The USD is steady, oil prices are firm, equity markets are down, and US yields are up as interest rates and China woes cloud risk sentiment. Investors favor the safe haven USD as global yields head to 15-year highs and China's property slump continues to impact investor risk sentiment. Global government bonds test their highest levels since the global financial crisis in 2007/08 as resilient economic data is dashing speculation that central banks are about to pause their hiking policies. The fed minutes showed "upside risks" to inflation possibly leading to more rate hikes, Norway raised its key rates to 4%, and the ECB is expected to hike rates again in September. China's housing market slump may be worse than expected as private data shows existing-home prices falling at least 15% in prime neighborhoods. Chinese asset manager eyes restructuring to ease liquidity issued as markets start to fear contagion, while Morgan Stanley has become the latest major brokerage to cut China's forecast for 2023. Today US Initial Jobless Claims & Philadelphia Fed Manufacturing Survey will be in focus to help provide some intraday direction to markets.
In other news. Global investors dump Chinese securities as state support hopes fade-FT. US, Japan & South Korea to deepen security ties to deter China as Biden hosts talks at Camp David. Ukraine claims gains on the southeastern front and fighting rages in the east. Canadian wildfires threaten towns, govt orders evacuations. Wildfire on Spain's Tenerife spreads across the island's north. Americans back tariffs, military prep against China- Reuters/Ipsos poll. Bungalows, cars seized in Singapore's billion-dollar swoop on money laundering. Argentines rush to dollar safety as election uncertainty looms.
In currency news. China told state banks to escalate the yuan intervention this week. Argentine Peso holds at all-time lows vs USD. The USD index holds near 2-month highs. Norwegian Krone steadies after interest rates rise to 4%. China's yuan hits over 9-month lows on weak economy and more policy easing expectations. AUD remains under pressure following China to 9-month lows as jobs data disappoints. CNY firms 0.15%, CNY (offshore Chinese Yuan) gains 0.4%, while Asian currencies are up 0.1% on average vs USD. Trading currencies are mixed as SEK weakens 0.1%, while AUD, NOK, MXN & CHF are up 0.1%, NZD & JPY firm 0.2%, and ZAR strengthens 0.55% vs USD.
Oil prices rebound in early trading as supply concerns continue, and China makes a rare draw on crude oil inventories as imports slip. CAD strengthens in early trading after hitting 10-week lows on Wednesday after the FOMC minutes suggested higher US rates for longer. Domestically CAD housing starts slipped 10% in July m/m, despite the monthly drop, total SAAR housing starts for all areas in Canada was 7.4% above the 5-year average. Today sees CAD low-tier economic data, so the focus will be on US Jobs & Phili Fed Manufacturing survey to provide intraday direction. In the short term, China's economic concerns are expected to keep negative pressure on the loonie as risk-off sentiment is expected to continue.
EURCAD slips slightly in early trading as firmer oil prices help support the CAD in early trading.
EUR slips below 1.0900 amid ongoing investor risk-off sentiment. Euro slipped below 1.0900 in early trading as safe-haven USD flows amid China concerns and renewed hawkish Fed minutes. Euro appears to have slipped into a bearish trend, a break of 1.0860 (July lows) as risk sentiment continues to fade and opens up the potential of a retest of 1.0750 next. The Intraday focus will be on US data releases to help provide direction to the single currency.
GBPEUR edges higher to a new August high as pressure remains for the BoE to continue its hiking policy.
GBP retests 1.2750 heading into US data releases. The pound continues to strengthen as expectations are that the BoE will hike 25bps in September and possibly a further 50bps in Q4/2023. We anticipate that the pound could outperform its peers supported by increasing interest rates and opens the door to a possible retest of 1.3000 vs USD and a possible move to 1.2000 vs EUR. Intraday investors will be focused on the US data to help provide direction.
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