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Marc Chandler Marc to Market Follow Following .Risk appetites firm, but the greenback is mixed

Marc Chandler Marc to Market Follow Following .Risk appetites firm, but the greenback is mixed . 7 13 2020 10 56 52 AM .Overview Equities began the week on a firm note in the Asia Pacific region. The Nikkei gained more than 2%, and the profit taking seen in China ahead of the weekend was a one day phenomenon. The Shanghai Composite rose 1.8%, and the Shenzhen Composite surged 3.5%. Taiwan and South Korea markets also rallied more than 1%. European and US stocks enjoy more modest gains of around 0.5% 0.6%. Benchmark 10 year yields are mostly 2 3 bp higher, though the US 10 year Treasury yield is a little softer around 64 bp. European sovereigns are expected to sell around 36 bln euros of bonds this week, while there may be $20 bln investment grade bonds coming to market from US names this week. The dollar is narrowly mixed. The Swedish krona, Australian dollar, Canadian dollar, and euro are firmer, while the Norwegian krone, Japanese yen, and New Zealand dollar are nursing small losses. Emerging market currencies are similarly mixed, leaving the JP Morgan Emerging Market Currency Index virtually flat after rising by about 0.35% last week. Gold has come back firmer after slipping in the last couple of sessions and is trying to re establish a foothold above $1800. OPEC may be ready to bring more output next month, and this is weighing on crude oil prices. The September WTI contract is struggling to hold above $40 a barrel. . .Asia Pacific.First officials in China stir the pot, buy stocks was patriotic. People bought stocks. Stocks soared. Then the regulator of banking and insurance sectors cautioned against illegal speculation, and stocks fell. Last week s data showed total social funding bank and nonbank financial intermediaries has risen by almost 13% in H1 20. In addition to these funds, savings from the wealth management products, that are often variable rate fixed income investments, may have been freed up as well as the risk of defaults increase. .South Korea s trade in the first ten days of July suggest better regional trade is taking place. Exports fell 11% in June year over year but in the first part of July were off 1.7%. Semiconductor chip exports rose 7.7% after a flat showing in June,m though wireless device exports fell 9.7%. Auto exports increased by 7.3%, but parts shipments fell by a third. Ship exports soared by over 300%. Exports to China increased by 9.4%, and exports to the US rose by 7.3%. Shipments to Japan fell by more than 20%. Imports fell by 9.1%. Oil purchases slumped by nearly a third. Imports of chip fabrication machinery surged by 85%. .Japan s tertiary activity service sector slipped 2.1% in May after a revised 7.7% decline in April initially 6.0% . The revision fully made up for smaller than expected May decline, which had been anticipated closer to 3.8%. The BOJ s two day meeting starts tomorrow. All of the regions were downgraded in a BOJ branch report out late last week. The BOJ itself is not expected to change policy but can be expected to promise to take more action if necessary. .The dollar has been confined to about 15 bps on either side of JPY106.95. There are $1.2 bln of options expiring today between JPY106.75 and JPY106.85. On the upside, the JPY107.40 50 area looks to be a solid cap and backed by a $545 mln option expire today at JPY107.50. The Australian dollar is firm but is not going anyplace quickly, either. It is capped near $0.7000 and found support near $0.6920 at the end of last week. The greenback has stayed within 50 pips of CNY7.0. The PBOC set the dollar s reference rate today a little weaker than the models suggested. It also injected CNY50 bln via reverse repos, the first open market operation in 11 sessions, and helped ease money market rates. China s 10 year yield edged a couple basis points higher to almost 3.05%. . .Europe.Ahead this week s summit that is to address the European Recovery Plan and the EU s seven year budget, European Council President Michel offered new compromises. One obvious take away is that a deal that would ensure unanimity has not been found. Michel offered a slightly smaller overall EU budget while keeping the 750 bln euro Recovery Fund intact. There is disagreement about how the funds should be distributed. How much of a veto should the countries retain .The mix between loans and grants, and conditionality that should be attached, remain open issues too. A second take away from recent developments is that that the opposition is more than the Frugal Four Denmark, Sweden, Austria, and the Netherlands . Finland stands them, but more, many others allied last week to defeat the German, French, Italian, and Spanish backed candidate to lead the eurozone finance ministers. Ironically, there is not much debate about a common bond that seemed to have dominated earlier discussions. It appears, as a last resort, Michel is offering budget rebates that may be sufficient to allow some comprom...
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Marc Chandler
He has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks. After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.
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