Greenback Limps Into The Weekend

Overview: Higher than expected US CPI and the second tepid reception to a US bond auction this week pushed US yields higher and helped stall the equity momentum. Asia Pacific yields, especially in Australia and New Zealand jumped 8-10 bp in response, and Spanish and Portuguese bonds bore the burden in Europe. Barring a sharp decline today, the US 10-year yield is higher for the second consecutive week, something not seen in three months.  Equities are mostly firmer, but small gains were not enough to prevent the MSCI Asia Pacific Index from snapping a five-week rally. Europe's Dow Jones Stoxx 600 is trying to end a six-day slide, but the five-week rally appears to be over. US shares are firmed and are set to probe new record highs. The dollar continues to trade with a heavier bias against the major currencies on the day and the week.  

Asia Pacific

China reported a 1.3% decline in exports in June, which were in line with expectations, and a 7.3% drop in imports, which were more than expected (~-4.8%). This generated a nearly $51 bl surplus, 20% wider than May. It is the largest monthly surplus in the first half.  China's surplus averaged a little more than $30 bln over the past six months compared with about $22.5 bln in H1 18. The bilateral flows with the US are instructive.  Imports from the US have fallen by almost a third (31.4%) from a year ago while exports are off 7.8%. China's bilateral surplus with the US rose to $30 bln, the widest this year. President Trump complained yesterday that China has not stepped up their purchases of US agriculture goods, but the US has not yet granted licenses to US companies to sell Huawei product and it had seemed the two actions were linked.  

Separately, China reported a surge in lending in June.  Aggregate financing jumped to CNY2.26 trillion from CNY1.395 trillion in May. It rose considerably faster than bank lending (CNY1.66 trillion from CNY1.18 trillion). The difference is often associated with shadow banking, which in China is not simply nonbank financial institutions, but parts of some banks, as well. Expectations that the PBOC will ease policy are gaining momentum, especially given the signals this week by the Fed and ECB. 

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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