• European bourses have been unable to hold onto modest opening gains, whilst there wasn’t a clear reason behind the pullback in global equities.
• Stateside are trading on the back foot, with ES and NQ giving back some of yesterday's gains after overnight data out of China disappointed.
• Fitch analysts warn it may be forced to downgrade dozens of banks, including JPMorgan Chase (JPM), according to CNBC. 
• China's PBoC cut its 1-year MLF rate by 15bps, and reduced its 7-day reverse repo rate and SLF rates by 10bps each; state banks intervened overnight, and activity data underscored dampened demand.
• Looking ahead, highlights include, US Import & Export Prices, Retail Sales, Business Inventories, Canadian CPI, Speech from Fed’s Kashkari

15th August 2023

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EUROPEAN TRADE

EQUITIES

• European bourses have been unable to hold onto modest opening gains. There wasn’t a clear reason behind the pullback in global equities and summer trading conditions can often cause an unexplained drift within the market.
• Sectors in Europe are now lower across the board with the exception of Retail just about managing to hold in positive territory with Marks & Spencer. On the downside, Real Estate names are the standout laggard with the sector struggling in the face of firmer yields, whilst Basic Material names are suffering in the wake of Chinese-induced softness in underlying metals prices.
• Stateside, equity futures are trading on the back foot, with ES and NQ giving back some of yesterday's gains after overnight data out of China disappointed
• Click here and here for a recap of the main European equity updates.

FX

• DXY trades on a more mixed footing amidst a myriad of factors ranging from data to Central Bank policy action and further intervention. The Dollar index holds a tight line around 103.000, with downside pressure emanating from the Sterling, the Euro and Franc, whilst support comes via the Loonie, Yen and Swedish Crown.
• GBP derived traction from the hotter-than-expected UK wages.
• The Chinese Yuan relied on state bank buying to stem losses overnight following disappointing activity data and rate cuts by the PBoC.
• PBoC set USD/CNY mid-point at 7.1768 vs exp. 7.2648 (prev. 7.1686)
• Chinese state banks were seen selling dollars vs yuan at the 7.2800 level.
• CBR hiked by 350bps from 8.5% to 12% at its emergency rate decision.
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FIXED INCOME

• Debt futures have recouped some losses after plunging further into negative territory, and arguably in relief that supply has not prompted any additional pressure from a demand perspective
• Bunds are holding above worst levels within a 130.57-131.26 range, Gilts midway between 92.51-99 confines and the T-note just over their 109-22 overnight base.
• UK sells GBP 2.5bln 1.125% 2039 Gilt: b/c 2.51x (prev. 2.58x), average yield 4.786% (prev. 3.780%) & tail 0.8bps (prev. 0.2bps).
• Germany sells EUR 4.234bln vs. Exp. EUR 5.5bln 3.10% 2025 Schatz: b/c 1.3x (prev. 1.5x), average yield 3.12% (prev. 3.7%) & retention 21.38% (prev. 17.28%)
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COMMODITIES

• WTI and Brent futures are experiencing another morning of choppiness in summer markets, the losses seen since the European cash open seemingly a function of the broader risk aversion and downbeat Chinese data.
• Spot gold is subdued this morning as the Dollar clawed back some earlier losses in early European trade, with the yellow metal dipping under its 200 DMA around USD 1,905/oz.
• Base metals have also seen a choppy session thus far with the initial mild support from the aforementioned Bloomberg sources dissipating amid this morning’s risk aversion. 3M LME copper briefly dipped under USD 8,200/t.
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NOTABLE US HEADLINES

• Fitch analysts warn it may be forced to downgrade dozens of banks, including JPMorgan Chase (JPM), according to CNBC.
• Home Depot Inc (HD) Q2 2023 (USD): EPS 4.64 (exp. 4.44), Revenue 42.916bln (exp. 42.21bln). Q2 US Comp sales -2% (exp. -3.36%) Overall sales -2% (exp. -3.54%); Co. announces a USD 15bln share buyback.
• US Treasury Secretary Yellen said inflation is coming down and a very large share of Americans feel good about their personal situation, while she feels good about the US economy overall. However, Yellen also commented that China's developments and Russia's war in Ukraine pose uncertainty for the global economy, as well as noted that slowing growth in China could spill over into the US and will have the largest impact on Asian neighbours, according to Reuters.
• Prosecutors in the US state of Georgia filed legal action against former president Trump and 18 others over 2020 election interference in Georgia, while Trump was charged with 13 counts including violations of the Georgia Rico Act and forgery in the first degree, according to Reuters.

NOTABLE EUROPEAN HEADLINES

• ZEW said respondents by and large do not expect further rate hikes in the EZ and US. ZEW said the economic outlook for the US has seen a significant increase; this contributes to improved expectations for Germany, according to Reuters.

DATA RECAP

• UK Avg Wk Earnings 3M YY* (Jun 2023) 8.2% vs. Exp. 7.3% (Prev. 6.9%); "total growth rate is affected by the NHS one-off bonus payments made in June 2023."
• UK Avg Earnings (Ex-Bonus)* (Jun 2023) 7.8% vs. Exp. 7.4% (Prev. 7.3%)
• UK Claimant Count Unem Chng* (Jul 2023) 29.0k (Prev. 25.7k)
• UK ILO Unemployment Rate* (Jun 2023) 4.2% vs. Exp. 4.0% (Prev. 4.0%)
• EU ZEW Survey Expectations (Aug) -5.5 (Prev. -12.2)
• German ZEW Economic Sentiment * (Aug 2023) -12.3 vs. Exp. -14.7 (Prev. -14.7)
• German ZEW Current Conditions * (Aug 2023) -71.3 vs. Exp. -63.0 (Prev. -59.5)
• Swedish CPI YY* (Jul 2023) 9.3% vs. Exp. 9.3% (Prev. 9.3%)
• Swedish CPIF YY* (Jul 2023) 6.4% vs. Exp. 6.5% (Prev. 6.4%)
• Swedish CPIF MM* (Jul 2023) -0.2% (Prev. 0.9%

GEOPOLITICS

• Russian Ambassador to the US said the US denied some Russian officials visas to travel to the APEC conference in Seattle, according to Reuters.

CRYPTO

• Bitcoin trades flat just above the USD 29k with price action contained.

APAC TRADE

• APAC stocks traded mixed in an event-packed session as participants digested key releases including disappointing Chinese activity data and the PBoC’s surprise cuts to its 7-day Reverse Repo and 1-year MLF rates.
• ASX 200 was firmer with most sectors in the green including the top-weighted financials after earnings from big 4 bank NAB which also announced a share buyback, while the RBA minutes provided little in the way of new information and kept the door open for further rate hikes although the latest Wage Price Index printed softer-than-expected.
• Nikkei 225 benefitted from a strong GDP report which showed Japan's economy expanded by the fastest annualised pace since Q4 2020 but was led by exports as private consumption contracted for the first time in 3 quarters.
• Hang Seng and Shanghai Comp were subdued as the miss on Chinese Industrial Production and Retail Sales

NOTABLE ASIA-PAC HEADLINES

• PBoC conducted CNY 401bln in MLF and unexpectedly cut the 1-year MLF rate by 15bps to 2.50% from 2.65%, while it injected CNY 204bln via 7-day reverse repos with the rate cut to 1.80% from 1.90%.
• PBoC cut the standing lending facilities rates; 10bps reduction for overnight (now 2.65%), 7-day (now 2.8%) and 1--month maturities (now 3.15%).
• PBoC adviser called for the urgent need to boost residential consumption.
• China NBS said the economy continued to recover in July and the foundation for economic recovery needs to be cemented, while it reiterated to boost domestic demand and noted that domestic demand is not sufficient. China's stats bureau also stated that China's economic recovery faces challenges but expects exports to be basically steady in H2 and said risks for property developers could be gradually resolved due to policy optimisation. Furthermore, the NBS said PPI declines are expected to moderate further and the decline in CPI could be temporary, while it anticipates China's economy to improve as policies gain traction.
• China reportedly mulls cutting its stamp duty to revive slumping stock market, according to Bloomberg sources; details on timing and size are yet to be determined, and there is no guarantee the proposal will be approved.
• Japanese Finance Minister Suzuki said rapid FX moves are undesirable and they are to respond appropriately to excessive moves; not targeting absolute FX levels when intervening. Suzuki added FX should move stably reflecting fundamentals, and offered no comment on FX levels, but said they are watching markets with a strong sense of urgency.
• Japan's top FX diplomat Kanda says will take appropriate steps against excessive moves, according to Jiji; adds that excess volatility is undesirable and monitoring with a high sense of urgency, according to Reuters.
• RBA Minutes from the August meeting stated that the Board considered raising rates by 25bps or holding steady and agreed that the case for holding steady was the stronger one, while the Board saw a credible path back to the inflation target with Cash Rates at the current 4.10% level but agreed it was possible some further tightening may be needed which would depend on data and evolving assessment of risks. Furthermore, it stated that inflation is heading in the right direction although service inflation is too high and the Board saw plausible scenarios where inflation took longer than acceptable to return to the target.

DATA RECAP

• Chinese Industrial Production YY (Jul) 3.7% vs. Exp. 4.4% (Prev. 4.4%)
• Chinese Retail Sales YY (Jul) 2.5% vs. Exp. 4.5% (Prev. 3.1%)
• Chinese Urban Investment YTD YY (Jul) 3.4% vs. Exp. 3.8% (Prev. 3.8%)
• Chinese Urban Unemployment Rate (Jul) 5.3% (Prev. 5.2%)
• Japanese GDP QQ (Q2 P) 1.5% vs. Exp. 0.8% (Prev. 0.7%)
• Japanese GDP QQ Annualised (Q2 P) 6.0% vs. Exp. 3.1% (Prev. 2.7%)
• Japanese GDP QQ Private Consumption (Q2 P) -0.5% vs. Exp. 0.1% (Prev. 0.5%)
• Australian Wage Price Index QQ (Q2) 0.8% vs. Exp. 0.9% (Prev. 0.8%)
• Australian Wage Price Index YY (Q2) 3.6% vs. Exp. 3.7% (Prev. 3.7%)