US Equities: Rising bond yields and crude oil prices dragged down equities, causing the S&P to drop by 0.7% to 4,565 and the Nasdaq to decline by 0.9% to 15,371. The 3.6% drop in Apple's share prices was influenced by China's ban on government officials using iPhones and the impressive performance of Huawei's new "5G" phones.
Fixed income: Treasuries sold off further, pushing yields higher, particularly impacting the front end. The session extended the recent rise in yields as over USD14 billion in new corporate bond issuances and a 1.8-point increase in the ISM Services PMI to 54.5 set the tone. The 2-year yield increased by 6bps to 5.02%, while the 10-year yield rose by 2bps to 4.28%.
China/HK Equities: The Hang Seng Index and CSI300 both ended the day with no significant changes, with the former remaining flat and the latter dipping by 0.2%. China property stocks saw a rally as the state-owned Securities Times, using Shenyang as an example, urged cities to ease home purchase restrictions based on local conditions. Premier Li Qiang said the Chinese economy is on course to achieve this year's growth target of approximately 5%. Within the A-share markets, companies in Huawei's supply chain continued to rise in response to the excitement surrounding Huawei's new mobile phone.
FX: US growth outperformance continues to be the theme driving US dollar higher and that was reaffirmed by strong ISM services print last night, but it was at odds with the S&P print. Still, EURUSD held up above 1.07 with an even bigger rise in Eurozone yields after ECB Knot’s comments (see below). In contrast, GBP has been hit by comments from BoE Governor Bailey that UK rates are near the peak. GBPUSD slid to 1.25 and EURGBP back higher at 0.8580 from 0.8530. CAD wobbled on BOC decision but ended the day unchanged. CNH and AUD in focus today as China trade data is reported, and stimulus calls continue.
Commodities: Oil prices continued to gain on the back of supply cut announcements from Russia and Saudi Arabia. API inventory drawdown again underpinned expectations of demand remaining supported, and focus turns to official data. China’s trade data may be in focus today with expectations of China demand rising. Meanwhile, Copper slid amid Europe’s data miss with German factory orders falling well below expectations. Gold eased as Treasury yields rose on strong ISM print in the US raising the prospect of the Fed keeping rates higher for longer.
- US ISM services for August broadly beat expectations. Headline 54.5 (prev. 52.7, exp. 52.5) with both new orders and employment higher. Inflationary gauge of prices paid rose to 58.9 (prev. 56.8). Final S&P Global PMI was however a touch lower than the preliminary at 50.5 from 51.0, so sharply at odds with the ISM read and as such adding to the need for caution in interpreting the ISM result.
- The Bank of Canada stayed on hold at 5% as expected. BoC said the economy had shifted into a weaker phase and labour market pressure have eased, but that it remains concerned about the persistence of underlying inflation and is prepared to raise rate again should conditions not improve.
- ECB Governing council member Klaas Knot said that market may be underestimating the chances of a rate hike next week, prompting some repricing in ECB expectations for September to 34% from 25% previously.
- Bank of England governor Andrew Bailey, meanwhile, in parliamentary testimony, said UK interest rates are probably “near the top of the cycle” because a further “marked” drop in inflation is likely this year.
In the news:
- China ordered officials at central government agencies not to use iPhones and other foreign-branded mobiles for work or bring them into the office (WSJ).
- US national security adviser Jake Sullivan said that the US needed to get “more information” on the precise “character and composition” of a chip powering Huawei’s newly released Mate 60 Pro (FT).
- The Federal Trade Commission plans to file an anti-trust lawsuit against Amazon later this month (WSJ).
- Google tentatively settles antitrust claims (Bloomberg).
- World heat records ‘smashed’ in northern hemisphere summer, scientists say (FT)
Macro events: China's exports are expected to fall 9.0% Y/Y while imports are expected to contract by 9.4% in August – read full preview in Saxo Spotlight. German Industrial Output (Jul), EZ Final Employment & Revised GDP (Q2).
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