Morning Commentary with Help from IFR and ZH

LONDON, Aug 7 (IFR News )

 – A whole batch of headlines have provided Treasury buyers with support overnight. US and China continue to play hard ball in the latest round of trade war tiffs. China has weakened the Yuan leaving exporters in the Nikkei suffering. Geopolitics is back in play as North Korea warned that its latest missile tests were a warning to both the US and South Korea. The RBNZ surprised the market with a 50bp cut to 1.00% against forecasts of 25bp. The central bank also delivered a bit of a dovish outlook which would appear more cuts are in the pipeline. The upshot of all this was Treasuries up to new highs and 10-year cash yields at levels not seen for over three years. Screens on 10-year cash posted new lows of 1.658%, former lows around the 1.53% region lie below here with nothing much in-between. London based swappers report that the curve is the main game in town in terms of price quote reaction. Flatteners on the curve have been very active with thoughts of the psychological zero support level on 2s/10s gaining traction again

From ZeroHEdge

There is just one way to describe the plunge in bond yields overnight and the events behind it: the global race to the currency bottom is rapidly accelerating in its final lap with a global deflationary Ice Age (take a bow Albert Edwards) waiting on the other side.

The main event, of course, was the latest yuan fixing with the PBOC showing a clear sense of humor when it set the currency at 6.9996laughably not to be confused with 7.0000 (for at least another 24 hours that is), but just a fraction of a percent away from the critical threshold, and weaker than the 6.9977 expected. The result was a resumption in the offshore yuan selloff, a hit to US equity futures and a drop in Treasury yields. Of course, once the PBOC does finally fix the yuan on the wrong side of 7, all bets are off and watch as the CNH crashes… as far as 7.70 according to SocGen, especially once Trump hikes tariffs to 25%.

But there was much more in today’s iteration of the global race to the currency bottom, when first New Zealand ( Cut rates 50 bps vs 25 bps expected), then India(.35 vs 25 bps expected) and finally Thailand shocked investors by being far more dovish than analysts expected. Indeed, the three Asian central banks delivered surprise interest-rate decisions on Wednesday as central bankers not only took aggressive action to counter a worsening global economy, but are now frontrunning each other – and the Fed – in doing so.”

 Notes:

Rumor, now squashed that China was going to cut rates

Pimco said that negative rates are closer to becoming a Reality in USA

“Beggar thy neighbor policy “ is a term coined by Economist Joan Robinson in which countries try to race to bottom with domestic currency to benefit home country exports at expense of another’s. Due to global slowdown worries, central banks are trying to devalue currency quicker than others thus the latest round of bigger than expected rate cuts. Current US 30 year yield is equal to the Fed funds rate, thus from two years through 30 years ,yields are below the rate set by the Fed, market is telling Fed rates are too tight. Bond yields worldwide are lower

Markets:

New Zealand Dollar -1.4% 60 ticks off lows, Aussie dollar -.4%   Spot Gold +1.6%, Spot Silver +3.2% Bund yield -6 bps Slovak Yields -11 bps, New Zealand 10 year yields -14 basin US 2 year yields -4 but 30 year yields -9 bps  a reach for yield flattening the curve  .Bund yields -.6% ,30 year buxl -.12

 Spoos wavering a bit -10 handles, Dax, +.9%   do spoos rally because rates re low or do they collapse because global economy is heading for recession?

Nothing of note on Economic Calendar

8:30 feds Evans

Trump will visit El Paso and Dayton this morning

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.