The JPY is the strongest and the GBP is the weakest as the North American trading begins

The JPY is the strongest and the GBP is the weakest as the North American trading begins. The USD is mostly higher (down only versus the JPY) with most of the games coming versus the GBP (+0.31%), CHF (+0.31%) and AUD (0.23%).

The UK retail sales came in weaker than expected -1.2% versus -0.6% forecast helping to weaken the pair. The GBPUSD is reaching new lows as the North American session gets underway.

In Japan, the CPI headline YoY came in higher at 3.3% vs 2.5% expected. The core measures showed ex-food and energy of 4.3% versus 4.2% prior, while the ex fresh food came in as expected at 3.1% (down from 3.3% last month. Bank of Japan have insisted, over and over again, that they expect current high inflation levels (for Japan)_ to be transitory. The BOJ expects CPI rates to begin to drop from around September/ October. The clock is ticking closer to that time but so far it remains above the target.

There continues to be more and more focus on the China economy (the 2nd largest economy in the world). The morning WSJ headline is screaming the fear.

Zhongrong International Trust, with $108 billion in assets under management as of 2022’s end, is facing financial concerns. The company recently failed to make payments totaling $14 million on four trust products to three listed Chinese firms. Based in Beijing, Zhongrong has financed numerous real estate developers and their projects. It is a segment of the larger Zhongzhi Enterprise Group, which owns multiple wealth-management businesses. If Zhongrong’s repayment issues escalate, it could jeopardize many investment products sold to various companies and affluent individuals in China. China’s trust industry, which had a total of $2.9 trillion in assets under management as of March 31, has long been a source of funding for property developers.

Late yesterday, China Evergrande Group, sought bankruptcy protection in the U.S. under Chapter 15. This move aims to protect its U.S. assets while it negotiates the restructuring of over $19 billion in offshore debts. The company reported losses of $81B for 2021 and 2022. Evergrande’s 2021 default triggered a liquidity crisis in China’s crucial real estate sector, slowing China’s post-pandemic recovery. This crisis led to defaults by many other developers. In response to the property sector’s challenges, the PBOC announced plans to improve liquidity following an emergency rate cut. The offshore USDCNH is lower (higher CNH), but yesterday, the price moved to the highest level since November 2022. The Shanghai index fell by -1.0%. The Hong Kong’s Hang Seng index tumbled by -2.05% in trading today and for the trading week, the index is down -5.89%.

In the US, the 30 year mortgage rate reached 7.09% yesterday which is the highest go back to 2002. US yields are lower today after the 10 year yield (a proxy for mortgage rates) moved to a high of 4.33% yesterday testing the high yield going all the way back to October 21, 2022.

A snapshot of the markets as the NA session gets underway shows:

  • Crude oil is trading down $0.99 or -1.24% at $79.40 as concerns about China and concerns that the Fed will continue to tighten and slowly economy weighs on the prices. The futures have support near the $79 level. Yesterday, the low price reached $78.95 before bouncing higher. Crude oil prices are down -4.63% this week
  • Spot gold is trading up $4.72 or 0.25% at $1894.38. Yesterday the price moved to a low of $1885.09, the lowest level going back to March 13. In down 1% this week
  • Spot silver is trading up $0.08 or 0.36% at $22.77. Silver prices are up 0.37% this week
  • Bitcoin is trading at $26,478. At this time yesterday the price was at $28,503. Bitcoin experienced relative stability for two months, peaking at $31,818 in July. However, rising bond yields and concerns about riskier assets caused its price to drop over 7% to $26,422, now 16.75% below its 2023 high. The decline is being helped by a Wall Street Journal report that Elon Musk’s SpaceX devalued its Bitcoin holdings by $373M and sold the cryptocurrency. Additionally, the cryptocurrency sector faces legal challenges as U.S. regulators, concerned about fraud and scams.

In the US premarket for US stocks, major indices are trading lower after the 3rd straight days of declines from -1.14% to -1.17% in the Nasdaq index.

The snapshot of the major indices shows:

  • Dow Industrial Average is trading down 131.83 points after yesterday’s -290.91 point decline. The Dow industrial averages trading down -2.29% for the week at the close yesterday
  • S&P index is trading down -21 points after yesterday’s -33.95 point decline. The S&P index is down -2.10% at the close yesterday
  • NASDAQ index is trading down 118 points after yesterday’s -157.7 point decline. The index is down -2.40% this week at the close yesterday.

In the European equity markets, the major indices are also feeling the headwinds from China/higher rates potential in the US:

  • German DAX, -1.02%. The German DAX is trading down close to -2% for the week
  • France’s CAC, -1.05%. The France’s CAC is trading down -3.0% for the week
  • UK’s FTSE 100, -0.99%. The UK FTSE is trading down -3.81% for the week
  • Spain’s Ibex, -0.59%. The Ibex is trading down -2.27% for the week
  • Italy’s FTSE MIB, -0.90% (delayed)

In the Asian Pacific today, equity markets closed mixed

  • Japan’s Nikkei 225, down -0.44%. It fell -3.15% this week
  • China’s Shanghai Composite, up 0.42%. It fell -1.8% this week
  • Hong Kong’s Hang Seng, down -0.01%. It fell -5.89% this week
  • Australia’s S&P/ASX 200, down -0.68%. It fell -2.6% this week

In the US debt market, yields are lower as markets react to the weaker equity markets. Yields are still higher on the week despite the declines today.

  • 2-year yield, 4.923%, -3.8 basis points. 2 year yields are up 2.4 basis points this week
  • 5-year yield, 4.365% -7.3 basis points. 5 year yields are up 6.8 basis points this week
  • 10-year yield, 4.232% -7.5 basis points. 10 year yields are up 8.7 basis points this week
  • 30-year yield, 4.357% -5.4 basis points. 10 year yields are up 10.7 basis points this week

In the European debt market, benchmark 10-year yields are trending lower as well:

This article was written by Greg Michalowski at Source