GLOBAL CAPITAL MARKETS OVERVIEW:  

The three major U.S. stock indexes fell again on Monday, the first trading day of August, as investors adjusted their expectations for economic growth and corporate profits in the face of tightening financial conditions. Meanwhile, U.S. manufacturing data from the ISM beat Wall Street expectations and signaled that price pressures on companies in the world's largest economy might be easing. The figures follow last week's disappointing GDP report, which fueled speculation of less aggressive Fed tightening. On top of that, the generally upbeat earnings results for U.S. companies have provided further optimism for the bulls. Investors are awaiting Friday's nonfarm payroll report for July for clues on the labor market. European stocks edged lower on the first trading day of August, dragged down by energy and real estate stocks, with the Stoxx 600 bottoming at around 430 points. The ongoing energy crisis in Europe has fueled persistent fears of a recession that continue to hang over markets. On the data front, final data from S&P global manufacturing purchasing managers showed that factory activity contracted in July in all major eurozone economies. In addition to this, retail sales in Germany were also weak due to inflationary pressures. In terms of individual share price movements, Pearson shares rose about 10%, leading the Stoxx 600 higher after the British education and publishing company reported strong quarterly results. On the other hand, Steel Business Briefing is the main resistance, down almost 6%. Domestically, the benchmark DAX 40 rose nearly 0.2% to close at around 13,505. The FTSE MIB edged up to a six-week high of 22,430 on Monday, well below the session high, but continued to outperform European peers on the back of strong corporate earnings. At the same time, investors digested a slew of macroeconomic data. Milan's financial heavyweights led to gains after Italy's Intesa Sanpaolo reported higher-than-expected earnings. Italy's largest bank confirmed a full-year profit target of 1.33 billion euros for the April-June period, compared with expectations of $1.01 billion. Mediobanca and Generali also rebounded from positive company results, with the former gaining support from high fee income. At the same time, the domestic unemployment rate fell further to a two-year low, and the eurozone unemployment rate stabilized at a record low. On the other hand, Purchasing Managers' Index (PMI) data showed that Italian manufacturing contracted for the first time in two years, similar to the situation in other large European economies. On Monday, the CAC 40 erased early gains to close at 6,440, just below a seven-week high hit last week, as persistent recession fears overwhelmed a string of strong corporate results. Manufacturing activity in major European economies contracted in July for the first time since 2020, Purchasing Managers' Index (PMI) data confirmed. Energy stocks were the main laggards on the session, with TotalEnergies and CGG each down 1.5%. On the other hand, the auto sector closed sharply higher, with Renault's shares up more than 4%. The FTSE 100 reversed early gains on Monday to edge down to 7,411, led by oil companies after weak manufacturing data from several countries weighed on the demand outlook. Meanwhile, strong results from Europe's largest bank HSBC and education group Pearson provided early support, offsetting concerns after the UK's PMI fell further in July. Meanwhile, XP Power Ltd's shares fell nearly 15% after the company reported a turnaround amid supply chain and cost pressures and warned about its full-year results. Hong Kong stocks ended little on Monday, with the benchmark Hang Seng hovering around 20,165, as losses in materials and technology stocks offset gains in consumer-related stocks. On the data front, Caixin China's manufacturing PMI fell to 50.4 in July from a 11-month high of 51.7 in June, while official data over the weekend showed factory activity unexpectedly contracted due to sporadic COVID-19 outbreaks and service sector activity declined. Alleviated. Country Garden Services Holdings Co. and Hang Lung Properties fell the most on the index, 10% and 5.6%, respectively. The ruble-based MOEX-Russia index fell nearly 1 percent to below 2,200 on Monday, matching gains in the previous session, as banks and energy sectors faced strong selling pressure. Gazprom shares fell 1% as investors focused on how well increased exports to China could compensate for lost revenue from declining gas flows to Europe. In addition to slashing capacity at the Nord Stream 1 pipeline, EU countries have gradually agreed to reduce gas use by 15% by March. The oil sector also posted losses, with Rosneft and Lukoil down 1% and 0.5%, respectively. On the other hand, a lower ruble supported metallurgists' earnings, with Severstal and MMK each adding more than 1%. The Shanghai Composite rose 0.21 percent to close at 3,260. In comparison, Shenzhen shares rose 1.2 percent to close at 12,414 on Monday, reversing early losses as auto and new energy stocks rose as China extended a tax holiday for new energy vehicle purchases to boost consumption. The country's top securities regulator said his office would prioritize the stability of capital market operations, further helping to improve sentiment. Monday's gains continued even as official and private surveys showed weaker factory activity in China. This underscored an uncertain domestic outlook against repeated coronavirus outbreaks, risks to the real estate sector, and slowing global demand. Automakers and new energy stocks led gains, with Chongqing Changan (9.6%), BYD (3.2%), Anhui Jianghuai (10%), Hyundai Abe (5.2%), and Zhejiang Huayou (9.1%). New Zealand NZX 50 rose 33.22 points, or 0.29%, to close at a 3-month high of 11,525.87, its third session of gains, after Wall Street closed July 2020 on better-than-expected earnings reports. The biggest increase since closing. Locally, New Zealand's borders fully reopened to tourists on Monday for the first time since the Covid-19 pandemic in March 2020. Plexure Group, the market's biggest winner, surged 78 percent after the software developer said McDonald's Corp. had renewed its contract for its digital customer engagement platform for five years. Infratil Limited rose 6.7 percent as the company benefited from a rise in the value of its U.S. renewable energy investments. Other notable gainers were New Zealand Oil & Gas (7.1%) and Wellington Drive Technologies (6.2%). Traders now expect the U.S. NFP report to be released later this week, while several Fed officials are due to speak, and the flood of earnings reports will continue. Japan Nikkei 225 rose 0.69% to 27,993 on Monday. The broader Topix index rose 1.02% to 1,960 on Monday, closing at its highest level in nearly two months, buoyed by upbeat corporate results from major domestic companies. Investors also focused on the market's reaction to Japan's manufacturing data, which continued to expand in July but at the slowest pace in 10 months. Shares in Japanese shipping giant Mitsui OSK rose 3.9% after it raised its dividend forecast for this year, boosting peers Kawasaki Kisen (3.3%) and Nippon Yusen (3.1%) ). Both Ana Holdings and Japan Airlines rose 2.4% after significant airlines reported narrowing operating losses in the first quarter as tourism rebounded. Meanwhile, Sony Group shares fell 3.2% after the electronics and entertainment company cut its net profit forecast for the fiscal year due to weak gaming earnings. Heavyweight SoftBank Group Corp also fell 1.8 percent. Australia S&P/ASX 200 rose 0.69% to 6,993 on Monday, closing at its highest level in nearly two months, as improved risk sentiment and last week's gains in commodities lifted shares of local mining and energy companies. Investors are also bracing for a policy decision by the Reserve Bank of Australia on Tuesday, which is expected to announce a third straight 50 basis point rate hike to combat soaring inflation. Australian mining and energy stocks led gains, with BHP Billiton (1.1%), Rio Tinto (1.0%), and Woodside Energy (2.7%) notable gains. Companies linked to clean energy also performed strongly, including Pilbara Mining (1.1%), Allkem Ltd (4.5%), and Lynas Rare Earths (4.4%). Meanwhile, tech stocks were mostly down, with Xero (down 0.4%), Block Inc (down 1.1%), and Megaport (down 14.5%).

REVIEWING ECONOMIC DATA: 

Looking at the last economic data:

- US: The ISM Manufacturing PMI edged to 52.8 in July 2022 from 53 in June, beating the consensus forecast of 52. The data showed factory activity rose for the 26th straight month but was at its lowest level since June 2020, and the rate of new orders continued to contract even as supplier deliveries improved. Prices fell to levels not seen in two years. New orders (48 vs. 49.2) and employment (49.9 vs. 47.3) declined, production (53.5 vs. 54.9) and supplier deliveries slowed (55.2 vs. 57.3), while inventories grew faster (57.3 vs. 56) and price pressure softened (60 to 78.5). Meanwhile, market sentiment remained on demand, with six positive growth comments for every cautious word. Businesses are now expressing concern about a weakening economy and overstocking in supply chains.

- US: The S&P Global U.S. Manufacturing Purchasing Managers' Index was revised to 52.2 in July 2022 from a preliminary 52.3, the slowest factory growth rate since July 2020. Production fell for the first time since June 2020 due to weak demand conditions and the challenge of finding suitable candidates to deal with vacancies and shortages of raw materials. Also, new orders fell faster in more than two years as further supply chain disruptions and higher prices weighed on customer spending. In addition, wage growth slowed to its lowest level in six months as new order inflows waned, even as some companies continued to hire extra workers to fill long-term vacancies. Meanwhile, cost inflation slowed to its lowest level since March 2021, with some component prices reportedly falling and output inflation easing. Finally, business expectations for the outlook for output over the next 12 months remain at their lowest since October 2020.

- US: U.S. stock futures were little changed on Monday, the first trading day of August. After all, three major indexes posted their best month of 2020 as investors awaited another slew of economic data and earnings reports. Despite signs that inflation has not yet peaked, poor second-quarter GDP data has fueled speculation that the Fed will tighten policy less aggressively. Meanwhile, upbeat earnings results for U.S. companies provided further optimism for the bulls. Investors now await a fresh catalyst, with Friday's nonfarm payrolls report for July expected to be a key driver of prices. In July, the Dow rose 6.7%, the S&P 500 rose 9.1%, and the tech-heavy Nasdaq surged 12.4%

- UK: UK 10-year gilt yields fell to 1.9% in early August, hovering at levels not seen since mid-May and tracking a general decline in bond yields amid ongoing fears of slowing growth and recession, particularly in Europe. At home, Bank of England Governor Andrew Bailey opened the door in August for a 50-basis point rate hike, which would be the largest since 1995, as inflation accelerated more than expected.

- UK: In July 2022, the S&P Global/CIPS UK Manufacturing PMI was revised down to 52.1 from an initial 52.2, continuing to point to the lowest growth in factory activity since June 2020, mainly reflecting the recession in the consumer goods and intermediate goods sub-sectors. Production contracted for the first time in more than two years due to fewer new jobs, weaker market demand, difficulty sourcing parts, and delays in shipping. In addition, new orders fell due to the cost-of-living crisis, weak domestic demand, customer uncertainty, warmer-than-usual weather, and fewer imports from the new export business. New export orders from Europe, the US, and China also fell. Meanwhile, job growth was at its highest level in three months, and the backlog of jobs dwindled, while there were further signs that rising costs and supply chain pressures have surpassed their respective peaks. Finally, business optimism was at a two-year low in June.

- EU: In June 2022, the unemployment rate in the euro area remained unchanged at 6.6% for the second consecutive month, a record low, in line with market forecasts. A year ago, the unemployment rate was as high as 7.9%. 10.925 million people lost their jobs, down 1.957 million from 2021. Germany has the lowest unemployment rate at 2.8% and Spain the highest at 12.6%. Regarding young people, the unemployment rate rose to 11.6% from 11.2% in May but remained below 17.1% in the previous year. Unemployment rates were highest among those under 25 in Greece (29.5%) and Spain (27.9%) and lowest in Germany (5.4%) and Ireland (5.5%).

- EU: The S&P Global Eurozone Manufacturing PMI contracted to 49.8 in July 2022 from 52.1 in June, indicating that factory activity was growing at the slowest pace since June 2020 but slightly higher than a preliminary estimate of 49.6. Manufacturing output fell for a second straight month, with the pace of decline accelerating to the fastest since May 2020. Aside from the Covid-19 lockdown period, factory output has not fallen by more in July since December 2012. New orders fell for the third straight month, and the loss rate accelerated sharply to the highest level since May 2020. On the price front, input and output costs fell to 17- and 15-month lows, respectively. At the same time, manufacturing expectations have deteriorated to such an extent that more companies are expected to reduce production in the coming year than to increase, a situation not seen since the early days of the pandemic.

- IT: The S&P Global Italian Manufacturing PMI fell to 48.5 in July 2022 from 50.9 in June, indicating that factory activity contracted for the first time since June 2020, compared with the consensus forecast of 49.1. The fastest drop in new jobs since the height of Covid-19 measures has led to another sharp decline in factory production due to weak demand and ongoing cost pressures. New export orders also fell by the most in 26 months, and job creation was the slowest in 20 months, reflecting in part the continued decline in the backlog. In addition, the average lead time for inputs was extended to the lowest level since November 2020. On the other hand, cost pressures were at their lowest level since December 2020, and output inflation slowed to the weakest level since March 2021. Finally, business confidence is the third weakest on record.

- GE: The S&P Global/Middle East Germany Manufacturing Purchasing Managers' Index was revised to 49.3 in July 2022 from a preliminary 49.2 but still indicated that factory activity contracted for the first time since June 2020. New orders were employed by the most in more than two years due to lower investment spending, higher prices, high customer inventory levels, and ongoing supply chain friction. Factory production levels also showed persistent declines, while commodity producers scaled back their purchasing activity for the first time since mid-2020 amid a rapid build-up of inventories and a deteriorating outlook. The fall in input demand was reflected in easing supply chain pressures and a further softening of cost inflation, while output inflation slowed to a 15-month low. Employment levels continued to rise, albeit at a slower pace. Meanwhile, business expectations are the lowest since May 2020.

- IT: In June 2022, Italy's unemployment rate was revised from 8.2% in the previous month to 8.1%, in line with market expectations. This is the lowest unemployment rate since April 2020. Unemployment fell by 40 million to 2 million, while employment rose by 86,000 to 23.1 million. Meanwhile, the labor force participation rate rose 0.3 percentage points to 65.5. The youth unemployment rate, which measures jobseekers aged 15 to 24, rose 1.7 percentage points to 23.1 percent from a 14-year low of 23.1 percent in the previous month.

- FR: The S&P Global French Manufacturing Purchasing Managers' Index fell to 49.5 in July 2022 from 51.4 the previous month, down from a preliminary estimate of 49.6. It was the lowest figure since May 2020, as manufacturing output and new orders both fell faster since the pandemic-induced disruptions in the first half of 2020. Investigators pointed to a drop in demand as customers hesitated over uncertain economic conditions, the war in Ukraine, and the prospect of inflation. The pace of job creation then fell to its slowest pace in ten months. On the price front, inflationary pressures eased slightly from the previous month, although they remained elevated. Finally, business confidence experienced a historic downturn in July.

- SW: Sweden's Swedbank Manufacturing PMI fell to 53.1 in July 2022 from 53.6 the previous month. The latest figures suggest that the sector’s growth was the weakest since July 2020 as inflationary pressures mount due to ongoing supply chain disruptions due to the war in Ukraine. The most significant negative contribution came from employment (50.6 vs. 53.4), followed by lead time (61.7 vs. 63.8) and production (52.8 vs. 54.6). Meanwhile, new orders also contributed positively (53.1 vs. 52.2). Meanwhile, the raw material and input supplier price index fell to 61.5 from 73.1 in June, just 36.5 index points below its October 2021 peak. The output expectations index increased to 61.8 in July from 62.0 in June.

LOOKING AHEAD:   

Today, investors will receive:

- USD: JOLTS Job Openings and Wards Total Vehicle Sales.

- EUR: Spanish Unemployment Change.

- GBP: Nationwide HPI m/m and 10-y Bond Auction.

- JPY: Monetary Base y/y and 10-y Bond Auction.

- NZD: GDT Price Index.

- AUD: Building Approvals m/m, Cash Rate, RBA Rate Statement, and Commodity Prices y/y.

- CHF: SECO Consumer Climate and Manufacturing PMI.

- CAD: Manufacturing PMI.

KEY EQUITY & BOND MARKET DRIVERS:

- GE: Germany's 10-year bond yield fell below 0.8 percent, its lowest level over three months. A deteriorating macroeconomic backdrop and strict energy conservation measures prompted investors to buy safer government bonds. Germany's low gas reserves have raised concerns about tighter rationing ahead of winter, while the European Union agreed to cut gas use by 15% by March. Meanwhile, PMI data confirmed that manufacturing activity in the euro zone's largest economy contracted in July. Fears of an economic slowdown were also widespread against the backdrop of stagnant GDP and rising unemployment in Germany in the second quarter. Meanwhile, investors continued to assess the possible impact of the TPI on bond yield spreads.

- US: U.S. 10-year Treasury yields fell below the 2.6 percent mark, their highest level since April, as investors continued to flock to safe-haven assets amid persistent fears that aggressive tightening by major central banks will eventually tip significant economies into recession. The Federal Reserve, the world's most influential central bank, is expected to raise its key interest rate to a high of around 3.25% by the end of the year to rein in runaway inflation, which is now above 40-year highs. However, the recent slowdown in economic activity, including last week's disappointing GDP data, support the view that the Fed may slow the rate hikes.

- UK: The FTSE 100 futures contract fell nearly 0.2% on the first trading day of August, after July's best month of the year and broad global weakness. China's Purchasing Managers' Index (PMI) contracted unexpectedly in June, and the recovery was slow. HSBC, which reported a 15% drop in first-half profit, said it plans to resume its quarterly dividend next year.

STOCK MARKET SECTORS:

- High: Consumer Discretionary, Consumer Staples, Information Technology, Communication Services.

- Low: Energy, Real Estate, Materials, Financials, Utilities.

TOP CURRENCY & COMMODITIES MARKET DRIVERS: 

- CNY: The offshore yuan fell more than 6.75 to the dollar, retreating from a two-week high, weighed down by subdued data on Chinese manufacturing activity, underscoring the country's fragile economic recovery. Official and private surveys suggest factory activity in China weakened as the coronavirus outbreak and a weaker global outlook weighed on demand. In addition, China's disparate monetary policies, strict zero-coronavirus approach, and woes in the real estate sector all increase the risk of increased capital outflows and further depreciation of the yuan. Elsewhere, simmering geopolitical tensions between the U.S. and China have also weighed on the yuan as U.S. House Speaker Nancy Pelosi leads a congressional delegation to the Indo-Pacific this week. Still, so far, Taiwan has been left off the agenda.

- AUD: The Australian dollar held steady at around $0.70 on Monday, hovering near its highest level in more than six weeks, as traders braced for a policy decision by the Reserve Bank of Australia on Tuesday, which is expected to announce another 50bps rate hike to 1.85% in response to Soaring inflation. It would be the fourth-rate hike since May and the most aggressive tightening in decades. Markets have pared their previous speculation of a 75-basis point higher rate hike after the latest inflation reading came in slightly below expectations. The RBA is also expected to raise inflation forecasts and reduce unemployment, supporting further monetary tightening. The central bank's policy committee said it planned to move interest rates to at least neutral, around 2.5 percent, to dampen inflation expectations.

- USD: The U.S. dollar index held below 106 on Monday, hovering near its lowest level in nearly a month, as increased risks of a U.S. recession supported more accommodative monetary tightening by the Federal Reserve. The release of the second-quarter GDP data comes a day after the U.S. central bank raised its policy rate by 75 basis points in a widely expected move, with Federal Reserve Chairman Jerome Powell saying the rate hikes could be moderated based on data flow. Meanwhile, the dollar rose on Friday as the annual PCE price index hit its highest level since January 1982, but reversed those gains to the close after a key survey showed consumer inflation expectations fell. Investors now look to Friday's monthly jobs report for fresh clues on the likely direction of U.S. monetary policy.

CHART OF THE DAY:

Sterling rose to $1.22 in early August, its highest level since late June, as traders awaited the Bank of England's monetary policy decision this week. Investors are pricing in a 70% chance of a 50-basis point rise in the benchmark rate to 1.75%, which would be the largest rate hike in 27 years and push borrowing costs to the highest since 2009. The central bank has pledged to bring inflation down from a 40-year high and has raised interest rates by 1.15 percentage points since December. While consumer prices have yet to peak, inflation expectations for five to 10 years have fallen again, and the outlook for the year ahead has moderated, according to a survey by Citibank and YouGov pollster.

 

- GBPUSD - D1, Resistance (target zone) around ~ 1.23607, Support around  ~ 1.16553

Expectations that the market is due for a consolidation period after the July rally

GLOBAL CAPITAL MARKETS OVERVIEW:  

The three major U.S. stock indexes fell again on Monday, the first trading day of August, as investors adjusted their expectations for economic growth and corporate profits in the face of tightening financial conditions. Meanwhile, U.S. manufacturing data from the ISM beat Wall Street expectations and signaled that price pressures on companies in the world's largest economy might be easing. The figures follow last week's disappointing GDP report, which fueled speculation of less aggressive Fed tightening. On top of that, the generally upbeat earnings results for U.S. companies have provided further optimism for the bulls. Investors are awaiting Friday's nonfarm payroll report for July for clues on the labor market. European stocks edged lower on the first trading day of August, dragged down by energy and real estate stocks, with the Stoxx 600 bottoming at around 430 points. The ongoing energy crisis in Europe has fueled persistent fears of a recession that continue to hang over markets. On the data front, final data from S&P global manufacturing purchasing managers showed that factory activity contracted in July in all major eurozone economies. In addition to this, retail sales in Germany were also weak due to inflationary pressures. In terms of individual share price movements, Pearson shares rose about 10%, leading the Stoxx 600 higher after the British education and publishing company reported strong quarterly results. On the other hand, Steel Business Briefing is the main resistance, down almost 6%. Domestically, the benchmark DAX 40 rose nearly 0.2% to close at around 13,505. The FTSE MIB edged up to a six-week high of 22,430 on Monday, well below the session high, but continued to outperform European peers on the back of strong corporate earnings. At the same time, investors digested a slew of macroeconomic data. Milan's financial heavyweights led to gains after Italy's Intesa Sanpaolo reported higher-than-expected earnings. Italy's largest bank confirmed a full-year profit target of 1.33 billion euros for the April-June period, compared with expectations of $1.01 billion. Mediobanca and Generali also rebounded from positive company results, with the former gaining support from high fee income. At the same time, the domestic unemployment rate fell further to a two-year low, and the eurozone unemployment rate stabilized at a record low. On the other hand, Purchasing Managers' Index (PMI) data showed that Italian manufacturing contracted for the first time in two years, similar to the situation in other large European economies. On Monday, the CAC 40 erased early gains to close at 6,440, just below a seven-week high hit last week, as persistent recession fears overwhelmed a string of strong corporate results. Manufacturing activity in major European economies contracted in July for the first time since 2020, Purchasing Managers' Index (PMI) data confirmed. Energy stocks were the main laggards on the session, with TotalEnergies and CGG each down 1.5%. On the other hand, the auto sector closed sharply higher, with Renault's shares up more than 4%. The FTSE 100 reversed early gains on Monday to edge down to 7,411, led by oil companies after weak manufacturing data from several countries weighed on the demand outlook. Meanwhile, strong results from Europe's largest bank HSBC and education group Pearson provided early support, offsetting concerns after the UK's PMI fell further in July. Meanwhile, XP Power Ltd's shares fell nearly 15% after the company reported a turnaround amid supply chain and cost pressures and warned about its full-year results. Hong Kong stocks ended little on Monday, with the benchmark Hang Seng hovering around 20,165, as losses in materials and technology stocks offset gains in consumer-related stocks. On the data front, Caixin China's manufacturing PMI fell to 50.4 in July from a 11-month high of 51.7 in June, while official data over the weekend showed factory activity unexpectedly contracted due to sporadic COVID-19 outbreaks and service sector activity declined. Alleviated. Country Garden Services Holdings Co. and Hang Lung Properties fell the most on the index, 10% and 5.6%, respectively. The ruble-based MOEX-Russia index fell nearly 1 percent to below 2,200 on Monday, matching gains in the previous session, as banks and energy sectors faced strong selling pressure. Gazprom shares fell 1% as investors focused on how well increased exports to China could compensate for lost revenue from declining gas flows to Europe. In addition to slashing capacity at the Nord Stream 1 pipeline, EU countries have gradually agreed to reduce gas use by 15% by March. The oil sector also posted losses, with Rosneft and Lukoil down 1% and 0.5%, respectively. On the other hand, a lower ruble supported metallurgists' earnings, with Severstal and MMK each adding more than 1%. The Shanghai Composite rose 0.21 percent to close at 3,260. In comparison, Shenzhen shares rose 1.2 percent to close at 12,414 on Monday, reversing early losses as auto and new energy stocks rose as China extended a tax holiday for new energy vehicle purchases to boost consumption. The country's top securities regulator said his office would prioritize the stability of capital market operations, further helping to improve sentiment. Monday's gains continued even as official and private surveys showed weaker factory activity in China. This underscored an uncertain domestic outlook against repeated coronavirus outbreaks, risks to the real estate sector, and slowing global demand. Automakers and new energy stocks led gains, with Chongqing Changan (9.6%), BYD (3.2%), Anhui Jianghuai (10%), Hyundai Abe (5.2%), and Zhejiang Huayou (9.1%). New Zealand NZX 50 rose 33.22 points, or 0.29%, to close at a 3-month high of 11,525.87, its third session of gains, after Wall Street closed July 2020 on better-than-expected earnings reports. The biggest increase since closing. Locally, New Zealand's borders fully reopened to tourists on Monday for the first time since the Covid-19 pandemic in March 2020. Plexure Group, the market's biggest winner, surged 78 percent after the software developer said McDonald's Corp. had renewed its contract for its digital customer engagement platform for five years. Infratil Limited rose 6.7 percent as the company benefited from a rise in the value of its U.S. renewable energy investments. Other notable gainers were New Zealand Oil & Gas (7.1%) and Wellington Drive Technologies (6.2%). Traders now expect the U.S. NFP report to be released later this week, while several Fed officials are due to speak, and the flood of earnings reports will continue. Japan Nikkei 225 rose 0.69% to 27,993 on Monday. The broader Topix index rose 1.02% to 1,960 on Monday, closing at its highest level in nearly two months, buoyed by upbeat corporate results from major domestic companies. Investors also focused on the market's reaction to Japan's manufacturing data, which continued to expand in July but at the slowest pace in 10 months. Shares in Japanese shipping giant Mitsui OSK rose 3.9% after it raised its dividend forecast for this year, boosting peers Kawasaki Kisen (3.3%) and Nippon Yusen (3.1%) ). Both Ana Holdings and Japan Airlines rose 2.4% after significant airlines reported narrowing operating losses in the first quarter as tourism rebounded. Meanwhile, Sony Group shares fell 3.2% after the electronics and entertainment company cut its net profit forecast for the fiscal year due to weak gaming earnings. Heavyweight SoftBank Group Corp also fell 1.8 percent. Australia S&P/ASX 200 rose 0.69% to 6,993 on Monday, closing at its highest level in nearly two months, as improved risk sentiment and last week's gains in commodities lifted shares of local mining and energy companies. Investors are also bracing for a policy decision by the Reserve Bank of Australia on Tuesday, which is expected to announce a third straight 50 basis point rate hike to combat soaring inflation. Australian mining and energy stocks led gains, with BHP Billiton (1.1%), Rio Tinto (1.0%), and Woodside Energy (2.7%) notable gains. Companies linked to clean energy also performed strongly, including Pilbara Mining (1.1%), Allkem Ltd (4.5%), and Lynas Rare Earths (4.4%). Meanwhile, tech stocks were mostly down, with Xero (down 0.4%), Block Inc (down 1.1%), and Megaport (down 14.5%).

REVIEWING ECONOMIC DATA: 

Looking at the last economic data:

- US: The ISM Manufacturing PMI edged to 52.8 in July 2022 from 53 in June, beating the consensus forecast of 52. The data showed factory activity rose for the 26th straight month but was at its lowest level since June 2020, and the rate of new orders continued to contract even as supplier deliveries improved. Prices fell to levels not seen in two years. New orders (48 vs. 49.2) and employment (49.9 vs. 47.3) declined, production (53.5 vs. 54.9) and supplier deliveries slowed (55.2 vs. 57.3), while inventories grew faster (57.3 vs. 56) and price pressure softened (60 to 78.5). Meanwhile, market sentiment remained on demand, with six positive growth comments for every cautious word. Businesses are now expressing concern about a weakening economy and overstocking in supply chains.

- US: The S&P Global U.S. Manufacturing Purchasing Managers' Index was revised to 52.2 in July 2022 from a preliminary 52.3, the slowest factory growth rate since July 2020. Production fell for the first time since June 2020 due to weak demand conditions and the challenge of finding suitable candidates to deal with vacancies and shortages of raw materials. Also, new orders fell faster in more than two years as further supply chain disruptions and higher prices weighed on customer spending. In addition, wage growth slowed to its lowest level in six months as new order inflows waned, even as some companies continued to hire extra workers to fill long-term vacancies. Meanwhile, cost inflation slowed to its lowest level since March 2021, with some component prices reportedly falling and output inflation easing. Finally, business expectations for the outlook for output over the next 12 months remain at their lowest since October 2020.

- US: U.S. stock futures were little changed on Monday, the first trading day of August. After all, three major indexes posted their best month of 2020 as investors awaited another slew of economic data and earnings reports. Despite signs that inflation has not yet peaked, poor second-quarter GDP data has fueled speculation that the Fed will tighten policy less aggressively. Meanwhile, upbeat earnings results for U.S. companies provided further optimism for the bulls. Investors now await a fresh catalyst, with Friday's nonfarm payrolls report for July expected to be a key driver of prices. In July, the Dow rose 6.7%, the S&P 500 rose 9.1%, and the tech-heavy Nasdaq surged 12.4%

- UK: UK 10-year gilt yields fell to 1.9% in early August, hovering at levels not seen since mid-May and tracking a general decline in bond yields amid ongoing fears of slowing growth and recession, particularly in Europe. At home, Bank of England Governor Andrew Bailey opened the door in August for a 50-basis point rate hike, which would be the largest since 1995, as inflation accelerated more than expected.

- UK: In July 2022, the S&P Global/CIPS UK Manufacturing PMI was revised down to 52.1 from an initial 52.2, continuing to point to the lowest growth in factory activity since June 2020, mainly reflecting the recession in the consumer goods and intermediate goods sub-sectors. Production contracted for the first time in more than two years due to fewer new jobs, weaker market demand, difficulty sourcing parts, and delays in shipping. In addition, new orders fell due to the cost-of-living crisis, weak domestic demand, customer uncertainty, warmer-than-usual weather, and fewer imports from the new export business. New export orders from Europe, the US, and China also fell. Meanwhile, job growth was at its highest level in three months, and the backlog of jobs dwindled, while there were further signs that rising costs and supply chain pressures have surpassed their respective peaks. Finally, business optimism was at a two-year low in June.

- EU: In June 2022, the unemployment rate in the euro area remained unchanged at 6.6% for the second consecutive month, a record low, in line with market forecasts. A year ago, the unemployment rate was as high as 7.9%. 10.925 million people lost their jobs, down 1.957 million from 2021. Germany has the lowest unemployment rate at 2.8% and Spain the highest at 12.6%. Regarding young people, the unemployment rate rose to 11.6% from 11.2% in May but remained below 17.1% in the previous year. Unemployment rates were highest among those under 25 in Greece (29.5%) and Spain (27.9%) and lowest in Germany (5.4%) and Ireland (5.5%).

- EU: The S&P Global Eurozone Manufacturing PMI contracted to 49.8 in July 2022 from 52.1 in June, indicating that factory activity was growing at the slowest pace since June 2020 but slightly higher than a preliminary estimate of 49.6. Manufacturing output fell for a second straight month, with the pace of decline accelerating to the fastest since May 2020. Aside from the Covid-19 lockdown period, factory output has not fallen by more in July since December 2012. New orders fell for the third straight month, and the loss rate accelerated sharply to the highest level since May 2020. On the price front, input and output costs fell to 17- and 15-month lows, respectively. At the same time, manufacturing expectations have deteriorated to such an extent that more companies are expected to reduce production in the coming year than to increase, a situation not seen since the early days of the pandemic.

- IT: The S&P Global Italian Manufacturing PMI fell to 48.5 in July 2022 from 50.9 in June, indicating that factory activity contracted for the first time since June 2020, compared with the consensus forecast of 49.1. The fastest drop in new jobs since the height of Covid-19 measures has led to another sharp decline in factory production due to weak demand and ongoing cost pressures. New export orders also fell by the most in 26 months, and job creation was the slowest in 20 months, reflecting in part the continued decline in the backlog. In addition, the average lead time for inputs was extended to the lowest level since November 2020. On the other hand, cost pressures were at their lowest level since December 2020, and output inflation slowed to the weakest level since March 2021. Finally, business confidence is the third weakest on record.

- GE: The S&P Global/Middle East Germany Manufacturing Purchasing Managers' Index was revised to 49.3 in July 2022 from a preliminary 49.2 but still indicated that factory activity contracted for the first time since June 2020. New orders were employed by the most in more than two years due to lower investment spending, higher prices, high customer inventory levels, and ongoing supply chain friction. Factory production levels also showed persistent declines, while commodity producers scaled back their purchasing activity for the first time since mid-2020 amid a rapid build-up of inventories and a deteriorating outlook. The fall in input demand was reflected in easing supply chain pressures and a further softening of cost inflation, while output inflation slowed to a 15-month low. Employment levels continued to rise, albeit at a slower pace. Meanwhile, business expectations are the lowest since May 2020.

- IT: In June 2022, Italy's unemployment rate was revised from 8.2% in the previous month to 8.1%, in line with market expectations. This is the lowest unemployment rate since April 2020. Unemployment fell by 40 million to 2 million, while employment rose by 86,000 to 23.1 million. Meanwhile, the labor force participation rate rose 0.3 percentage points to 65.5. The youth unemployment rate, which measures jobseekers aged 15 to 24, rose 1.7 percentage points to 23.1 percent from a 14-year low of 23.1 percent in the previous month.

- FR: The S&P Global French Manufacturing Purchasing Managers' Index fell to 49.5 in July 2022 from 51.4 the previous month, down from a preliminary estimate of 49.6. It was the lowest figure since May 2020, as manufacturing output and new orders both fell faster since the pandemic-induced disruptions in the first half of 2020. Investigators pointed to a drop in demand as customers hesitated over uncertain economic conditions, the war in Ukraine, and the prospect of inflation. The pace of job creation then fell to its slowest pace in ten months. On the price front, inflationary pressures eased slightly from the previous month, although they remained elevated. Finally, business confidence experienced a historic downturn in July.

- SW: Sweden's Swedbank Manufacturing PMI fell to 53.1 in July 2022 from 53.6 the previous month. The latest figures suggest that the sector’s growth was the weakest since July 2020 as inflationary pressures mount due to ongoing supply chain disruptions due to the war in Ukraine. The most significant negative contribution came from employment (50.6 vs. 53.4), followed by lead time (61.7 vs. 63.8) and production (52.8 vs. 54.6). Meanwhile, new orders also contributed positively (53.1 vs. 52.2). Meanwhile, the raw material and input supplier price index fell to 61.5 from 73.1 in June, just 36.5 index points below its October 2021 peak. The output expectations index increased to 61.8 in July from 62.0 in June.

LOOKING AHEAD:   

Today, investors will receive:

- USD: JOLTS Job Openings and Wards Total Vehicle Sales.

- EUR: Spanish Unemployment Change.

- GBP: Nationwide HPI m/m and 10-y Bond Auction.

- JPY: Monetary Base y/y and 10-y Bond Auction.

- NZD: GDT Price Index.

- AUD: Building Approvals m/m, Cash Rate, RBA Rate Statement, and Commodity Prices y/y.

- CHF: SECO Consumer Climate and Manufacturing PMI.

- CAD: Manufacturing PMI.

KEY EQUITY & BOND MARKET DRIVERS:

- GE: Germany's 10-year bond yield fell below 0.8 percent, its lowest level over three months. A deteriorating macroeconomic backdrop and strict energy conservation measures prompted investors to buy safer government bonds. Germany's low gas reserves have raised concerns about tighter rationing ahead of winter, while the European Union agreed to cut gas use by 15% by March. Meanwhile, PMI data confirmed that manufacturing activity in the euro zone's largest economy contracted in July. Fears of an economic slowdown were also widespread against the backdrop of stagnant GDP and rising unemployment in Germany in the second quarter. Meanwhile, investors continued to assess the possible impact of the TPI on bond yield spreads.

- US: U.S. 10-year Treasury yields fell below the 2.6 percent mark, their highest level since April, as investors continued to flock to safe-haven assets amid persistent fears that aggressive tightening by major central banks will eventually tip significant economies into recession. The Federal Reserve, the world's most influential central bank, is expected to raise its key interest rate to a high of around 3.25% by the end of the year to rein in runaway inflation, which is now above 40-year highs. However, the recent slowdown in economic activity, including last week's disappointing GDP data, support the view that the Fed may slow the rate hikes.

- UK: The FTSE 100 futures contract fell nearly 0.2% on the first trading day of August, after July's best month of the year and broad global weakness. China's Purchasing Managers' Index (PMI) contracted unexpectedly in June, and the recovery was slow. HSBC, which reported a 15% drop in first-half profit, said it plans to resume its quarterly dividend next year.

STOCK MARKET SECTORS:

- High: Consumer Discretionary, Consumer Staples, Information Technology, Communication Services.

- Low: Energy, Real Estate, Materials, Financials, Utilities.

TOP CURRENCY & COMMODITIES MARKET DRIVERS: 

- CNY: The offshore yuan fell more than 6.75 to the dollar, retreating from a two-week high, weighed down by subdued data on Chinese manufacturing activity, underscoring the country's fragile economic recovery. Official and private surveys suggest factory activity in China weakened as the coronavirus outbreak and a weaker global outlook weighed on demand. In addition, China's disparate monetary policies, strict zero-coronavirus approach, and woes in the real estate sector all increase the risk of increased capital outflows and further depreciation of the yuan. Elsewhere, simmering geopolitical tensions between the U.S. and China have also weighed on the yuan as U.S. House Speaker Nancy Pelosi leads a congressional delegation to the Indo-Pacific this week. Still, so far, Taiwan has been left off the agenda.

- AUD: The Australian dollar held steady at around $0.70 on Monday, hovering near its highest level in more than six weeks, as traders braced for a policy decision by the Reserve Bank of Australia on Tuesday, which is expected to announce another 50bps rate hike to 1.85% in response to Soaring inflation. It would be the fourth-rate hike since May and the most aggressive tightening in decades. Markets have pared their previous speculation of a 75-basis point higher rate hike after the latest inflation reading came in slightly below expectations. The RBA is also expected to raise inflation forecasts and reduce unemployment, supporting further monetary tightening. The central bank's policy committee said it planned to move interest rates to at least neutral, around 2.5 percent, to dampen inflation expectations.

- USD: The U.S. dollar index held below 106 on Monday, hovering near its lowest level in nearly a month, as increased risks of a U.S. recession supported more accommodative monetary tightening by the Federal Reserve. The release of the second-quarter GDP data comes a day after the U.S. central bank raised its policy rate by 75 basis points in a widely expected move, with Federal Reserve Chairman Jerome Powell saying the rate hikes could be moderated based on data flow. Meanwhile, the dollar rose on Friday as the annual PCE price index hit its highest level since January 1982, but reversed those gains to the close after a key survey showed consumer inflation expectations fell. Investors now look to Friday's monthly jobs report for fresh clues on the likely direction of U.S. monetary policy.

CHART OF THE DAY:

Sterling rose to $1.22 in early August, its highest level since late June, as traders awaited the Bank of England's monetary policy decision this week. Investors are pricing in a 70% chance of a 50-basis point rise in the benchmark rate to 1.75%, which would be the largest rate hike in 27 years and push borrowing costs to the highest since 2009. The central bank has pledged to bring inflation down from a 40-year high and has raised interest rates by 1.15 percentage points since December. While consumer prices have yet to peak, inflation expectations for five to 10 years have fallen again, and the outlook for the year ahead has moderated, according to a survey by Citibank and YouGov pollster.

 

- GBPUSD - D1, Resistance (target zone) around ~ 1.23607, Support around  ~ 1.16553

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