US Equities Outperform But Does Little For The Heavy Greenback


Overview:  The S&P 500 and Nasdaq set new all-time highs yesterday, but the continued outperformance of US equities have failed to lend the dollar much support. It was sold to new lows for the year yesterday against the euro, sterling, the Swedish krona, and the Australian dollar. Asia Pacific equities were mixed. China, Taiwan, and Hong Kong fell, while Japan, Australia, and South Korea advanced. In Europe, the Dow Jones Stoxx 600 remains confined to last Friday's ranges and is practically unchanged so far this week. US shares are a little firmer. Benchmark bond yields are 1-2 basis points lower, putting the US 10-year around 65 bp. The German 30-year bond, which yields around minus five basis points, saw record demand at today's auction. The dollar is softer against most of the majors, with the dollar bloc and the Norwegian krone leading. The greenback is mixed against the complex of emerging market currencies. Gold (GLD) is paring yesterday's gains but found support near $1980. September WTI posted a five-month high close, but it remains stuck between the about $41.60 and the 200-day moving average (~$43.40).  

Asia Pacific

The South China Morning Post had reported that US-China officials were to talk over the past weekend to review the Phase 1 trade deal.  The meeting apparently never made it onto the official calendars, and the meeting was ostensibly canceled due to scheduling conflict, which was attributed to the fact that China wants to discuss the latest US sanction. President Trump says that he canceled the talks because he was troubled by Beijing's response to the virus. Nevertheless, Trump and other senior officials (e.g., Navarro and Kudlow) have claimed the trade agreement is on track, and China is adhering to its commitment, and have highlighted recent agriculture purchases. Many observers are less sanguine and recognize that even if China can fulfill is agriculture purchases, it woefully behind in most other areas, including energy and airplanes.  

Meanwhile, the Trump Administration is urging colleges to divest its Chinese equity exposures, as a new front in the financial decoupling is opened. Separately, Beijing has allowed United (UAL) and Delta (DAL) to double to four the number of roundtrip flights, and the US reciprocated by allowing eight roundtrip flights a week by Chinese carriers.  

Japan reported an unexpected but small trade surplus in July, as exports improved while imports fell. Exports fell for the fifth consecutive month on a year-over-year basis, but at 19.2%, it was the smallest decline in four months. Autos (`-30%) and auto parts (~-32.5%) remain problematic. The decline in net exports accounted for about 40% of Japan contraction in Q2. Exports to the EU are off around 30.5% and to the US 19.5%. Japan reported the first increase in exports to China (~8.2%) for the first time this year.Imports fell 22.3% from a year ago. In June, they were off 14.4%. Separately, Japan reported a disappointing fall (7.6%) in June's core machinery orders. The median forecast in the Bloomberg survey was for a 2% increase. The report raises questions about capex here in Q3.  

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Read more by Marc on his site Marc to Market.

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