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 may be easing. The figures follow last week's disappointing GDP report, which fueled speculation of less aggressive Fed tightening. In addition, the generally upbeat earnings results for U.S. companies have provided further optimism for the bulls. Investors are awaiting Friday's nonfarm payrolls 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 all major eurozone economies in July. 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 was the main resistance, down nearly 6%. 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 shares up more than 4%. 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. Financial heavyweights in Milan led 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 what happened in other large European economies. 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 shares fell nearly 15% after the company reported a turnaround amid supply chain and cost pressures and warned about its full-year results. The ruble-based MOEX-Russia index fell 1.1 percent to close at 2,180 on Monday, retracing the previous session's gains as investors digested the central bank's remarks. In contrast, banks and energy sectors faced strong selling pressure. Gazprom shares fell 1.5% as investors focused on how much higher exports to China could make up for lost revenue from falling gas flows to Europe. In addition to slashing capacity at the Nord Stream 1 pipeline, EU countries have agreed to gradually reduce gas use by 15% by March. Major banks also fell sharply, with Sberbank and VTB down 3.3% and 2.2% respectively. On top of that, a rebound in the rouble during the session weighed on metallurgists, with shares in Norilsk Nickel down more than 3 percent. CBR said that Russia's economy is expected to contract by 7% in the next quarter, followed by a 4.3% decline in the second quarter. On Tuesday, the Shanghai Composite fell 2.26% to 3,186 points. In comparison, the Shenzhen Composite fell 2.37% to 12,120 points, closing at its lowest level in at least a month as U.S. House Speaker Nancy Pelosi is expected to visit Tensions between the U.S. and China escalated ahead of Taiwan, sparking a broad sell-off in Asia. Investor sentiment was also weighed down by heightened global recession risks as weak manufacturing data from major economies highlighted a gloomy economic outlook. High-growth technology stocks and new energy stocks led the declines, Oriental Monetary Information (down 2.6%), Luxshare Precision (down 3.5%), TCL Central (down 2.5%), Hyundai Abe (down 2.1%), Tianqi Lithium (down 2.5%) 4.9%) and Longji Green Energy (-2.7%) fell sharply. All other sectors in China were lower, including heavyweight consumers, industrials and financials. Japan Nikkei 225 fell 1.42% to close at 27,595. In comparison, the Topix lost 1.77% to close at 1,925, retreating from a two-month closing high as a stronger yen, mixed corporate earnings and global The risk of a recession dampened sentiment, with all sectors closing in negative territory. Investors were also nervous about escalating tensions between the U.S. and China as U.S. House Speaker Nancy Pelosi is about to visit Taiwan despite Chinese objections. Technology companies led the declines, with SoftBank Group (-1%), Tokyo Electron (-2%), Keynes (-1.6%), Murata Manufacturing (-1.1%), Recruit Holdings (-2%) and Mercari Inc (-4.1%) %) and other companies fell significantly. Other index heavyweights also fell, including Sony Group (down 0.8%), Mitsubishi Corporation (down 1.6%), Toyota (down 2.6%), Nintendo (down 1.9%) and Mitsui & Co (down 4%). New Zealand NZX 50 gained 6.56 points, or less than 0.1%, to settle at 11,532.46 on Tuesday, its fourth session of gains, while maintaining its highest close in nearly three months. News that New Zealand's borders are open for the first time since March 2020, when New Zealand closed it to stop the spread of Covid-19, continues to support the view. Traders were trying to shake off overnight losses on Wall Street and escalating tensions between the U.S. and China as U.S. House Speaker Nancy Pelosi begins her visit to Taiwan today, despite Chinese objections. Shares of A2 Milk Co rose nearly 9% as the company could receive approval as early as this week to apply to sell its infant formula in the United States. Other gainers included Plexure Group (26.2%), Pacific Edge Limited (11.1%) and Oceania Healthcare (4.1%), while losers included New Talisman Gold Mines (33.3%), NZ Automotive Investments (12.5%), Greenfern Industries (7.5%) %) and Third Age Health Services (7.2%). Australia S&P/ASX 200 edged up 0.07% to 6,998 on Tuesday, closing at its highest level in more than seven weeks after the Reserve Bank of Australia raised its cash rate, which was widely expected measures and tempered guidance for future rate hikes amid expectations of a slowing economy. RBA governor Philip Lowe also said that, unlike his earlier, more hawkish statements, there was no pre-set policy path that the central bank intended to cut interest rates to a "neutral" level of at least 2.5 per cent. Tech stocks led gains, with Xero Ltd (1.1%), Wisetech Global (1%) and Block Inc (2.7%) notable gainers. Financial stocks also rose, with the "big four" banks gaining between 0.3% and 1.6%. Meanwhile, energy and mining stocks fell on weaker commodity prices. Artificial intelligence firm Appen Ltd also fell 27.3% after it said it expected to post a loss in the first half of its listing amid a weak digital advertising environment and rising costs.

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 comment. Businesses are now expressing concern about a weakening economy and overstocking in supply chains.

- US: In June 2022, U.S. construction spending fell 1.1% from the previous month to a seasonally adjusted annual rate of $1.76 trillion, compared with a revised 0.1% increase in May and a 0.1% increase expected by the market. It was the biggest drop since February 2021. Private construction spending contracted by 1.1%, dragged down by residential construction (down 1.6%), electricity construction (down 1.8%) and commercial construction (down 0.6%). Meanwhile, public buildings contracted by 0.5%, under pressure from construction of roads and streets (down 2.7%), transport (down 1%) and education (down 0.7%).

- 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 the right 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. 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 level since October 2020.

- HK: In June 2022, retail sales in Hong Kong fell 4.1% year-on-year, compared with a 4.8% drop in May. Uncategorized appliances and other consumer durables (down 12.4% and 1.1% in May), apparel, footwear and related products (down 10.8% and 7.6%, respectively), alcoholic beverages and tobacco (-9.8% and -4.8%, respectively) %). However, the government confirmed that the upcoming second phase of consumer vouchers will help support consumer demand. However, future retail sales performance will also depend on the evolution of the local epidemic and how tight financial conditions affect consumers' spending power and sentiment.

- UK: Amid geopolitical tensions between the U.S. and China, the FTSE 100 futures contract fell 0.6% on Tuesday, tracking negative signs globally. U.S. House Speaker Nancy Pelosi is visiting Taiwan today, and China has warned of "serious consequences" if it goes ahead. Meanwhile, the earnings season continues amid lingering concerns about the strength of the global economy. BP's profit topped forecasts amid rising commodity prices, while the oil major announced a 10% increase in its quarterly dividend payout. Sage said it expects full-year revenue growth to be the highest expected

LOOKING AHEAD:   

Today, investors will receive:

- USD: Final Services PMI, ISM Services PMI, Factory Orders m/m, and Crude Oil Inventories.

- EUR: German Trade Balance, French Gov Budget Balanc, Spanish Services PMI, Italian Services PMI, French Final Services PMI, German Final Services PMI

Final Services PMI, Italian Retail Sales m/m, PPI m/m, and Retail Sales m/m.

- GBP: Final Services PMI.

- NZD: Employment Change q/q, Unemployment Rate, Labor Cost Index q/q, and ANZ Commodity Prices m/m.

- AUD: AIG Construction Index and Retail Sales m/m.

- CNY: Caixin Services PMI.

- CHF: CPI m/m.

KEY EQUITY & BOND MARKET DRIVERS:

- GE: Germany's 10-year bond yield fell below 0.8%, its lowest level in 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 percent 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, the 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 major 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 tame runaway inflation, which is now above 40-year highs. However, recent signs of a slowdown in economic activity, including last week's disappointing GDP data, support the view that the Fed may slow the rate hikes.

- 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.

- FR: Yields on French 10-year oats increased to below 1.1% in early August, their lowest level over three months. An increasingly negative outlook for the European economy forced investors into safe-haven assets. The latest PMI data confirmed that manufacturing in major European economies contracted in July. Also, inflation data came in above expectations at another all-time high, suggesting consumer prices have yet to peak. Meanwhile, a lack of natural gas supplies in Russia has raised concerns about energy rationing in the winter, coupled with low domestic nuclear power production, with several nuclear power plants suspending production due to corrosion problems. To restore energy security and stabilize utility prices, the French government has offered to buy the rest of utility giant EDF for 9.7 billion euros.

- RU: Yields on Russian 10-year OFZ bonds fell to 9% in early August, hovering below levels before Russia’s invasion of Ukraine, as deteriorating economic conditions in Russia boosted demand for fixed-coupon assets. Russia's central bank forecasts the country's economy to contract by 7% in the third quarter, further driving a projected 4.3% contraction in the second quarter, as the impact of supply shocks should prolong over time. The CBR cut rates by 150 basis points at its last meeting, bringing borrowing costs to 2021 lows. At the same time, the Kremlin approved a decree to use half of its $210 billion emergency fund to buy government bonds, a move never taken in the past, making it the main source of funding for Russia's budget this year. The sweeping sanctions from the West have put enormous pressure on foreign creditors in the free-trade zone market, making Russian banks the main holders of state debt.

- AU: The Reserve Bank of Australia raised the cash rate by 50 basis points to 1.85% at its August 2022 meeting. This followed a 50-basis point hike in July and June and a 25-basis point hike in May, bringing the cash rate to its highest level since April 2016. The Fed committee said the rate hikes in recent months were aimed at lowering inflation and creating more sustainable demand and supply, adding that the RBA had committed to further tightening measures, but not on a preset path because of size and timing. will be guided by incoming data. The committee noted that the CPI will be around 7-3/4% in 2022 and just above 4% in 2023. The central bank reiterated its commitment to take the necessary steps to ensure inflation returns to its target, while focusing on the global outlook, which remains clouded by the war in Ukraine, its impact on energy and commodity prices, and China's anti-coronavirus measures. The board raised the rate on foreign exchange settlement balances by 50 basis points to 1.75%.

STOCK MARKET SECTORS:

- High: n/a

- Low: Real Estate, Financials, Industrials, Materials, Consumer Staples, Consumer Discretionary.

TOP CURRENCY & COMMODITIES MARKET DRIVERS: 

- EUR: The euro hovered near $1.02 in early August as investors tried to assess the economic outlook for further signs of a looming recession while adjusting bets on the ECB's next move. The eurozone grew 0.7% quarter-on-quarter in the second quarter, flash data showed, as France, Italy, and Spain posted impressive growth, while Germany's economy unexpectedly stagnated. In addition, inflation has yet to peak, hitting a new record of 8.9% in July, while PMIs show a broad contraction in manufacturing. The European Central Bank started raising rates last month and delivered a more-than-expected 50 basis point hike. Still, markets have started to lower expectations for a September hike due to recession fears.

- JPY: The yen appreciated more than 131 against the dollar to its highest level in two months, as weak U.S. economic data and a subdued outlook supported expectations that the Federal Reserve will need to slow the pace of future rate hikes. Safe-haven demand for the yen was also boosted by lower factory activity in other major economies and heightened tensions between the U.S. and China ahead of a visit by U.S. House Speaker Nancy Pelosi to Taiwan. In addition, several BOJ officials recently said that the central bank needs to withdraw from its massive stimulus program while maintaining the monetary environment that currently needs to be accommodative, as wages must catch up to stimulate consumption and help the Japanese economy recover. Meanwhile, Japanese Finance Minister Shunichi Suzuki said the yen fluctuated sharply and said he would carefully watch currency movements and their impact on the economy while coordinating with the Bank of Japan.

- USD: The U.S. dollar index was near 105 on Tuesday, hovering at its lowest level in four weeks. The increased risk of a U.S. recession supported the Federal Reserve's less aggressive monetary tightening measures in the coming months. The latest U.S. gross domestic product and manufacturing activity data pointed to weakness in the economy. At the same time, Friday's monthly jobs report is expected to show a slowing improvement in the labor market. Last week, the U.S. central bank raised its policy rate by 75 basis points, a widely expected move, and Federal Reserve Chairman Jerome Powell said the pace of rate increases could be slowed based on data flow.

CHART OF THE DAY:

The Australian dollar retreated from a six-week high to $0.695 on Tuesday after the Reserve Bank of Australia raised interest rates for a fourth straight month but tempered its guidance for future rate hikes amid expectations of a slowing economy. As widely expected, the RBA raised its cash rate by 50 basis points to 1.85 percent. Meanwhile, RBA governor Philip Lowe said that "the board expects to take further steps in the coming months to normalize monetary conditions, but this is not a pre-set path", echoing his earlier remarks In stark contrast, he has previously said the central bank intends to cut interest rates to a "neutral" level of at least 2.5%. The RBA also forecasts consumer price inflation to peak at around 7.75 percent in 2022, while economic growth this year is expected to be 3.25 percent, down from a previous forecast of 4.2 percent.

- AUDUSD - D1, Resistance around ~ 0.70392,  Support around  ~ 0.68346.

 

Reservations that the July market rally is not sustainable given the deteriorating economic fundamentals

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 may be easing. The figures follow last week's disappointing GDP report, which fueled speculation of less aggressive Fed tightening. In addition, the generally upbeat earnings results for U.S. companies have provided further optimism for the bulls. Investors are awaiting Friday's nonfarm payrolls 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 all major eurozone economies in July. 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 was the main resistance, down nearly 6%. 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 shares up more than 4%. 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. Financial heavyweights in Milan led 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 what happened in other large European economies. 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 shares fell nearly 15% after the company reported a turnaround amid supply chain and cost pressures and warned about its full-year results. The ruble-based MOEX-Russia index fell 1.1 percent to close at 2,180 on Monday, retracing the previous session's gains as investors digested the central bank's remarks. In contrast, banks and energy sectors faced strong selling pressure. Gazprom shares fell 1.5% as investors focused on how much higher exports to China could make up for lost revenue from falling gas flows to Europe. In addition to slashing capacity at the Nord Stream 1 pipeline, EU countries have agreed to gradually reduce gas use by 15% by March. Major banks also fell sharply, with Sberbank and VTB down 3.3% and 2.2% respectively. On top of that, a rebound in the rouble during the session weighed on metallurgists, with shares in Norilsk Nickel down more than 3 percent. CBR said that Russia's economy is expected to contract by 7% in the next quarter, followed by a 4.3% decline in the second quarter. On Tuesday, the Shanghai Composite fell 2.26% to 3,186 points. In comparison, the Shenzhen Composite fell 2.37% to 12,120 points, closing at its lowest level in at least a month as U.S. House Speaker Nancy Pelosi is expected to visit Tensions between the U.S. and China escalated ahead of Taiwan, sparking a broad sell-off in Asia. Investor sentiment was also weighed down by heightened global recession risks as weak manufacturing data from major economies highlighted a gloomy economic outlook. High-growth technology stocks and new energy stocks led the declines, Oriental Monetary Information (down 2.6%), Luxshare Precision (down 3.5%), TCL Central (down 2.5%), Hyundai Abe (down 2.1%), Tianqi Lithium (down 2.5%) 4.9%) and Longji Green Energy (-2.7%) fell sharply. All other sectors in China were lower, including heavyweight consumers, industrials and financials. Japan Nikkei 225 fell 1.42% to close at 27,595. In comparison, the Topix lost 1.77% to close at 1,925, retreating from a two-month closing high as a stronger yen, mixed corporate earnings and global The risk of a recession dampened sentiment, with all sectors closing in negative territory. Investors were also nervous about escalating tensions between the U.S. and China as U.S. House Speaker Nancy Pelosi is about to visit Taiwan despite Chinese objections. Technology companies led the declines, with SoftBank Group (-1%), Tokyo Electron (-2%), Keynes (-1.6%), Murata Manufacturing (-1.1%), Recruit Holdings (-2%) and Mercari Inc (-4.1%) %) and other companies fell significantly. Other index heavyweights also fell, including Sony Group (down 0.8%), Mitsubishi Corporation (down 1.6%), Toyota (down 2.6%), Nintendo (down 1.9%) and Mitsui & Co (down 4%). New Zealand NZX 50 gained 6.56 points, or less than 0.1%, to settle at 11,532.46 on Tuesday, its fourth session of gains, while maintaining its highest close in nearly three months. News that New Zealand's borders are open for the first time since March 2020, when New Zealand closed it to stop the spread of Covid-19, continues to support the view. Traders were trying to shake off overnight losses on Wall Street and escalating tensions between the U.S. and China as U.S. House Speaker Nancy Pelosi begins her visit to Taiwan today, despite Chinese objections. Shares of A2 Milk Co rose nearly 9% as the company could receive approval as early as this week to apply to sell its infant formula in the United States. Other gainers included Plexure Group (26.2%), Pacific Edge Limited (11.1%) and Oceania Healthcare (4.1%), while losers included New Talisman Gold Mines (33.3%), NZ Automotive Investments (12.5%), Greenfern Industries (7.5%) %) and Third Age Health Services (7.2%). Australia S&P/ASX 200 edged up 0.07% to 6,998 on Tuesday, closing at its highest level in more than seven weeks after the Reserve Bank of Australia raised its cash rate, which was widely expected measures and tempered guidance for future rate hikes amid expectations of a slowing economy. RBA governor Philip Lowe also said that, unlike his earlier, more hawkish statements, there was no pre-set policy path that the central bank intended to cut interest rates to a "neutral" level of at least 2.5 per cent. Tech stocks led gains, with Xero Ltd (1.1%), Wisetech Global (1%) and Block Inc (2.7%) notable gainers. Financial stocks also rose, with the "big four" banks gaining between 0.3% and 1.6%. Meanwhile, energy and mining stocks fell on weaker commodity prices. Artificial intelligence firm Appen Ltd also fell 27.3% after it said it expected to post a loss in the first half of its listing amid a weak digital advertising environment and rising costs.

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 comment. Businesses are now expressing concern about a weakening economy and overstocking in supply chains.

- US: In June 2022, U.S. construction spending fell 1.1% from the previous month to a seasonally adjusted annual rate of $1.76 trillion, compared with a revised 0.1% increase in May and a 0.1% increase expected by the market. It was the biggest drop since February 2021. Private construction spending contracted by 1.1%, dragged down by residential construction (down 1.6%), electricity construction (down 1.8%) and commercial construction (down 0.6%). Meanwhile, public buildings contracted by 0.5%, under pressure from construction of roads and streets (down 2.7%), transport (down 1%) and education (down 0.7%).

- 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 the right 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. 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 level since October 2020.

- HK: In June 2022, retail sales in Hong Kong fell 4.1% year-on-year, compared with a 4.8% drop in May. Uncategorized appliances and other consumer durables (down 12.4% and 1.1% in May), apparel, footwear and related products (down 10.8% and 7.6%, respectively), alcoholic beverages and tobacco (-9.8% and -4.8%, respectively) %). However, the government confirmed that the upcoming second phase of consumer vouchers will help support consumer demand. However, future retail sales performance will also depend on the evolution of the local epidemic and how tight financial conditions affect consumers' spending power and sentiment.

- UK: Amid geopolitical tensions between the U.S. and China, the FTSE 100 futures contract fell 0.6% on Tuesday, tracking negative signs globally. U.S. House Speaker Nancy Pelosi is visiting Taiwan today, and China has warned of "serious consequences" if it goes ahead. Meanwhile, the earnings season continues amid lingering concerns about the strength of the global economy. BP's profit topped forecasts amid rising commodity prices, while the oil major announced a 10% increase in its quarterly dividend payout. Sage said it expects full-year revenue growth to be the highest expected

LOOKING AHEAD:   

Today, investors will receive:

- USD: Final Services PMI, ISM Services PMI, Factory Orders m/m, and Crude Oil Inventories.

- EUR: German Trade Balance, French Gov Budget Balanc, Spanish Services PMI, Italian Services PMI, French Final Services PMI, German Final Services PMI

Final Services PMI, Italian Retail Sales m/m, PPI m/m, and Retail Sales m/m.

- GBP: Final Services PMI.

- NZD: Employment Change q/q, Unemployment Rate, Labor Cost Index q/q, and ANZ Commodity Prices m/m.

- AUD: AIG Construction Index and Retail Sales m/m.

- CNY: Caixin Services PMI.

- CHF: CPI m/m.

KEY EQUITY & BOND MARKET DRIVERS:

- GE: Germany's 10-year bond yield fell below 0.8%, its lowest level in 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 percent 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, the 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 major 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 tame runaway inflation, which is now above 40-year highs. However, recent signs of a slowdown in economic activity, including last week's disappointing GDP data, support the view that the Fed may slow the rate hikes.

- 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.

- FR: Yields on French 10-year oats increased to below 1.1% in early August, their lowest level over three months. An increasingly negative outlook for the European economy forced investors into safe-haven assets. The latest PMI data confirmed that manufacturing in major European economies contracted in July. Also, inflation data came in above expectations at another all-time high, suggesting consumer prices have yet to peak. Meanwhile, a lack of natural gas supplies in Russia has raised concerns about energy rationing in the winter, coupled with low domestic nuclear power production, with several nuclear power plants suspending production due to corrosion problems. To restore energy security and stabilize utility prices, the French government has offered to buy the rest of utility giant EDF for 9.7 billion euros.

- RU: Yields on Russian 10-year OFZ bonds fell to 9% in early August, hovering below levels before Russia’s invasion of Ukraine, as deteriorating economic conditions in Russia boosted demand for fixed-coupon assets. Russia's central bank forecasts the country's economy to contract by 7% in the third quarter, further driving a projected 4.3% contraction in the second quarter, as the impact of supply shocks should prolong over time. The CBR cut rates by 150 basis points at its last meeting, bringing borrowing costs to 2021 lows. At the same time, the Kremlin approved a decree to use half of its $210 billion emergency fund to buy government bonds, a move never taken in the past, making it the main source of funding for Russia's budget this year. The sweeping sanctions from the West have put enormous pressure on foreign creditors in the free-trade zone market, making Russian banks the main holders of state debt.

- AU: The Reserve Bank of Australia raised the cash rate by 50 basis points to 1.85% at its August 2022 meeting. This followed a 50-basis point hike in July and June and a 25-basis point hike in May, bringing the cash rate to its highest level since April 2016. The Fed committee said the rate hikes in recent months were aimed at lowering inflation and creating more sustainable demand and supply, adding that the RBA had committed to further tightening measures, but not on a preset path because of size and timing. will be guided by incoming data. The committee noted that the CPI will be around 7-3/4% in 2022 and just above 4% in 2023. The central bank reiterated its commitment to take the necessary steps to ensure inflation returns to its target, while focusing on the global outlook, which remains clouded by the war in Ukraine, its impact on energy and commodity prices, and China's anti-coronavirus measures. The board raised the rate on foreign exchange settlement balances by 50 basis points to 1.75%.

STOCK MARKET SECTORS:

- High: n/a

- Low: Real Estate, Financials, Industrials, Materials, Consumer Staples, Consumer Discretionary.

TOP CURRENCY & COMMODITIES MARKET DRIVERS: 

- EUR: The euro hovered near $1.02 in early August as investors tried to assess the economic outlook for further signs of a looming recession while adjusting bets on the ECB's next move. The eurozone grew 0.7% quarter-on-quarter in the second quarter, flash data showed, as France, Italy, and Spain posted impressive growth, while Germany's economy unexpectedly stagnated. In addition, inflation has yet to peak, hitting a new record of 8.9% in July, while PMIs show a broad contraction in manufacturing. The European Central Bank started raising rates last month and delivered a more-than-expected 50 basis point hike. Still, markets have started to lower expectations for a September hike due to recession fears.

- JPY: The yen appreciated more than 131 against the dollar to its highest level in two months, as weak U.S. economic data and a subdued outlook supported expectations that the Federal Reserve will need to slow the pace of future rate hikes. Safe-haven demand for the yen was also boosted by lower factory activity in other major economies and heightened tensions between the U.S. and China ahead of a visit by U.S. House Speaker Nancy Pelosi to Taiwan. In addition, several BOJ officials recently said that the central bank needs to withdraw from its massive stimulus program while maintaining the monetary environment that currently needs to be accommodative, as wages must catch up to stimulate consumption and help the Japanese economy recover. Meanwhile, Japanese Finance Minister Shunichi Suzuki said the yen fluctuated sharply and said he would carefully watch currency movements and their impact on the economy while coordinating with the Bank of Japan.

- USD: The U.S. dollar index was near 105 on Tuesday, hovering at its lowest level in four weeks. The increased risk of a U.S. recession supported the Federal Reserve's less aggressive monetary tightening measures in the coming months. The latest U.S. gross domestic product and manufacturing activity data pointed to weakness in the economy. At the same time, Friday's monthly jobs report is expected to show a slowing improvement in the labor market. Last week, the U.S. central bank raised its policy rate by 75 basis points, a widely expected move, and Federal Reserve Chairman Jerome Powell said the pace of rate increases could be slowed based on data flow.

CHART OF THE DAY:

The Australian dollar retreated from a six-week high to $0.695 on Tuesday after the Reserve Bank of Australia raised interest rates for a fourth straight month but tempered its guidance for future rate hikes amid expectations of a slowing economy. As widely expected, the RBA raised its cash rate by 50 basis points to 1.85 percent. Meanwhile, RBA governor Philip Lowe said that "the board expects to take further steps in the coming months to normalize monetary conditions, but this is not a pre-set path", echoing his earlier remarks In stark contrast, he has previously said the central bank intends to cut interest rates to a "neutral" level of at least 2.5%. The RBA also forecasts consumer price inflation to peak at around 7.75 percent in 2022, while economic growth this year is expected to be 3.25 percent, down from a previous forecast of 4.2 percent.

- AUDUSD - D1, Resistance around ~ 0.70392,  Support around  ~ 0.68346.

 

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