Asian Equity Market
Asian equity markets had a strong first half of the week, led by North Asian markets of Japan, Korea and Taiwan as sentiment from tech gains in the US spilled over. However, by mid-week, the equities corrected slightly as the stalemate over the US additional stimulus bill weighed on markets.
Meanwhile, the STI also rebounded into the National Day weekend, as local bank shares attempted to recover from the slight drubbing in the previous week.
On Friday, Sino-US tensions heightened following a ban on transactions with China’s tech firms along with lackluster domestic earnings and cautions on US employment growth weighed on the STI, SHCOMP, and HSI.
European Equity Market
Major bourses rose sharply with gains led by the German DAX, and even the Spanish and Italian indices that were weak in the previous week showed rebounds at the beginning of the week. The major indices corrected slightly on Thursday as the BoE remained guarded on the economy’s prospects. However, major indices closed higher at the end of the week as investors focused on economic data in Europe instead of the Sino-US tensions.
US Equity Market
It was an overall positive week for the US equities markets with small-cap as the outperformer for the week. The US ISM numbers boosted the first trading day of the month; however, the indices closed lower on Friday because of a slowdown in US employment growth along with the lack of new fiscal stimulus.
The bond market logged new records in the past week. The benchmark 10Y Treasury yield hit the lowest since March 9, and the 5Y yield hit a record low on the same day, indicating traders’ reluctance in believing that the recovery of the US economy will be sufficiently stable to raise interest rates before then.
Overall, the week ended with a flattened US 2Y-10Y of 42.11bps, as investors expect a slowdown in the US labor market’s recovery. There is a general divergence between the US Treasury market and the US Equity market throughout the week.
The key theme driving commodity prices higher continues to be the devaluation of the dollar. Silver continued to rally from the previous week with an average daily gain of 3.5%. Silver volatility closed near its highest level since 16 March, providing a good opportunity to harvest some volatility.
Meanwhile, in the base metals complex, nickel closed higher on Monday, driven by reports from SMM that stainless steel consumption significantly increased m/m in July and the positive US ISM numbers. Nickel hit levels not seen since 25-Nov on Thursday but settled slightly lower.
Throughout the week, Brent attempted to follow through on its bullish momentum after breaching the USD43.60/bbl level, but late-day selling stalled larger gains. Brent also traded down with the rest of the commodity complex on Friday in relation to the rally in the dollar.
The currency logged a seventh straight week of declines as the US Covid-19 relief package stalled, causing the dollar to reach a 2-year low in midweek.
However, the positive nonfarm payroll results led to a monetary rebound in the dollar index on Friday as the US nonfarm payrolls increased by 1.76 million. The rebound in the dollar index seemed to be driven by profit-taking in dollar shorts, and possible stop-loss triggers from the late shorts. With the dollar reversing strongly off oversold conditions, it remains to be seen if this marks a short-term bottom in the sentiment a devaluation in the dollar.
The Aussie tracked the devaluing dollar and climbed higher throughout the week. RBA announced the purchase in government debt to keep yields down near its target, led to a 0.505% rise on Tuesday.
The euro had a bout of consolidation for the week, as it stalled near levels last seen in May 2018. The euro’s 7 consecutive weeks of gains saw the CFTC commitment of traders report showing that euro longs climbed to a new record of +180k.
On Thursday, the pound climbed against the dollar to pre-pandemic highs due to the weakened dollar and the consensus Bank of England’s actions, which left their bond-buying stimulus program of 745 billion pounds and a stagnant interest rate of 0.1% unchanged. In the coming weeks, the market could be more focused on headlines surrounding the Brexit negotiations as focus switches away from the BoE decision.
The movement in the USD/JPY has traded relatively sideways within a narrow range of +/- 1% throughout the week.
The weakened dollar and collapsing real yields have laid the groundwork for gold’s parabolic rise with gold penetrating the USD2,000/ounce level during the week. This marks gold’s highest traded levels ever as concerns over the devaluing safe-haven dollar has led investors to seek alternatives.
HIGHLIGHTS OF THE WEEK
- In the US, the ISM manufacturing index improved 1.6pp to 54.2 in July, above consensus expectations of 53.6, the second month above the breakeven level of 50, suggesting firming activity in the industrial sector. The increase in the headline index was led by the new orders (+5.1pp to 61.5), production (+4.8pp to 62.1), and employment (+2.2 to 44.3) indices. These increases suggest an improvement in overall manufacturing sector activity although employment remained in contraction. The backlog orders index jumped 6.5pp to 51.8, suggesting some near-term momentum, while the new export orders rose 2.8pp to 50.4, the first reading above 50 since February. That said, external demand appears soft and could likely continue to weigh on manufacturing sector activity.
- In vaccine headlines, Novavax said initial data from a small, early-stage clinical trial showed the drug produced antibodies against the coronavirus, and it will likely move forward with the lower of two tested doses. However, as per previous vaccine results from Moderna and AstraZeneca, results seen are too preliminary to draw any conclusions on the efficacy of the vaccine.
- On the US-China front, The President’s Working Group on Financial Markets said stock exchanges should set new rules that could trigger the delisting of Chinese companies, following mounting concerns that investors are being exposed to frauds. This comes as Microsoft is now eyeing a deal to buy TikTok’s global business, including ops in India and Europe but Bloomberg reported it’s still focused on the service in the U.S., Canada, Australia, and New Zealand.
- Trump late on Thursday unveiled sweeping bans on U.S. transactions with the Chinese owners of messaging app WeChat and video-sharing app TikTok. In response, China said the companies complied with U.S. laws and warned Washington would have to “bear the consequences” of its action.
- Trump will re-impose a 10% tariff on some Canadian aluminum imports. This comes just weeks after the updated North American trade agreement went into effect.
- On Friday, Democrats in Congress said they had offered to reduce a proposed coronavirus aid package by a trillion dollars if Republicans would add a trillion to their counter-offer, but Treasury Secretary Steven Mnuchin, one of the White House negotiators, called the proposal a “non-starter.”
- In other data news, the Eurozone’s services PMI was a tad softer than initially estimated at 54.7, but the composite PMI rose to 54.9 in July. June retail sales came in at +5.7% vs. +6.1% m/m expected, with textiles, clothing, footwear contributing to the beat.
- The U.K., Bank of England voted unanimously to keep its bank rate at 0.1% and its QE program at GBP745b while citing that the outlook remains unusually uncertain and that GDP may not return to pre-Covid levels before end-2021. Inflation is tipped to fall further to 0.25% this year and only return to the 2% target two years later while unemployment is likely to rise to 7.5% by end-2020.
- The Chinese Caixin Services PMI missed at 54.3 vs. 58.0 exp., while the composite came in at 54.5 from 55.7 prior.
- China’s export performance has not been severely affected as exports in July increased by 7.2% from a year earlier, the fastest pace since December last year. January-July exports of textile products, including face masks, rose 31.3% y/y, quickening from a 27.8% expansion in the first half. The growth of sales in medical equipment also picked up to 47.3% from 41.4%. Meanwhile, imports fell 1.4% missing market expectations for a 1.0% increase.
- China’s imports of major commodities – crude oil, iron ore, and soybeans – all surged from a year earlier with the country snapping up raw materials as its economy revives.
- China’s foreign ministry firmly opposes executive orders announced by Trump banning US transactions with the Chinese owners of messaging app WeChat and video-sharing app Tiktok.
- The United States on Friday imposed sanctions on Hong Kong Chief Executive Carrie Lam and other Chinese and Hong Kong officials.
- India plans to ban apps from ByteDance Ltd. and Tencent Holdings Ltd., blacklisting more Chinese services in retaliation over the worst military clash between the two countries in almost half a century.
- In Singapore, the National Wages Council will reconvene again. The manufacturing PMI finally resurfaced to the expansion territory at 50.2 in July, jumping 2.2 points after contracting for the previous five months. However, the employment (49.1 versus 49.4 previously) and supplier deliveries (48.6 versus 49.8 previously) gauges were the exception where a faster pace of contraction was seen, which suggests that the improvement in manufacturers’ sentiments did not extend to greater hiring intentions yet and global supply disruptions had eased but not fully subsided. The 50 handle also eluded the domestic electronics PMI which climbed a smaller 1.6 points to 49.2 in July and marked its sixth straight month in contraction territory.
- DBS and UOB announced that net income fell 22% y/y and 40% y/y to $1.25b and $703m, respectively.
|All Day||Holiday||Singapore – National Day|
|All Day||Holiday||Japan – Mountain Day|
|9:30||CNY||CPI (MoM) (Jul)|
|9:30||CNY||CPI (YoY) (Jul)|
|9:30||CNY||PPI (YoY) (Jul)|
|22:00||USD||JOLTs Job Openings (Jun)|
|7:01||GBP||BRC Retail Sales Monitor (YoY) (Jul)|
|7:50||JPY||Adjusted Current Account|
|7:50||JPY||Current Account n.s.a. (Jun)|
|9:30||AUD||NAB Business Confidence (Jul)|
|16:30||GBP||Average Earnings Index +Bonus (Jun)|
|16:30||GBP||Claimant Count Change (Jul)|
|16:30||GBP||Employment Change 3M/3M (MoM) (Jun)|
|16:30||GBP||Unemployment Rate (Jun)|
|17:00||EUR||German ZEW Current Conditions (Aug)|
|17:00||EUR||German ZEW Economic Sentiment (Aug)|
|17:00||EUR||ZEW Economic Sentiment (Aug)|
|20:00||USD||EIA Short-Term Energy Outlook|
|20:15||CAD||Housing Starts (Jul)|
|20:30||USD||Core PPI (MoM) (Jul)|
|20:30||USD||PPI (MoM) (Jul)|
|20:30||CAD||Building Permits (MoM) (Jun)|
|Tentative||GBP||NIESR GDP Estimate|
|0:00||USD||FOMC Member Daly Speaks|
|4:30||USD||API Weekly Crude Oil Stock|
|8:30||AUD||Westpac Consumer Sentiment (Aug)|
|9:30||AUD||Wage Price Index (QoQ) (Q2)|
|12:00||MYR||GDP (YoY) (Q2)|
|14:00||GBP||Business Investment (QoQ) (Q2)|
|14:00||GBP||GDP (YoY) (Q2)|
|14:00||GBP||GDP (QoQ) (Q2)|
|14:00||GBP||Industrial Production (MoM) (Jun)|
|14:00||GBP||Manufacturing Production (MoM) (Jun)|
|14:00||GBP||Monthly GDP 3M/3M Change|
|14:00||GBP||Trade Balance (Jun)|
|14:00||GBP||Trade Balance Non-EU (Jun)|
|17:00||EUR||Italian CPI (MoM) (Jul)|
|17:00||EUR||Industrial Production (MoM) (Jun)|
|17:40||EUR||German 10-Year Bund Auction|
|19:00||USD||OPEC Monthly Report|
|20:00||INR||CPI (YoY) (Jul)|
|20:30||USD||Core CPI (YoY) (Jul)|
|20:30||USD||Core CPI (MoM) (Jul)|
|20:30||USD||CPI (MoM) (Jul)|
|21:30||USD||Seevol Cushing Storage Report|
|22:00||USD||FOMC Member Rosengren Speaks|
|22:30||USD||Crude Oil Inventories|
|22:30||USD||Cushing Crude Oil Inventories|
|23:00||USD||FOMC Member Kaplan Speaks|
|1:01||USD||10-Year Note Auction|
|2:00||USD||Federal Budget Balance (Jul)|
|3:00||USD||FOMC Member Daly Speaks|
|7:01||GBP||RICS House Price Balance (Jul)|
|9:30||AUD||Employment Change (Jul)|
|9:30||AUD||Full Employment Change (Jul)|
|9:30||AUD||Unemployment Rate (Jul)|
|14:00||EUR||German CPI (MoM) (Jul)|
|15:00||EUR||Spanish CPI (YoY) (Jul)|
|15:00||EUR||Spanish HICP (YoY) (Jul)|
|16:00||USD||IEA Monthly Report|
|20:30||USD||Export Price Index (MoM) (Jul)|
|20:30||USD||Import Price Index (MoM) (Jul)|
|20:30||USD||Initial Jobless Claims|
|7:30||AUD||RBA Governor Lowe Speaks|
|10:00||CNY||Fixed Asset Investment (YoY) (Jul)|
|10:00||CNY||Industrial Production (YoY) (Jul)|
|10:00||CNY||Chinese Industrial Production YTD (YoY) (Jul)|
|10:00||CNY||Chinese Unemployment Rate|
|10:00||CNY||NBS Press Conference|
|12:00||MYR||GDP (YoY) (Q2)|
|12:30||JPY||Tertiary Industry Activity Index (MoM)|
|14:30||INR||WPI Inflation (YoY) (Jul)|
|14:45||EUR||French CPI (MoM) (Jul)|
|14:45||EUR||French HICP (MoM) (Jul)|
|17:00||EUR||GDP (YoY) (Q2)|
|17:00||EUR||GDP (QoQ) (Q2)|
|17:00||EUR||Trade Balance (Jun)|
|20:30||USD||Core Retail Sales (MoM) (Jul)|
|20:30||USD||Nonfarm Productivity (QoQ) (Q2)|
|20:30||USD||Retail Sales (MoM) (Jul)|
|20:30||USD||Unit Labor Costs (QoQ) (Q2)|
|20:30||CAD||Manufacturing Sales (MoM) (Jun)|
|21:15||USD||Industrial Production (MoM) (Jul)|
|21:15||USD||Industrial Production (YoY) (Jul)|
|22:00||USD||Business Inventories (MoM) (Jun)|
|22:00||USD||Michigan Consumer Expectations (Aug)|
|22:00||USD||Michigan Consumer Sentiment (Aug)|
|22:00||USD||Retail Inventories Ex Auto (Jun)|
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