US treasury yield rose about 6~7bps and
curve was steepened as I expect the range market during 3Q and this level
seemed the short-term trough in both of 10yr rate and 10s30s spread.
Interestingly, Stanley Fisher, the vice chairman of Fed, showed dovish stance
to upcoming Fed monetary policy as he looked like somewhat afraid about low
inflation and wage pressure, so he did not think that now is not adequate
timing to raise policy rate. Under this circumstance, the bond yield should
have declined further with curve flattening. However, yield curve was bear
steepened in line with increasing risk appetite as US equity market price was
up depending on dovish stance of Fisher and Chinese stock market robust
yesterday. That said, the bond yield did not react to possible future’s monetary
policy, and I think it means that the bond market is within a range now and the
price or yield shows only technical movement.
On the other hand, USD turned to be depreciated
as Fed’s vice president was dovish, and commodities price somewhat gains although
copper price declined to 6 years low in LME market due to disappointed imports
data in China announced in last weekend. Yes. All of movements look like a
range trading.
But, there was a big event today. In fact,
I’m so curious it is a real surprise event because market players have betted
on it for some time. It was CNY depreciation against USD. PBOC raised the
USD/CNY exchange rate’s mid-point by 1.9%, a historical high increasing rate,
to 6.2298. Although, PBOC announced it was one-off adjustment reflecting the
willingness of restructuring the system of suggesting CNY fixing rate, the
width of depreciation a day seemed huge as market expected other policies would
come earlier, including RRR cut or widening daily width of volatility. Additionally,
market participants continue to expect further depreciation of CNY. In on-shore
Chinese FX option market, the bet on CNY weakness has increased. And as July’s
trade data showed very weakness and IMF suggested more market-friendly FX
policy, this CNY depreciation is not too surprising event, I think, it would be
only small event. However, anyways, many markets moved rapidly reflecting this
event. KTBF prices and USD/KRW were soared, while KOSPI tumbled. Market looks
likely reflect both of currency war and negative impact on Korean exports
economy. On US treasury market, the yield declined maybe as this ghost of
currency war weigh on the Fed’s decision of monetary tightening to delay later
this year, not September.
Chinese measure that they try to depreciate
their currency would lead the additional USD strength and downward pressure in
commodities market first, but Chinese economy and commodities price could
rebound at last. Under this thought, I should maintain the market view that all
of movements will be within in a range. But, I am somewhat afraid because of
the possible US treasury rate down additionally. Should I buy long-end bond,
right now? Economic indicators even in EZ, have showed vulnerable signals and inflationary
pressure is same. So, I am somewhat embarrassed.
On the other hand, with technical analysis,
WTI price chart shows the MACD divergence for a month which means upside
potential for the price soon. The chart looks like triple bottom, either. If
then, why? And, under this lower pressure of oil price environment, why US
Congress try to allow oil exports from as early as start of next year? I really
want to know the reason.
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