Global Market Update: US Stocks Bounce, Yields Rise, and China's Data Awaited

Global Macro and Markets

Global markets: US stocks bounced on Monday, but that wasn’t because the interest rate environment improved, yields on US Treasuries continued their upward march. The yield on 2Y US Treasuries rose 7.2bp to 4.967%, not far off the effective Fed funds rate of 5.33%, which tells you all you need to know about the market’s expectations for rate cuts over the next two years (not much), while yields on the 10Y rose 3.9bp to 4.191%. The S&P 500 nonetheless managed to rise 0.57%, and the NASDAQ rose 1.05%. Chinese stocks in contrast had another bad day ahead of today’s activity data releases. The Hang Seng dropped 1.58%, while the CSI 300 fell 0.73%. Higher yields mean a stronger USD. The EURUSD has now fallen to 1.0905 and actually pushed below 1.09 yesterday. This has dragged down G-10 currencies. The AUD has fallen to 0.6488. Cable is down to 1.2682 and the JPY has pushed up to 145.52. Asian FX was all weaker against the USD, with the peso leading the pack. The PHP has risen to 56.810. The CNY has risen back to 7.2573, and although one of the best performers of the day, the INR briefly rose above 83 to the USD, before moving slightly below. This puts it at its weakest since October 2022, and slightly outside the range in which it has traded since that time. Is this time for an upwards break? That depends on whether the RBI thinks that maintaining this tight band is worth the cost in FX reserves.

G-7 macro: Yesterday’s macro calendar was devoid of interest, but today we get more to consider. US advance retail sales for July are released, and the consensus expectation is for a relatively robust 0.4% MoM figure, with a stronger core series. This is in line with the market’s recent conversion to the soft-landing hypothesis and could see further rate cuts priced out of the curve for 2024/25. Elsewhere, we have UK labour data for July. Here, the attention may be on the weekly earnings data, which are expected to pick up into the mid-7% range. That won’t allow the Bank of England to let its inflation guard down. And in Germany, the ZEW survey is expected to remain very bombed out.
China: Later this morning, we get the monthly data dump, where the general message is likely to be one of ongoing meagre growth. But while in the past, weak numbers may have spurred thoughts of a government stimulus package, hopes seem to be waning for the traditional fiscal response to economic weakness given the overhang of debt in the economy. China also decides on the rate for the 1Y Medium-term lending facility. No change is expected this month, with the consensus building behind a September cut.

Indonesia: July trade figures are set for release today. Both exports and imports are likely to remain in deep contraction with the overall trade balance set to dip to $2.6bn, down from $3.5bn. Exports and imports will be lower for July given lower commodity prices compared to last year. The narrowing trade surplus is a fading support for the IDR which is under pressure recently. Government officials recently implemented a partial restriction for export earnings with exporters asked to keep a portion of earnings on shore.

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