Bank of England cuts wage forecast (BBC)
Chinese Lending Slowed Drastically in July (NYTimes)
China's July economic data points to further softness (Reuters)
Ukraine to Block Russian Aid Trucks as It Tightens Noose Around Rebels (Bloomberg)
Japan's Economy Shrinks the Most Since 2011 Quake on Tax (Bloomberg)
Japan's preliminary 2Q GDP shrunk less than expected - the dropoff is mostly attributable to the 3% sales tax hike that was initiated on April 1. Personal consumption fell more than expected, but business spending did not (details below in the Data section). After accounting for the large increase in prices from the sales tax increase, nominal growth was flat for the quarter. The USDJPY and Nikkei (on a risk adjusted basis it was actually one of the best performers) were both little changed after the result. The former has rallied since Europen opened.
On the other hand, China's credit growth collapsed in July - despite the wide amount of easing measures initiated by the government. Odds are, they will continue to loosen policy further if that keeps up, and home prices continue to fall. In an unusual move, the PBoC posted an explanation (Translated link) for the drop in credit growth - saying that it was a normal seasonal pattern where new lending rises in June as banks prepare for their first half reports, and then falls in July. The PBoC also noted that large deposit outflow into trust products and IPO subscriptions - they fell by a record 1.9trln Yuan in July - constrained bank lending. Lastly, it said that new Yuan loans were on the order of 30b-50b CNY per day in early August (indicating that the month will be strong). The Hang Seng Index posted a screaming late day rally as the easing idea took hold, which could come in a further targeted RRR cut.
Bank of England Governor Mark Carney presented his quarterly inflation report and it was the polar opposite of the speech that rocked markets two months ago, when he said that the BoE is likely to hike rates earlier than the market expects. Now it says that its rate guidance view is broadly shared with markets, saying "now is not the time for a rate hike." Perhaps there was not a great deal of dissent at last week's meeting? Intermediate and short Gilts are rallying strongly on this. The British pound is getting... pounded. It further reiterated that the pace of interest-rate increases will be gradual (Weale has indicated this will be less than 100bps per year), it estimates spare capacity at 1%, which is shrinking, and cut its 2014 annual wage growth forecast to 1.25% from 2.5%. All of that makes for a more dovish central bank, or at least one that is not going to go into a full blown rate tightening cycle. Keep in mind that they have already publicly stated that their terminal rate is 2.5%. It also lowered its year-end 2015 wage growth forecast to 3.25% from 3.5%. It still sees CPI staying at or below its 2% target through the 3Q 2017. They are concerned that the narrowing of the output gap (slack) will slow and curb the upward inflation pressures.
US Treasuries will have a difficult time selling off today given the relative strength in Gilts and Bunds. Given the dovish comments from Yellen (Reuters article yesterday) and Fischer (speech Monday morning), can NY Fed President Dudley pull off the trifecta today? He is scheduled to speak on wholesale funding today at 9:05am ET at a NY Fed conference with Boston Fed President Rosengren.
- China new yuan loans down to 385.2B vs 780B expected, prior 1079.3B
-- money supply M2 YoY up 13.5% vs 14.4% exp, prior 14.7%
- China retail sales YoY up 12.2% vs 12.5% exp, prior 12.4%
- China fixed asset investment YTD YoY up 17% vs 17.4% exp, prior 17.3%
- China industrial production YoY up 9.0% vs 9.2% exp, prior 9.2%
- Japan GDP (2Q prelim) QoQ down -1.7% vs -1.8% exp, prior 1.5%
-- Consumer spending QoQ down -5.2% vs -3.7% exp, prior 2.1%
-- Business spending QoQ down -2.5% vs -3.0% exp, prior 7.7%
- German CPI YoY (July final) unchanged at 0.8% vs 0.8% exp
- Eurozone industrial production MoM (June) down -0.3% vs 0.4% exp, prior -1.1%
- UK jobless claims change (July) down -33.6K vs -30K exp, prior -39.5K
- UK ILO unemployment rate 3m average (June) down to 6.4% vs 6.4% exp, prior 6.5%
US Economics (Time Zone: EST)
07:00 MBA Mortgage Apps
08:30 Advance Retail Sales (July) - 0.0%, expected 0.2%, prior 0.2%
08:30 Retail Sales Ex Auto - 0.1%, exp 0.4%, prior 0.4%
08:30 Retail Sales Ex Auto & Gas - 0.1%, exp 0.4%, prior 0.4%
10:00 Business Inventories (June) - exp 0.4%, prior 0.5%
11:00 Fed to purchase $350m-$450m notes in 5 to 30-year range
1:00 Treasury selling $24b 10-year notes
9:05am Dudley (dove, voter) speaks in New York
9:20am Rosengren (dovish, nonvoter) speaks in New York
Seaworld Entertainment (SEAS)
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