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Overview: News that President Biden will not seek re-election has left investors unsure of the next step, but PredictIt.org still points to a Trump advantage of slightly better than 60-40. It is not clear yet whether Vice-President Harris will be challenged for the nomination. The dollar is mixed against the G10 currencies, with the dollar bloc and Norway weaker. The yen is up around 0.45% to lead the others higher. The Swiss franc, euro and sterling are slightly firmer. Most of the emerging market currencies are higher, led by the Mexican peso's 0.40% gain. China cuts its seven-day repo rate, which has been upgraded as a policy tool, and Chinese banks responded by cutting the loan prime rates by 10 bp. The yuan, and a few Asia Pacific currencies are trading with a heavier bias. The Taiwanese dollar is the weakest, off about 0.35%. 

The Hang Seng and mainland stocks that trade in Hong Kong rose 1.25%-1.45%, other bourses in the area tumbled. Japanese, Taiwanese, and South Korean markets fell by more than 1%. On the other hand, Europe's Stoxx 600 is snapping a five-day drop and is up almost 1%, led by information technology, consumer discretionary, industrials, and health care. US index futures are trading firmer after the steep losses in the past three sessions. A little more than a quarter of the S&P 500 are due to report earnings this week. European 10-year bond yields are narrowly mixed today. UK Gilts are underperforming, and the yield is up about 2.5 bp (to ~4.15%). The 10-year US Treasury yield is a basis point softer near 4.23%. Gold is hovering around $2400 after setting a record-high near $2484 last week. September WTI dropped 3.25% before the weekend, and follow-through selling has extended the losses today to about $78.50. That is the lowest level since June 17. Support is now seen int he $77-78 area. 
 

Asia Pacific

This week's economic diary is light has two features:  the flash July PMI on July 24 and Tokyo's July CPI on July 26. The PBOC surprised by cutting the seven-day repo rate by 10 bp to 1.7%. Last week, the PBOC upgraded the importance of the seven-day repo rate, which now seems likely to displace the one-year Medium Term Lending Facility rate as the key operational rate. Chinese banks followed quickly and cut the one-year and five-year loan prime rates by 10 bp as well (to 3.35% and 3.85%, respectively). The yuan slipped slightly, and Chinese stocks pared initial losses. The market often has a subdued reaction to the PMI, leaving Tokyo's CPI as the most interesting and important. The headline rate is seen steady at 2.3%, while the core rate, which excludes fresh food, may tick up to 2.2% from 2.1%. Energy is a culprit, and this is where the yen's weakness could be inflationary. Excluding fresh food and energy, Tokyo's CPI is expected to have slowed to 1.6% from 1.8%.

With the help of intervention, real and imagined, and lower US 10-year yields, the yen has quietly strung together a three-week advance. It is the longest such streak this year. However, we suspect this phase is over. After trading quietly in the first half of the local session, the greenback eased to about JPY156.30 before the European morning. It recovered to test JPY157.00 before meeting new sellers. Last week's low (Thursday) was near JPY155.35. The Australian dollar is heavy. The uptrend since the year's low in late April has been convincingly violated. The momentum indicators have turned down. It has returned to the well-worn $0.6600-$0.6700 band. It has found support near $0.6660 so far today, but the initial risk extends to around $0.6630. The yuan softened slightly after the rate cut, despite the yen's gains. The PBOC set the dollar's reference rate at CNY7.1335 (CNY7.1315 at the end of last week). The high fix for the year was set on July 10 at CNY7.1342. The dollar has capped near CNH7.2950 last week and has exceeded it today (~CNH7.2960). The year's high was a little above CNH7.31.
 

Europe

The flash eurozone and UK PMI are the highlights this week. While the eurozone's manufacturing and services PMI are expected to tick slightly higher, the median forecast in Bloomberg's survey is for a small decline in the composite measure. The UK's July PMI is expected to have risen. The composite had slipped in May and June, and at 52.3, it was the low for the year.

From late June's low through last week's high, the euro rallied about 2.65%. That move looks over and a correction appears at hand. It is consolidating with a slightly firmer bias in about a quarter-of-a-cent range about $1.0880. We have suggested initial potential toward $1.0840 and possibly $1.08. For its part, sterling rose by about 3.4% from the early July low (~$1.2615) to last week's high for the year near $1.3045. It found support near $1.29 before the weekend but the momentum indicators turning down, it should not be expected to hold for long. Still, it is about a 30-tick range above $1.2910. A break of $1.2880 would signal at least another half-of-a-cent decline and perhaps a full-cent. 
 

America

The US highlight this week is the first estimate of Q2 GDP. The Atlanta Fed GDP tracker sees it at 2.7% and will update it on Wednesday the day before the release. The median Bloomberg's survey puts it at 1.9%. The Federal Reserve targets the PCE deflator but for economists and market purposes, the CPI (and PPI) contains the most important parts of the price signal. Much of the recent differences among forecast seem to be a question of rounding. This also means that when an official says that there have been three months of good news on the inflation front, it is already taking into account implications from the June CPI (and PPI). The Bank of Canada meets on July 24. The market is confident of a back-to-back cut by the central bank, which is seen as among the most dovish of G10 central banks (along with Sweden's Riksbank). The swaps market has about a 60% chance of a cut at the next meeting in September. It is fully discounted at the following meeting in October. Pricing in the swaps market is consistent with an 80% chance of another cut at the final meeting of the year in December. 

The US dollar nearly reached CAD1.3850 before the weekend, its best level since July 2. On the one hand, the Canadian dollar tends to do better on the crosses when the US dollar is bid. On the other hand, the Bank of Canada will cut rates tomorrow and keep the door open for further cuts. Still, the greenback has not traded above CAD1.38 in four months, and as it is approached, the risk-reward considerations shift. The US dollar's quiet and gradual trend lower ended last week, as the five-week decline was snapped with gain that recouped more than three weeks of losses. The momentum indicators have turned up, suggesting Canadian dollar buyers can be patient. The US dollar is knocking on the pre-weekend high in the European morning. This month's high was set near CAD1.3855 (July 2). The US dollar recovered last week to almost MXN18.1050 and closed above its 20-day moving average for the first time since July 1. It has come back offered to start the new week. After first rising to about MXN18.1120 it was sold to about MXN17.9480. The risk still seems to be on the upside and the daily momentum indicators look poised to turn higher. There seems to be initial scope toward MXN18.22. 

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