1. 8/14 was a holiday in Korea, so I'm posting this summary in my home, one day later. This post would include Asian markets in Friday and Western markets in both of Thursday and Friday.
2. PBOC appreciated CNY against USD after 3 day's devaluation to 6.3975, a little bit, by 0.05% and it dampened Asian financial markets' volatility. Chinese SHCOMP index seemed to be somewhat calmed. It would be continued current narrow movement in a range for some time under woes of deteriorated economy against moderate recovery underpinned by properties and faith of government's policies.
3. Contrary to other Asia markets showed muted volatility, in Malaysia, the triple weakness was there. As the fear of capital outflows increased further, MYR recorded weakest level since 1998 and local bond yield soard as well. This deteriorated financial condition in Malaysia is the worst in Asia, in line with declining foreign reserves, different from others. Recent strong USD or weak CNY are leading only differential movement in each country rather than convergence collapse like in late 1990s. This aspect could be continued further, until global economy fall into devil's ground or global economy expands. I expect second one, a global reflation.
4. UST yield rose during 2 days as economic indicators showed somewhat solid increase, but yield curve flattened. Under current circumstances including lowering pressure in both of growth and inflation with low commodities price and the woes of Chinese economy and the potential impact on so-called global currency war, somewhat solid economic indicators push the short-end rate higher mainly than long-end rate. But, overal indicators would remain subdued movement for a few months, so the spread between short and long-end rates would move in a range. This range, 10s30s in UST of mid 60bps showed very narrow. Nevertheless, if the spread widens, we should add the long-end tenor until start of 4Q. When Fed hike the rate in September, the curve will show enhanced volatility. If Fed will likely hike funds rate further, long-end rate should be pushed higher at last, but in the case of reversal scenario, long-end rate could tumble further. However, in the case of 2nd scenario, how big is the room for additional narrowering spread? It's somewhat skeptical, so we don't need to be hurry to buy 30yr treasury bond.
5. As US economic indicators showed firm growth and Euro zone's 2Q GDP was disappointed in contrast, the spread of UST and European bond widened further. On the side of the cycle of inventory/sales, the burden is weighed in US, but that is unlikely in Euro area, so recent wide spread doesn't seem to be continued.
6. US July's retail sales increased 0.6% from a month earlier, and 2.9% yearly. The rise followed upwardly revised readings of no change and 1.2% in June and May, earlier reported as a 0.3% decline and a 1.0% gain, respectively. It means approximately, total 0.5pp higher than before following beat of July's consensus a little bit, around a same number. Recent characteristics in US economic indicator are those, if one indicator showed negative output, in a month later, the data shows upturn again to earlier level. This could mean solid economic conditions in US, so Fed will likely raise interest rate in September.
On the other hand, business inventories were stocked more than sales, so the inventory/sales ratio increased further in June. But, this is June's data, and we saw the resilient July's sales data.
7. PPI was up 0.2% in July higher than consensus of 0.1% rise as gasoline price soared by 1.5%.
Industrial production increased 0.6% monthly double expectations of a 0.3% rise and the capacity utilization was 78.0% higher than last month's 77.7% in July. It was the biggest rise since November last year. But, yoy growth is flat at 1.3% and hovering at its low level.
8. In contrast, University of Michigan consumer sentiment index slipped as business expectations collapsed to 11 month lows. It maybe contained the burden of inventory and oversea's economic weakness. The pace of recovery could be very moderate for a few months at least.
9. Oil price and BDI tumbled further again during last 2 days. They were down in Thursday and a little bit rebounded in Friday. The woes of oversupply in oil market countinue to weigh on the price. Albeit this could continue further, the price level seems to hover the lower bound.
10. Gold price jumped after China reveals it bought another 19 tons in July. Apparently, Chinese government aims the CNY to be included in IMF's SDR. If then, recent devalued CNY would not mean currency war.
11. Euro area's 2Q GDP posted below, additionally.
12. During last days, parilament in Greece and EU approved 3rd financial bailout, 85 billion euro for 3 years. But, IMF remains some skeptical Greece to decrease the nation's debt for some years. Whether IMF is expected to join in bailout or not, those look like behind our considering.
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