Daily Market Analysis By Z Forex

[Z Forex]

Asia-Pacific and European Markets React to Rate Hike, XPeng Inc. Soars on Volkswagen Investment

Asia-Pacific shares mostly advanced on Thursday following the U.S. Federal Reserve's decision to implement a long-anticipated interest rate hike, pushing rates to their highest point in over 22 years. Despite this increase, the Federal Reserve indicated that further tightening measures might still be on the horizon. Likewise, European equity markets were poised to open higher on Thursday as investors prepared for the expected 25 basis point rate hike from the European Central Bank.
XPeng Inc. stood out as the top performer in MSCI Inc.'s Asia Pacific Index, with its stock surging over 30%. This impressive jump came after Volkswagen AG announced its intention to invest $700 million in the Chinese electric vehicle maker.
The Federal Reserve's interest rate hike was in line with expectations, raising the funds rate by a quarter percentage point, bringing the target range to 5.25%-5.5%. This marks the highest rate level in more than two decades. The central bank intends to assess how the previous rate increases affect economic conditions before deciding on further actions. Chairman Jerome Powell suggested that another rate hike might take place at the next meeting in September if economic data supports it. The post-meeting statement emphasized a data-dependent approach to monetary policy. The rate hike received unanimous approval from the voting committee members, and despite predictions of a mild recession, the statement referred to economic growth as "moderate," though inflation remains a concern.
Meanwhile, the market focus shifted to the European Central Bank's expected rate hike on Thursday, which would raise the main interest rate from 3.5% to 3.75%. Investors are keenly watching for signals regarding the bank's plans for its September meeting.
Euro area countries find themselves at different stages in their efforts to combat inflation, and there have been concerning signs from the economy, with business activity declining more than anticipated in July.

 

[Z Forex]

Bank of Japan's Flexible Yield Curve Control Amid Rising Inflation ​

The Bank of Japan (BOJ) decided to maintain its benchmark policy rate at -0.1%. Additionally, the central bank announced its intention to allow 10-year government bond yields to fluctuate within a range of approximately plus or minus 0.5%. However, the BOJ plans to implement yield curve control with greater flexibility, viewing the upper and lower bounds of the range as references rather than strict limits during market operations.
In Tokyo, Japan's capital city, the consumer price index rose by 3.2% in July compared to the same period last year, slightly higher than the 3.1% increase seen in the previous month. Notably, this marks the 14th consecutive month in which the inflation rate in Tokyo has exceeded the Bank of Japan's 2% target. The core inflation rate, which excludes fresh food prices, reached 3%, slightly surpassing economists' expectations of 2.9%, but lower than the 3.2% recorded in June.
The European Central Bank (ECB) raised interest rates by 25 basis points, as anticipated, bringing it to a 23-year high. However, President Christine Lagarde's mention of a possible pause in September caused the euro to decline in value.
In the United States, the Commerce Department released a strong initial assessment of the second-quarter GDP.
Investors are keeping an eye on consumer sentiment data and the core Personal Consumption Expenditures (PCE) deflator, which is the Federal Reserve's preferred inflation gauge. The gauge is expected to show a slight easing to 4.2% on an annual basis.
For Spain, France, and Germany, second-quarter GDP estimates are projected to show modest expansion, despite indications of struggling economies from the latest purchasing manager indexes. Additionally, inflation figures are due to be released in France and Germany.

 

[Z Forex]

Asia-Pacific Markets Rise Amidst China's Fourth Consecutive Month of Factory Contraction; Central Banks Adjust Policies in Response to Economic Challenges ​

On Monday, Asia-Pacific markets saw gains despite China's factory activity remaining in contraction territory for the fourth consecutive month in July. The official manufacturing purchasing managers index (PMI) was 49.3, slightly higher than June's figure of 49.0, according to the National Bureau of Statistics. Additionally, the PMI for non-manufacturing activity came in at 51.5, indicating a slower rate of expansion compared to June's 53.2.
In Japan, the central bank made adjustments to its yield curve control. They allowed 10-year Japanese government bond yields to fluctuate within a range of approximately plus and minus 0.5 percentage points from its 0% target. Furthermore, the bank offered to purchase 10-year JGBs at 1% through fixed-rate operations, expanding its tolerance by 50 basis points. These measures were taken to address concerns about the prolonged impact of monetary easing on financial markets and the real economy. BOJ Governor Kazuo Ueda clarified that it is not a move towards policy normalization but rather a measure to enhance the sustainability of yield curve control. The bank also kept its ultra-loose interest rate at -0.1% and raised its median inflation forecast for fiscal 2023 to 2.5%.
Today, preliminary Eurozone inflation data will be released, and it is expected to show a further decline from June's 5.5%. This may provide some relief for policymakers. The European Central Bank's Christine Lagarde indicated last week that the bank was open-minded about the possibility of raising rates in September as inflation shows signs of easing.
The Bank of England is widely anticipated to raise interest rates by at least 25 basis points during its upcoming policy meeting on Thursday. This would mark the 14th consecutive increase, driven by the persistence of high U.K. inflation, which saw a slight drop to 7.9% in June.

 

[Z Forex]

Asia-Pacific Markets Rise Amidst China's Fourth Consecutive Month of Factory Contraction; Central Banks Adjust Policies in Response to Economic Challenges ​

On Monday, Asia-Pacific markets saw gains despite China's factory activity remaining in contraction territory for the fourth consecutive month in July. The official manufacturing purchasing managers index (PMI) was 49.3, slightly higher than June's figure of 49.0, according to the National Bureau of Statistics. Additionally, the PMI for non-manufacturing activity came in at 51.5, indicating a slower rate of expansion compared to June's 53.2.
In Japan, the central bank made adjustments to its yield curve control. They allowed 10-year Japanese government bond yields to fluctuate within a range of approximately plus and minus 0.5 percentage points from its 0% target. Furthermore, the bank offered to purchase 10-year JGBs at 1% through fixed-rate operations, expanding its tolerance by 50 basis points. These measures were taken to address concerns about the prolonged impact of monetary easing on financial markets and the real economy. BOJ Governor Kazuo Ueda clarified that it is not a move towards policy normalization but rather a measure to enhance the sustainability of yield curve control. The bank also kept its ultra-loose interest rate at -0.1% and raised its median inflation forecast for fiscal 2023 to 2.5%.
Today, preliminary Eurozone inflation data will be released, and it is expected to show a further decline from June's 5.5%. This may provide some relief for policymakers. The European Central Bank's Christine Lagarde indicated last week that the bank was open-minded about the possibility of raising rates in September as inflation shows signs of easing.
The Bank of England is widely anticipated to raise interest rates by at least 25 basis points during its upcoming policy meeting on Thursday. This would mark the 14th consecutive increase, driven by the persistence of high U.K. inflation, which saw a slight drop to 7.9% in June.

 

[Z Forex]

Asia-Pacific Markets Show Mixed Performance Amid China's Factory Contraction, Unemployment Rate Declines in Japan, and UK Housing Market Struggles in July 2023

On Tuesday, the Asia-Pacific markets exhibited mixed performance, triggered by China's factory activity entering contraction territory for the first time since April, as per the Caixin survey by S&P Global. The Purchasing Managers Index (PMI) for July registered at 49.2, falling short of economists' expectations of 50.3, as revealed by Reuters polls. This comes after yesterday's official statistics, indicating China's factory activity contracted for the fourth consecutive month, with a PMI reading of 49.3.
Meanwhile, in Japan, the seasonally adjusted unemployment rate for June decreased to 2.5%, slightly below the previous month's 2.6%, aligning with economists' predictions based on government data. Additionally, Japan's jobs to applicants ratio for June stood at 1.3, slightly lower than the Reuters forecast of 1.32.
Contrary to economists' expectations from Reuters polls, the Reserve Bank of Australia decided to maintain rates at 4.1%, instead of implementing a 25 basis points hike.
In Europe, several companies, including Euroapi, Uniper, Daimler Truck, DHL Deutsche Post, Covestro, BP, HSBC, Travis Perkins, and Diageo, are expected to release their earnings reports. Additionally, Eurozone unemployment data will be published.
In the United Kingdom, the Nationwide House Price Index for July 2023 experienced a notable decline of 3.8% compared to the previous year, accelerating from the 3.5% decrease observed in June, marking the largest fall in house prices since July 2009. This decrease in housing prices is attributed to subdued housing market activity due to stretched housing affordability for prospective homebuyers with mortgages.
Throughout the day, PMI updates will continue, encompassing figures from the Eurozone, including Germany, as well as from the UK and the US.

 

[Z Forex]

Central Banks' Moves and Economic Indicators: Japan's Policy Adjustment, New Zealand's Rising Unemployment, and Fitch's Rating Cut

The Bank of Japan has pushed back on speculation its recent policy adjustment marked the start of a tightening cycle.
Deputy Governor Shinichi Ichida on Wednesday reiterated the central bank’s flexible threshold for tolerance on long-term bond yields is merely a necessary modification to sustain its ultra-easy monetary policy position.
New Zealand’s unemployment rate increased to 3.6% in the second quarter, up from the 3.4% in the first quarter and higher than the 3.5% expected in a Reuters poll.
Most notably, job growth climbed 1% quarter on quarter, sharply higher than Reuters forecast of 0.5%.
Fitch Ratings cut the United States’ long-term foreign currency issuer default rating to AA+ from AAA on Tuesday, citing an erosion of governance and expected fiscal deterioration over the next three years.
In particular, the agency called out brinksmanship in Washington around debt ceiling negotiations earlier this year

 

[Z Forex]

Service Sector Growth in China, Bank of England's Rate Hike Expectations, and Global Stock Market Performance ​

In July, China's service sector activity showed a stronger expansion, as indicated by the Caixin survey compiled by S&P Global. The service sector purchasing managers index reached 54.1, slightly up from June's 53.9. The survey report attributes this growth to a solid rise in business activity across the sector and a significant increase in overall new business, leading to six consecutive months of firms expanding their payroll numbers
In June, Australia's trade surplus declined to 11.3 billion Australian dollars ($7.4 billion) from May's AU$11.7 billion.
Private payrolls data showed that US companies added 324,000 workers last month, surpassing the consensus forecast of 190,000. In addition, investors reacted to news that the Treasury will issue $103 billion of securities next week, slightly more than forecast, and this comes shortly after Fitch Ratings' downgrade of the US.
The Bank of England (BOE) is considering a 25-basis point hike after last month's inflation rate showed some improvement, sitting at 7.9%, down from 8.7% in May. Despite the BOE's divergent stance from other central banks, high inflation levels and mixed labor and wage data may cause market apprehension about any unexpected moves similar to the half-point curve ball thrown at their previous meeting.

 

[Z Forex]

Central Bank Actions and Economic Outlook: Updates from Australia, China, and the UK
Australia's central bank has revised its growth outlook for 2023 to 1%, compared to the previous estimate of 1.25%. The Reserve Bank of Australia stated that economic activity in the country is expected to remain subdued due to cost-of-living pressures and rising interest rates affecting domestic demand. Despite this, the bank mentioned that inflation is improving and adjusted its inflation rate forecast to 4.25% from 4.5%. The bank anticipates a decline in inflation, reaching 3.75% by the end of 2024 and returning to the 2-3% target range by late 2025.
The People's Bank of China announced increased monetary support for the economy and assistance for banks in controlling liability costs. This decision came after discussions with executives from the property industry.
The Bank of England raised its main interest rate by 25 basis points, bringing it to a 15-year high of 5.25%, as a response to persistent inflation.
Investors are closely watching the European banking results and a significant US employment report is expected later on Friday. Preliminary data already indicated resilient demand for workers in the US, with a significant increase in productivity, offsetting labor costs. The forthcoming government employment data is projected to show the addition of 200,000 jobs in July, which, though lower than previous reports, still represents historical progress

 

[Z Forex]

Trade Trends, Monetary Policy Moves, and Inflation Developments in Key Economies ​

In July, China experienced a more substantial decline in trade than anticipated, with exports dropping by 14.5% year-on-year and imports falling by 12.4%. Meanwhile, Japan saw a 4.2% year-on-year decrease in household spending during June, a sharper drop compared to the 4% decline recorded in May. This marked the fourth consecutive month of decline, as per official data.
Among household spending categories, food remained the largest expense, while the most significant reduction was observed in spending on furniture and household utensils, which decreased by 17.6% year-on-year.
In the context of monetary policy, John Williams, the President of the New York Federal Reserve, hinted at possible rate cuts in the upcoming year due to favorable inflation trends. Williams expressed interest in easing policy tightening and mused about potentially reducing the federal funds rate to influence real interest rates. He noted that the Federal Reserve might be concluding its rate hikes as policy approaches its peak. These comments aligned with the projections of the Federal Open Market Committee from June.
Conversely, Fed Governor Michelle Bowman asserted that further interest rate hikes are probably necessary to combat inflation. During a Fed Listens public hearing, she stressed the importance of consistent evidence showing a decrease in inflation before deciding on additional rate increases. Bowman also brought up the idea of considering the duration of maintaining a restrictive federal funds rate. Market expectations anticipate that the upcoming September meeting will result in unchanged rates.
Also, in the US Moody's cut credit ratings of several small to mid-sized U.S. banks on Monday and said it may downgrade some of the nation's biggest lenders, warning that the sector's credit strength will likely be tested by funding risks and weaker profitability.
Shifting to Germany, the annual inflation rate for July 2023 was officially confirmed at 6.2%. This figure was slightly lower than the 6.4% observed in the previous month and remained close to the 14-month low of 6.1% recorded in May. These numbers indicated a gradual cooling of inflationary pressures within the country. However, the rate continued to significantly surpass the European Central Bank's target of 2.0 percent. Notably, the overall inflation for goods decelerated to 7.0% from 7.3%, primarily due to softer increases in the cost of food, as well as services. inflation eased slightly (5.2% vs 5.3%).​

 

[Z Forex]

Stocks React to CPI Fluctuations, Italian Banks Navigate Tax Reversal, and Fed Contemplates Policy Changes

Stocks in China and Hong Kong experienced a decline on Wednesday, following China's consumer prices slipping into negative territory in July for the first time since February 2021. The July Consumer Price Index (CPI) marked a year-on-year decrease of -0.3%, while the producer price index also saw a significant drop of 4.4% compared to the same period last year.
Meanwhile, Italian bank shares faced a significant drop on Tuesday due to the announcement of a tax on net interest income on Monday. Citi analysts estimated that this tax would account for roughly 19% of Italian lenders' net profits for the year. However, a reversal occurred as the Italian government, on Tuesday evening, revealed that the tax on net interest income would be limited to 0.1% of risk-weighted assets. This cap amounted to only a fifth of the initially estimated level projected by Citi.
Additionally, global traders are anticipating the upcoming US Consumer Price Index (CPI) data scheduled for release on Thursday. This data point holds immense importance in the context of the Federal Reserve's impending monetary policy decision, set to take place in late September. Market participants are closely observing whether the central bank will implement further tightening measures and the expected duration of elevated interest rates.
Patrick Harker, President of the Federal Reserve Bank of Philadelphia, expressed the possibility of discontinuing rate hikes, pending no unexpected economic shocks. He stated that interest rates would need to be maintained at their current heightened levels for an extended period. Harker also mentioned the likelihood of initiating a reduction in interest rates sometime in the following year. In contrast, Thomas Barkin, President of the Federal Reserve Bank of Richmond, argued that it was premature to determine the appropriateness of another rate increase in September.

 

[Z Forex]

Stocks React to CPI Fluctuations, Italian Banks Navigate Tax Reversal, and Fed Contemplates Policy Changes

Japan's wholesale inflation rate has been steadily decreasing for the seventh consecutive month, now at 3.6% compared to June's revised rate of 4.3%.
In the United States, the consumer price index (CPI) for July is scheduled to be released at 1:30 p.m. London time. This data holds significant importance as market participants are eagerly observing it to assess whether the Federal Reserve (Fed) will proceed with additional interest rate hikes and the duration of their tight monetary policy. The Fed's next steps will be determined during the September meeting of the Federal Open Market Committee.
Although recent geopolitical tensions between the United States and China haven't elicited an immediate substantial market response, the implications of an executive order signed by President Joe Biden are yet to be fully realized. This executive order is directed at various areas, including private equity, venture capital, joint ventures, and greenfield investments. The order aims to restrict certain new U.S. investments in China's sensitive technological sectors such as computer chips. Additionally, it mandates government notification for investments in other tech sectors.
According to economists surveyed by Dow Jones, there is an expectation that the Consumer Price Index for July will reveal a 0.2% expansion compared to the prior month and a 3.3% upsurge on a year-over-year basis.
Turning to Italy, the government's recent announcement of a windfall tax on the country's lenders caused a sharp decline in banking stocks. However, the situation reversed on Wednesday following clarification from the government. It was explained that the 40% tax would not exceed 0.1% of the bank's total assets​

 

[Z Forex]

Contractions in New Zealand Manufacturing, UK's Unexpected Growth, and Inflation Trends

In July, New Zealand witnessed the most rapid contraction in factory activity this year, with the manufacturing purchasing managers index falling to 46.3 from June's 47.5. This marked the fifth consecutive month of contraction, reaching its lowest level since August 2021, when the country was last in lockdown. The activity rate of 46.3 was significantly below the long-term average of 52.9.
On the other side of the globe, the UK economy experienced an unexpected growth of 0.2% in Q2 2023, a surprise that caught economists off guard. This growth has positioned the Bank of England (BoE) to consider further interest rate hikes. However, unlike other major advanced economies like Germany, France, Italy, and the US, the UK has yet to fully recover its pre-COVID late-2019 level. Notably, manufacturing and business investment saw remarkable growth in Q2, the manufacturing sector marking its strongest quarter since early 2019. Despite this positive momentum, the UK economy still lags behind by 0.2% from its late 2019 level. Economists foresee potential challenges ahead that might lead to a mild recession later in the year despite recent resilience.
Shifting the focus to inflation, consumer prices in July rose by 3.2% on a yearly basis, slightly below the 3.3% consensus projected by economists polled by Dow Jones. Monthly inflation matched estimates with a 0.2% increase. The report also indicated that real average weekly earnings remained unchanged, a positive indication.
However, a significant point of concern is the core inflation rate, which excludes food and energy prices. It stood at 4.7%, the lowest since October 2021 and below the expected 4.8%. San Francisco Reserve Bank President Mary Daly highlighted that the Fed is still committed to addressing rising prices, downplaying the impact of generally favorable inflation data.

 

[Z Forex]

Japanese Yen's Milestone Against Dollar, Global Commodity Trends, and Economic Concerns

On Monday, the Japanese yen surpassed the 145 mark against the US dollar, marking the first instance since November 2022. The Japanese currency briefly touched this significant psychological threshold on Friday as well. This yen weakening trend has been ongoing since late July when the Bank of Japan altered its stance on the yield curve control policy, causing 10-year Japanese government bonds to reach their highest levels in nine years.
According to data from the German federal statistics office, German wholesale prices experienced a decline of 2.8% in July. This follows a 2.9% year-on-year drop in June and a 2.6% fall in May.
In a notable development, West Texas Intermediate (WTI) crude oil contracts for September extended their rally for a seventh consecutive week, a streak not seen since June 2022. Simultaneously, October Brent, the international benchmark, also recorded a seventh straight week of gains. Natural gas contracts for September witnessed a substantial climb of 7.5% this week, marking the most significant weekly increase since mid-June. Additionally, September gasoline surged by 6.5% over the week, the most substantial weekly rise since early March and marking the fourth week of gains in the past five.
Once the largest private-sector developer in China by sales, this company is currently under scrutiny due to the possibility of joining a list of defaulters. Failure to make coupon payments on two dollar bonds within a 30-day grace period puts the company at risk. Its shares plummeted by over 19% in Hong Kong on Monday, following a week where it closed below HK$1 for the first time in its history. Adding to concerns is the revelation that one of China's major private wealth managers missed payments on investment products sold to high-net-worth clients and corporations, raising worries of potential defaults in similar products.
Investors also had geopolitical concerns on their radar after a Russian warship fired warning shots at a cargo ship in the Black Sea over the weekend.

 

[Z Forex]

Australia's Reassuring Data, China's Policy Moves, and Global Economic Shifts

Australia's central bank expressed satisfaction with recent inflation data in its August 1 meeting minutes. Although inflation fell more than anticipated in the June quarter, services inflation remained steady. The bank expects slow economic growth ahead, aiding further inflation moderation.
China's national statistics bureau halted reporting on youth unemployment rates starting in August, citing economic and social changes. The bureau is reevaluating its methodology due to rising unemployment among those aged 16 to 24, which reached a record high of 21.3% in June.
China's central bank unexpectedly reduced key policy rates for the second time in three months. The People's Bank of China lowered the interest rate on one-year medium-term lending facility (MLF) loans from 2.65% to 2.50%. The bank also cut borrowing costs to 1.8% through a reverse repurchase operation.
China's July industrial production and retail sales figures missed expectations. Industrial production grew by 3.7% YoY, below the 4.4% forecast. Retail sales saw a 2.5% YoY increase, falling short of the expected 4.5% growth rate.
Japan's economy expanded by 6% annually in Q2, surpassing the expected 3.1% growth. This marked the highest growth rate since Q4 2020.
The British pound rose above $1.27 in mid-August due to strong Q2 wage data showing record earnings growth. Despite a slight increase in the jobless rate to 4.2%, this supports the likelihood of the Bank of England tightening policy. Traders await Wednesday's inflation report for further insight, with forecasts predicting a decline in headline and core inflation rates.
Earlier in the month, the UK's GDP growth surprised on the upside, expanding by 0.2% in Q2. Traders are anticipating another 25 basis points increase next month and an additional 50 basis points hike through March.

 

[Z Forex]

Regional Market Declines, Central Bank Moves, and Economic Signals: A Snapshot of Recent Financial Developments

Benchmark indexes across the region declined, with significant drops in Hong Kong and Australia. The MSCI China Index is set to eliminate all gains since last month's Politburo meeting.
For the second consecutive meeting, New Zealand's central bank maintained its benchmark policy rate at 5.5%, in line with economists' expectations from a Reuters poll. The Reserve Bank of New Zealand noted that current interest rates are curbing spending and thus limiting inflation pressure.
The Reuters Tankan survey revealed an uptick in business sentiment among major Japanese enterprises in July.
In June, China witnessed its first decline in new home prices this year, further highlighting economic concerns in a persistently troubled sector. The manufacturing sector index increased to +12 from +3 in June, and the non-manufacturing index rose to +32 from +23 the previous month.
The news of the Chinese property downturn followed an unexpected rate cut by China's central bank and a series of weak data releases throughout the year.
UK's headline inflation dropped significantly to an annual 6.8% in July, while the core consumer price index remained unchanged, posing potential challenges for the Bank of England.
The headline CPI reading aligned with economists' consensus forecast from Reuters and followed June's cooler-than-expected 7.9% figure. On a monthly basis, the headline CPI decreased by 0.4%, close to the consensus forecast of -0.5%.
Markets appear highly certain of another 25 basis point hike in September from the Bank of England, with over a 90% chance. Expectations lean towards even higher rates in the future, in contrast to the European Union and the United States.
The Federal Reserve's minutes are anticipated to attract attention, providing more insight into the Fed's decision-making process. Despite higher U.S. retail sales indicating robust consumer spending, expectations of the Fed's forceful tightening strategy persist.

 

[Z Forex]

Asia's Stocks Decline Amid Evergrande Bankruptcy Filing, UK Retail Sales Dip

Asia's stocks declined for a sixth consecutive session, on track to mark its most challenging week in eight, as equity benchmarks in Japan, China, and South Korea all experienced declines. European markets are poised to follow suit on Friday, reflecting cautious global sentiment as traders evaluate the future of monetary policy and fresh concerns surrounding China's real estate sector. China's prominent property firm, Evergrande Group, filed for Chapter 15 bankruptcy protection in a US court on Thursday. This move references restructuring proceedings across Hong Kong, the Cayman Islands, and the British Virgin Islands, as detailed in a filing submitted to a Manhattan court. Notably, Evergrande reported a combined loss of $81 billion over the past two years in July, attributing these losses to project completion difficulties and outstanding payments to suppliers and lenders. Additionally, state-owned developers have cautioned about widespread losses, heightening concerns that the housing crisis is extending from the private sector to government-backed entities. This unsettling trend seems to be spreading, with Australian miners on track for their most challenging week in five months due to their heavy dependence on Chinese demand.

In a separate development, Japan's core inflation for July dipped to 3.1%, down from June's 3.3%, aligning with expectations of economists polled by Reuters. The core inflation metric excludes fresh food prices. Meanwhile, the headline inflation rate for July remained unchanged at 3.3% compared to June's figure. On the other hand, UK retail sales experienced a 1.2% month-on-month decline in July and a 3.2% annual drop, primarily attributed to persistent adverse weather conditions, according to the Office for National Statistics. This figure notably fell well below the consensus forecast of a 0.5% decline projected by economists polled by Reuters, and it represents a decline from June's 0.6% monthly expansion.

 

[Z Forex]

European Stocks Rebound, Chinese Financial Regulators Address Risks, and Germany's Producer Prices Show Decline

European stocks slightly rose on Monday, recovering from significant losses the previous week. The market's focus remained on evaluating the monetary policy direction of major central banks and concerns about the potential spread of issues in China's property sector.
Over the weekend, the People's Bank of China reported that Chinese financial regulators, both at central and regional government levels, engaged in a video conference on Friday. The discussion revolved around addressing financial risks, concerning local debt particularly, and adjusting real estate loan policies.
This gathering of financial policymakers reflects China's ongoing regulatory system overhaul this year. Notably, the People's Bank of China reduced its one-year loan prime rate by 10 basis points to 3.45%, while maintaining the five-year LPR at 4.2%. Surprisingly, this contrasts with the expectations of economists polled by Reuters, who had anticipated cuts in both rates.
The central bank's actions followed its recent reduction of short-term loan rates and medium-term lending facility rates the previous week. The one-year MLF rate was lowered from 2.65% to 2.5%, and the 7-day reverse repurchase rate was cut from 1.9% to 1.8%.
Turning to New Zealand, the country's trade balance for July shifted into negative territory, showing a deficit of 1.1 billion New Zealand dollars ($652.67 million), a notable contrast from the NZ$9 million surplus recorded in June.
Meanwhile, Germany's Producer Price Inflation Month-on-Month (MoM) saw a decline from -0.30% in June 2023 to -1.10% in July. This drop is primarily attributed to energy-related factors, with energy prices experiencing a 2.5% decrease compared to June. On a positive note, excluding energy-related influences, producer prices still declined by 0.4% during the month. This trend is expected to eventually impact consumer inflation, and the hope is for a timely recovery for the German economy.

 

[Z Forex]

Stock Fluctuations, Natural Gas Surges, and Monetary Policy Insights ​

Japanese stocks gained ground, whereas Hong Kong's Hang Seng Index reversed its earlier gains, marking its eighth consecutive day of losses. On China's mainland, stock values fluctuated as the government's call for increased credit support on select products offered only limited assistance.
Investors are closely observing European natural gas prices, which surged sharply on Monday due to the potential strike action in Australia that could disrupt 10% of the world's liquefied natural gas flows.
During the Asian trading hours, Treasury yields stabilized following Monday's sell-off, during which the yield on 10-year inflation-protected Treasuries crossed the 2% mark for the first time since 2009. The yield on 10-year notes without such protection also reached a level last observed in late 2007.
Bank of Japan Governor Kazuo Ueda held discussions with Prime Minister Fumio Kishida on economic matters, excluding recent currency fluctuations. This meeting continued the tradition of regular economic dialogues between the two. Ueda clarified the Bank of Japan's decision to relax control over long-term interest rates, an understanding that Kishida shared. Initially, the dollar weakened against the yen in response to the news, but it later rebounded to around 145.98 yen. This marked the second such meeting since Ueda assumed his position in April. Concerns emerged due to U.S. Treasury yields driving a stronger dollar against the yen, potentially prompting intervention.
Powell is scheduled to speak at the Kansas City Fed's Jackson Hole Economic Policy Symposium on Friday. This comes after officials raised rates last month to a range of 5.25% to 5.5%, reaching the highest level in 22 years. Minutes from the meeting indicated that policymakers still perceived significant risks of inflation remaining higher than anticipated, which could result in sustained elevated rates.

 

[Z Forex]

Global Business Activities Vary Amidst Contractions and Expansions

Japan experienced an accelerated business expansion in August, primarily driven by strong growth in its service sector, as indicated by a private survey conducted by au Jibun Bank. The country's flash Purchasing Managers Index (PMI) for August reached 52.6, surpassing July's figure of 52.2. However, Japan's manufacturing PMI remained in contraction territory for the third consecutive month, registering a reading of 49.0. In contrast, the service sector demonstrated a more substantial expansion, with its PMI climbing from 53.8 to 54.3.

In Australia, business activity contracted at the sharpest rate in 19 months during August, according to surveys conducted by Juno Bank. The country's flash composite PMI for August was recorded at 47.1, a decline from July's 48.2. The manufacturing PMI in Australia stood at 49.4, while the services sector PMI was even lower at 46.7, hitting a 19-month low.
Shifting to Germany, the Composite PMI for August 2023 dropped to 44.7 from the previous month's 48.5, significantly below the anticipated 48.3. This contraction marked the most severe decline in private sector activity since May 2020, post the COVID-19 pandemic. The decline resulted from a deepening manufacturing downturn and renewed contraction in the services sector.
With these economic developments, there is ongoing speculation about the tone Federal Reserve Chair Jerome Powell will adopt in his speech at Jackson Hole on Friday. Market participants are eager to discern whether his comments will be neutral or have a more pronounced effect on the markets than originally anticipated. Richmond Fed President Thomas Barkin noted that the US economy is showing signs of a "reacceleration scenario," with persistently high inflation and a strengthening economy, potentially justifying further interest rate hikes. Notably, retail sales and consumer confidence have remained resilient in the US Barkin also indicated that the recent increase in Treasury yields has not led him to believe that the Federal Reserve has excessively tightened financial conditions.​

 

[Z Forex]

Tech Stocks Drive European Shares Higher with Positive Earnings and Central Bank Anticipation

The European blue-chip index wrapped up Wednesday's session on a positive note, closing with a 0.4% gain. This came despite disappointing Eurozone purchasing managers' index figures and a decline in services activity. The surge was fueled by Nvidia Corp.'s earnings exceeding expectations. The chipmaker's projection of $16 billion in quarterly sales outshined analysts' predictions of $12.5 billion. This upward momentum also uplifted Nvidia's Asia-based suppliers, notably the South Korean won, which strengthened against its Asian counterparts.
Anticipation looms among investors for insights from U.S. Federal Reserve Chairman Jerome Powell. His remarks on Friday, marking the conclusion of the central bank's symposium in Jackson Hole, Wyoming, are eagerly awaited to gain perspective on the potential direction of interest rates.
Wednesday saw stock markets benefitting from declining yields on long-term U.S. Treasury notes, subsequently reducing borrowing costs. This boost was supported by softer-than-expected US flash purchasing managers index data for August, aligning with lackluster data from the Eurozone.
Yields, which had peaked at a 16-year high earlier in the week due to concerns about ongoing inflation and the possibility of tighter monetary policies by the Fed and other central banks, retreated as prices moved inversely.
Stateside, mortgage applications for home purchases took a significant hit, plunging to nearly a three-decade low. Additionally, a US government report indicated an impending downward revision of approximately 300,000 jobs in the growth period up to March.