America & AmEx due...
- ...as well as big name healthcare firms including Johnson & Johnson and Abbott Labs
CHINA STOCKS: Foreigners Pull Money At Quickest Weekly Rate Since March
Note that last week saw the largest level of weekly net outflows from mainland Chinese equities via the Hong-Kong-China Stock Connect schemes since March (~CNY22bn).
- This came at a time when worry surrounding the Chinese property sector intensified (with the choice of some mortgage holders to withhold payment on incomplete property developments getting plenty of airtime in the international press), fresh regulatory worry emerged and with COVID-related localised lockdown fears still bubbling in the background.
- Re: the first point, note that a CBIRC official has told the local press that the body is keeping a keen eye on this issue and has strengthened coordination with the PBoC, the Ministry of Housing and Urban-Rural Development and other government departments to support local efforts to guarantee home deliveries and ensure people's livelihoods and stability. The official also revealed that banks have been asked to effectively satisfy developers' reasonable financing needs and vigorously support rental housing, as well as project mergers and reorganisations
- Policymakers have stressed that they will do more to support the economy, with the most notable comments coming from PBoC Governor Yi, as he noted that the central bank will step up the implementation of its prudent monetary policy to provide stronger support for the economy. This came after Chinese Q2 GDP data provided a downside surprise, even as retail sales topped exp. in June, alongside an expected bounceback in industrial production.
GOLD: Higher In Asia; 11-Month Lows Eyed
Gold sits ~$6/oz firmer to print $1,714/oz, operating a little shy of Friday’s best levels at typing. The precious metal has caught a bid as China reported >500 fresh COVID cases for another day while the USD has weakened, with the DXY continuing to back away from recent cycle highs as participants in Asia react to previously-flagged Fedspeak (with focus re: possibility of a 100bp rate hike in Aug), as well as softening long-term inflation expectations from Friday’s UoM survey.
- To recap, gold closed little changed on Friday after repeated tests of the $1,700/oz handle, staying clear of Thursday’s 11-month lows ($1,697.7/oz). Bullion recorded a fifth straight week of losses (~$170/oz in all) amidst well-documented Dollar strength, with rate hike expectations for the Fed’s Aug FOMC ticking higher across the week (~74bp to ~80bp, referencing FOMC dated OIS).
- The European Commission has formally proposed a ban on Russian imports of gold (following the G7 announcement in June), with RTRS sources suggesting possible bans on imports through third countries. As mentioned previously, the measure is expected to have limited impact on the space, given prevailing EU sanctions since Mar ‘22.
- From a technical perspective, gold remains in a downtrend. Initial support is located at $1,690.6/oz (Aug 9 ‘21 low), while resistance is situated at $1,745.4/oz (Jul 13 high).
OIL: Back From Lows; Supply Outlook Remains Tight After Biden’s Visit To Saudi Arabia
WTI is ~$0.60 and Brent is ~+$0.90 at typing,operating around session highs and building on Friday’s gains after reversing earlier losses.
- To recap, both benchmarks closed ~$2 firmer apiece on Friday as U.S. Pres Biden landed in Saudi Arabia, with a lack of concrete, near-term measures re: crude output increases observed. State Dept advisor Hochstein has since stated that producers will take "more steps in the coming weeks" (without naming specific countries/targets), while Saudi officials have re-iterated that supply decisions would be made in consultation with OPEC+.
- The prompt Brent spread remains elevated, operating around ~$3.95 at typing, pointing to persistent tightness in the outlook for crude supplies.
- Libya’s new state oil company chairman has stated that production will be fully restored within a week, potentially returning >500K bpd in output to global supplies.
- Elsewhere, worry surrounding lower energy demand in China remains elevated as fresh daily COVID cases for Sun were reported at 510, after Sat’s 580 cases (two-month high). Shanghai has also ordered mass testing in 9 of 16 districts, with authorities describing the situation as “severe”, while BBG reports have pointed to mass testing to be conducted in Tianjin (pop. ~13.8mn).
- BBG source reports have highlighted that Indian fuel demand in July so far has declined M/M (albeit as expected during the monsoon season), adding to wider worry re: cooling Asian energy demand.
UP TODAY (Times GMT/Local)
Date | GMT/Local | Impact | Flag | Country | Event |
18/07/2022 | - | ![]() | UK | BOE Saunders at Resolution Foundation (Time TBA) | |
18/07/2022 | 1215/0815 | ** | ![]() | CA | CMHC Housing Starts |
18/07/2022 | 1400/1000 | ** | ![]() | US | NAHB Home Builder Index |
18/07/2022 | 1530/1130 | * | ![]() | US | US Treasury Auction Result for 13 Week Bill |
18/07/2022 | 1530/1130 | * | ![]() | US | US Treasury Auction Result for 26 Week Bill |
18/07/2022 | 2000/1600 | ** | ![]() | US | TICS |
19/07/2022 | 0600/0700 | *** | ![]() | UK | Labour Market Survey |
19/07/2022 | 0800/1000 | ![]() | EU | ECB Bank Lending Survey | |
19/07/2022 | 0900/1100 | *** | ![]() | EU | HICP (f) |
19/07/2022 | 0900/1000 | ** | ![]() | UK | Gilt Outright Auction Result |
19/07/2022 | 0900/1100 | ** | ![]() | EU | Construction Production |
19/07/2022 | 1230/0830 | *** | ![]() | US | Housing Starts |
19/07/2022 | 1255/0855 | ** | ![]() | US | Redbook Retail Sales Index |
19/07/2022 | 1745/1845 | ![]() | UK | BOE Bailey at Mansion House Dinner |
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.