- China lets Yuan fall further, fuels fears of currency war.
- China's spot Yuan closes at 6.3870, down 1% from last close.
- PBOC sets Yuan mid-point at weakest levels since Oct 2012.
- Dollar drops as China move raises doubts over Fed hike timing.
- EUR/USD rallies to 1.1158 from 1.1024 Asia lows.
- GBP hurt by softer than expected UK headline earnings growth.
- UK July Claimant Count unemployment changes -4.9k vs previous +0.2k revised. +1.5k expected.
- UK June ILO unemployment rate 5.6% vs previous 5.6%. 5.6% expected.
- UK June Average weekly earnings +2.4% y/y vs previous 3.2%. +2.8% expected, lowest since 3months to March.
- UK June Average earnings (ex bonus) 2.8% vs previous 2.8%. 2.8% expected.
- Switzerland August ZEW Investor sentiment 5.9 vs previous -5.4.
- Euro zone June industrial production -0.4% m/m, 1.2% y/y vs prev -0.4%/1.6%. -0.2%/1.5% expected.
- (0700 ET/1100 GMT) MBA Weekly Mortgage Application Activity Indices.
- (1000 ET/1400 GMT) Job Openings & Labor Turnover Survey (June) previous job openings level 5.363 mn.
- (1030 ET/1430 GMT) EIA Weekly Petroleum Statistics.
- (1100 ET/1500 GMT) Thomson Reuters IPSOS PCSI (August) previous 54.7.
- (1400 ET/1800 GMT) Treasury Budget (July) consensus -$131.0 bn, CBO -$149.0 bn, previous -$94.6 bn.
Key Events Ahead
- (0830 ET/1230 GMT) FRB New York's Dudley on the local economy and workforce development.
- (1145 ET/1545 GMT) Fed Trade operation 30-yr Fannie Mae/Freddie Mac (max $1.950 bn).
- (1500 ET/1900 GMT) NY Fed releases tentative agency MBS operation schedule for period beg August 13.
FX Recap
USD: The dollar dropped 0.6 percent against a basket of currencies on Wednesday, coming under pressure as Treasury yields dropped on doubts over whether the U.S Fed will raise interest rates in the wake of China's devaluation of the Yuan. The dollar index fell to 96.691, while the greenback shed 0.5 percent to trade at 124.42 Yen.
EUR/USD is supported above 1.1100 levels and currently trading at 1.1125 levels. It has made intraday high at 1.1157 and low at 1.1024 levels. The euro keeps on surfing on the wave of Greek agreement optimism, reaching fresh August highs while completely shrugging off the risk-off hit from China. The euro gained primary support from the agreement on Greece's €86 billion bailout. The American dollar initially strengthened on Tuesday, but gave back all of its latest gains and even sunk against the EUR to a fresh 4-week low, as the market is rethinking whether the FED will be able to move rates next September in the ongoing scenario. Looking ahead, the New York session offers not quite relevant macro data with the only exception being the JOLTS job openings data while FOMC member Dudley is scheduled to speak later tonight. Initial support is seen around at 1.0789 and resistance at 1.1195 levels.
USD/JPY is supported below 125.00 levels and posted a high of 125.28 levels. It has made intraday low at 124.31 and currently trading at 124.38 levels. The US dollar outperformed its Japanese counterpart in the mid-Asian session, driving USD/JPY to fresh two-month highs beyond 125 handle, as another round of Yuan devaluation by PBOC early today has refuelled risk-off trades across the FX board with traders favouring the US currency as a safe-haven The greenback continues to be relentlessly sold-off across the board as markets divert flows to riskier assets as PBOC induced risk aversion faded. Moreover, traders resorted to profit-taking after the major reached fresh two-month highs beyond 125 levels ahead of Thursday economic data from both the continents which may major impact on the pair. Looking ahead, a slew of Chinese macro releases is highly anticipated which will further set the tone across the FX space. While from the US, FOMC member Dudley's speech and JOLTS job openings data will also be closely watched. Initial resistance is seen at 125.68 and support is seen at 120.63 levels.
GBP/USD is supported above $1.5500 levels. It made an intraday high at 1.5605 and low at 1.5535 levels. Pair is currently trading at 1.5575 levels. Average UK weekly earnings ex bonuses for June remained robust at 2.8% year-on-year, while including bonuses the figure disappointed and printed 2.4% and dipped from 3.2% previously. The unemployment rate for June stayed at 5.6%. The jobless claims change for July decreased from 200 to -4,900, the Office for National Statistics advised on Wednesday. Initial support is seen at 1.5413 and resistance is seen around 1.5734 levels.
NZDUSD is supported around 0.6600 levels and trading at 0.6590 levels and made intraday low at 0.6468 and high at 0.6591 levels. The kiwi underperformed under another round of PBOC intervention, devaluing the CNY further. The NZD/USD hit its fresh 2009 low as most currencies are sold off in Asia while the US dollar remains the main beneficiary. The US dollar remains the king in Asia but reversal took place in European session, while any currency where the central bank has an easing bias, or could potentially counteract the CNY weakness with easier monetary policy and the potential for China to become just that little bit more competitive, is being sold today. Initial support is seen at 0.6465 and resistance at 0.6789 levels.
AUD/USD is supported above 0.7300 levels and trading at 0.7336 levels. It has made intraday high at 0.7340 levels and low at 0.7216 levels. The latest series of below estimates China economic data had little impact on the tepid recovery seen in the Aussie from fresh multi-year lows, keeping AUD/USD near the mid-point of 0.72 handle. China remains Australia's biggest trading partner. With the devaluation of the Chinese currency, Chinese companies will have less purchasing power to purchase products from Australia. Aussie climbs to new daily high on RBA Lowe's comments. He said low rates helping the transition of the economy. Initial support is seen at 0.7225 and resistance at 0.7647 levels.
Equity Recap
Markets across the world dropped for a second day on Wednesday, with stocks, the dollar and emerging market currencies all under pressure after PBoC pushed the yuan lower again overnight, boosting the appeal of top-rated government bonds.
The pan-European FTSEurofirst 300 index and the euro zone's blue-chip Euro STOXX 50 index both fell 2.2 percent, extending Tuesday's 1.7 percent decline. Germany's DAX and France's CAC 40 underperformed, both losing 2.5 percent, as the yuan's slump hit German carmakers and European luxury goods stocks. Britain's FTSE 100 was down 1.8 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 2.1 percent to a two-year low. Stock markets from Australia to Singapore were a sea of red. Tokyo's Nikkei Average closed down 1.58 pct at 20,392.77 points, Shanghai Composite Index ended down 1.1 pct at 3,886.32 points, while China's CSI300 Index fell 1.2 pct at 4,016.13 points.
Commodities Recap
Oil prices continued to fall on Wednesday as China allowed its currency to drop further and its industrial output fell short of expectations just as oil production hit multi-year highs. U.S. crude futures were at $42.87 per barrel at 0706 GMT, down 21 cents from Tuesday, which marked its lowest settlement since March 2009. Brent futures were down 30 cents at $48.88, more than 25 percent below their last peak in May.
Gold rose for a fifth session in a row on Wednesday, hitting a fresh three-week high as the dollar and European equities slid on concerns over China's devaluation of its currency. Spot gold rose as much as 1 percent to its highest since July 20 at $1,119.80 an ounce in earlier trade and was up 0.8 percent at $1,117.76 by 0920 GMT. U.S. gold for December delivery gained 0.9 percent to $1,117.50 an ounce.
Treasuries Recap
The 10-year U.S. Treasury yield dropped to 2.05 percent, the lowest in over three months, and the strong demand for safe-haven bonds around the world pushed the 2-year German yield to a new low of -0.29 percent.
The yield on the benchmark China onshore 5-year treasury was up 9 basis points since Monday's close, to 3.26 percent. The five-year sovereign credit default swap was up 0.73 percent on Wednesday to 102.45, its highest level since January.
UK Gilts opened 53 ticks higher than the settlement of 117.94, as predicted, after China devalued the Yuan by another 1.6%. Sep Gilts rose around 10 ticks on the UK wage growth data at 118.48, but still well below the early, China-induced high of 118.73.
JGB prices ended the day higher, sending yields down by 3bp to 4bp on the day in the 10-yr and longer zone. JGBs opened firmer on a fall in US TSY yields, stock and crude oil prices overnight amid confusion after yesterday's larger-than-before devaluation of the Chinese Yuan. After lunch, JGBs extended their earlier gains in the 7-yr and longer zone on the back of weaker-than-before selling pressure in the BoJ's JGB purchase program.
New Zealand government bond yields were as much as 5 basis points lower. Australian government bond futures rose, with the 3-year bond contract up 5 ticks at 98.080. The 10-year contract was up 8 ticks to 97.2700, leading to a bullish flattening of the curve.
