UK Presses Ahead, China Strikes Out At German Pork Producers, And Moody's Weighs On Turkey

Overview: A flurry of deals, including the still-evolving Oracle-TikTok tie-up, helped lift equity markets in the Asia Pacific region. South Korea's Kospi, and Indonesia, which had been battered last week, led the advance. The MSCI Asia Pacific Index rose for the third consecutive sessions. European bourses are little changed while US stocks are firmer. The S&P 500 could gap higher at the open. Benchmark bond yields are 1-3 bp lower in Europe, and the periphery is doing better than the core. The US 10-year yield is near 66 bp. The dollar is mostly lower, though the Australian is an exception, and is slightly lower. Among the emerging market currencies, the Turkish lira is the outlier. It was trading heavily in the aftermath of Moody's unexpected downgrade ahead of the weekend (B2) and maintained a negative outlook. Gold is firm but in the middle of the $1900--$2000 range, and October WTI is narrow range but looking heavy despite Tropical Storm Sandy threatening Gulf oil platforms. The busy week that features OPEC's meeting and three major central banks (Fed, BOJ, and BOE) is off to a slow start.

Asia Pacific

Within 48 hours or so of China's Xi virtual meeting with Merkel, Michel, and von der Leyden, Beijing announced a complete ban on German pork and related products. A case of African swine flu was detected in Germany, but rather than reject pork from that area, like the EU has, China as banned all of German pork. Germany was China's third-largest pork supplier behind the US and Spain. Many suspect that what looks like an overreaction is designed to send a signal to Berlin, the largest country in the EU. The EU has threatened new restrictions on Chinese investment as due primarily to its heavy use of state aid. Separately, the EU imposed anti-dumping duties (50.3%-66.4%) on Chinese steel road wheels for five years in March and followed that up with tariffs (17.2%-27.9%) on corrosion-resistant steel imports were some Chinese producers work around the initial tariffs. Ostensibly, the ban on German pork could boost China's imports of US pork, which would be helpful for the Phase 1 trade agreement. However, it would serve China's purposes better if it blamed a reduction of German pork imports on the American's who insist on bypassing the marketplace and securing a fixed dollar share of China's market. 

The LDP has selected Suga as Abe's replacement as head of the LDP. On Wednesday, the Diet will choose him as the new Prime Minister. Suga had initially hinted that another rise in the controversial sales tax might be needed but has now pushed it out at least a decade. The BOJ meets later this week, but the focus is on the trajectory of fiscal policy. Suga seemed sympathetic to another budget (it would be the second extra budget this year) and suggested (along the lines of MMT) that there was no limit on bond issuance. The Japanese economy contracted for the past three quarters, and the recovery here in Q3 appears restrained. Earlier today, Japan reported its tertiary index in July fell by 0.5%. The median forecast in the Bloomberg survey was for an increase of the same magnitude. The June series was revised to a 9% gain from 7.9% initially. On the other hand, the July industrial production figures were revised higher to show an 8.7% gains instead of 8.05.

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Read more by Marc on his site Marc to Market.

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