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ICBC Financial Market Daily Review - August 1, 2018
 

I. Yesterday’s News
International News

1. U.S. consumer spending increased 0.4 percent in June as households spent more at restaurants and on accommodation, building a strong base for the economy heading into the third quarter, while inflation rose moderately. Other data on Tuesday showed employers boosting benefits for workers in the second quarter, but wage growth slowed down. With savings at lofty levels and lower taxes increasing take-home pay for some workers, spending is likely to remain strong this year. Accelerating home prices, which are boosting wealth for some households, should also underpin consumption. The dollar firmed marginally against a basket of currencies. Prices for longer-dated U.S. Treasuries rose and stocks on Wall Street were trading higher.

2. The Bank of Japan pledged to keep interest rates "very low" for the time being and took measures to make its massive stimulus programme more flexible on Tuesday, reflecting its forecast that it would take time for inflation to hit its 2 percent target. The BOJ decided to maintain the short-term interest rate target at minus 0.1 percent and a pledge to guide 10-year government bond yields around zero percent by a 7-2 vote. But it added language in its policy statement to say that long-term interest rates may fluctuate depending on economic and price developments and that it would conduct its bond-buying programme flexibly.

3. The Federal Reserve is expected to keep interest rates unchanged on Wednesday, but solid economic growth combined with rising inflation are likely to keep it on track for another two hikes this year even as President Donald Trump has ramped up criticism of its push to raise rates. The U.S. central bank so far this year has increased borrowing costs in March and June, and investors see additional moves in September and December. The Fed will announce its decision at 1800 GMT on Wednesday. No press conference is scheduled.

4. Germany's jobless numbers increased to 2.325 million in July from the previous month’s 2.276 million, while the unemployment rate was unchanged at 5.2 percent, data showed on Tuesday. The Federal Labour Office said the seasonally adjusted jobless total fell by 6,000 to 2.338 million. That compared with an expected drop of 10,000 forecast in a Reuters poll.

5. French inflation rose in July to its highest level since March 2012, adding to a raft of stronger-than-expected inflation data in the euro zone that could support the European Central Bank's plans to gradually wind down its monetary stimulus programme. Data from the INSEE national statistics body showed on Tuesday that EU-harmonised French consumer prices had risen by 2.6 percent over a year in July. A Reuters poll of 24 economists had given an average forecast of 2.4 percent for the July inflation figure.

Domestic News

6. China's economy faces some new problems and new challenges, including "significant changes in the external environment", said the Politburo meeting, a top decision-making body of the ruling Communist Party, chaired by President Xi Jinping. China will maintain a proactive fiscal policy, keep monetary policy prudent and neutral, make fiscal policy a bigger role in expand domestic demand and restructuring, strictly control money supply, and keep liquidity reasonable and ample, the meeting said. The politburo also said China will step up infrastructure investment in targeted areas, keep deleveraging but pay attention to the pace, clamp down on overheated property prices to build a long-term mechanism for its healthy and sustainable development.

7. Growth in China's manufacturing sector slowed in July, as shown by official and a private gauge, due to mounting trade friction and low season in some sectors, pointing to rising downward pressure on China’s economy. The official PMI slipped to a five-month low, while the private gauge dropped to a 11-month low.

8. Chinese Premier Li Keqiang underscored improving the country's full-cycle supervision system for vaccines at a State Council executive meeting held Monday. Li made the remarks after hearing a report from a State Council investigation team which shed light on the illegalities of Changchun Changsheng Life Sciences Limited in making rabies vaccines for human use. Monitoring of research and development, production, circulation, and usage of vaccines should be improved, and a long-term mechanism should be built to ensure the safety of medications, according to the statement.

II. Market Overview
FX
1. Global Market

The dollar jumped against the yen on Tuesday, after the Bank of Japan said it intends to keep rates low for an "extended period of time," and the greenback was firm against a basket of peers ahead of the conclusion of the U.S. Federal Reserve's two-day monetary policy meeting on Wednesday. The dollar was 0.69 percent higher against the yen, on pace for its best day in nearly three weeks, and was set to finish the month 1 percent higher, its second straight monthly gain. The U.S. dollar index, which measures the greenback against a basket of six currencies, was up 0.19 percent at 94.504.

2. Home Market

China's yuan finished higher against the U.S. dollar in a sharply narrower trading range on Tuesday after the central bank set midpoint 34 bps weaker to its latest 13-month low. Despite of a softer dollar index, buying demand pressured on yuan and capped its gains. Yuan is expected to remain subdued in the near term.

Precious Metals

Gold prices rose on Tuesday, reversing early losses as the Chinese yuan strengthened against the dollar after a report said the United States and China were trying to restart negotiations to defuse a trade war. Spot gold rose to $1,223.41 per ounce. U.S. gold futures for August delivery settled up $2.40, or 0.2 percent, at $1,223.70 per ounce.

Commodities
1.Crude Oil

Oil prices fell on Tuesday, closing out the largest monthly decline in two years on supply worries after OPEC output reached a 2018 high in July, overshadowing reports that the United States and China might reopen trade talks that could boost demand. October Brent crude futures fell $1.34 to settle at $74.21 a barrel. The September contract, which expires later on Tuesday, settled at $74.25. U.S. crude futures fell $1.37, or nearly 2 percent, to settle at $68.76.

2.Base Metals

Copper prices climbed on Tuesday as the market took heart from a report that the United States and China are looking to resolve trade differences, while labour negotiations at major producer Codelco helped lift sentiment. Benchmark copper on the London Metal Exchange ended up 0.8 percent at $6,300 a tonne.

U.S. Treasuries
1. U.S. Bonds

U.S. Treasury yields were little changed in afternoon trading on Tuesday amid widespread expectations the Federal Reserve would leave interest rates unchanged when it announces its latest policy decision on Wednesday. The yield on the U.S. 10-year note was last down one basis point at 2.964 percent. The 30-year yield initially fell by almost 5 basis points, but recovered to 3.085 percent, just 2 basis points below Monday.

2. Chinese bonds

Yield curve of China’s interbank bonds turned lower in the morning, in line with the performance of bond futures and cash bonds. Easing liquidity lifted shorter-dated bonds, while disappointing official and private manufacturing PMI data pulled longer-dated bonds down, but at a slower pace compared with the former.

Stock Market
1. U.S. Equities

U.S. stocks rebounded on Tuesday, boosted by gains in industrial shares following reports of renewed trade negotiations between the United States and China. Both the S&P 500 and the Dow Jones Industrial Average posted their biggest monthly percentage gains since January. The Dow Jones Industrial Average rose 108.36 points, or 0.43 percent, to 25,415.19, the S&P 500 gained 13.69 points, or 0.49 percent, to 2,816.29 and the Nasdaq Composite added 41.79 points, or 0.55 percent, to 7,671.79.

2. Hong Kong Equities

Hong Kong's main Hang Seng index ended down on Tuesday, with technology shares tracking their Wall Street counterparts lower. At the close of trade, the Hang Seng index was down 150.12 points, or 0.52 percent, at 28,583.01. The Hang Seng China Enterprises index closed 0.2 percent lower at 11,024.73.

3. China Equities

China stocks closed higher on Tuesday, snapping a four-day losing streak. Disappointing PMI data fueled concerns over China’s economy, dampening risk appetite. But heavyweights and cyclical names lifted major indexes above water. The Shanghai Composite Index closed 7.35 points or 0.26 percent firmer at 2,876.40 points. It rose 1.02 percent for the month.


(2018-08-01)
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