U.S. Dollar Crushing Risk-Assets | Morning Express 08/22/2022
Posted: Aug. 22, 2022, 8:50 a.m.
USDCNH is breaking out and brings a direct headwind to commodities and risk-assets.
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- Do not miss our Top Things to Watch this Week, out every Sunday.
- U.S. Dollar is breaking out against the Chinese Yuan, chart highlighted above. This has a direct impact on commodities, especially metals.
- People’s Bank of China cut its one-year Loan Prime Rate by 5 basis points to 3.65%, in their first such move since January, and five-year by 15 basis points to 4.30%.
- Is it enough? A Bloomberg survey of 20 economists last Thursday showed a consensus expectation for a cut of the one-year LPR by 10 basis points.
- The maneuver by the PBoC comes after they cut both one-year and seven-year lending rates by 10 basis points last Monday, after the ugly slate of economic data.
- An ugly run. A souring Chinese economy has been building due to the country’s zero-virus policy and global economic slowdown. Data going back to August 12th showed a sharp unexpected drop in New Loans activity, 679 billion yuan versus 1,100 billion yuan.
- How much of an impact will rate cuts have if no one wants to lend or borrow?
- To make matters worse, electricity prices throughout Europe surged to start the week. German Baseload Power is up more than 25% on the day, after gaining 18% last week. It is not a coincidence heavy risk-off selling took place on the European open. Chart above.
- The economic calendar starts off slow this week, but we look to August flash PMIs from around the globe tomorrow.
- Jackson Hole begins Thursday along with the second look at U.S. Q2 GDP.
- Fed Chair Powell’s keynote speech is Friday 9:00 am CT.
- Earnings from Palo Alto Networks and Zoom Video are due after the bell today.
E-mini S&P (September) / NQ (September)
S&P, yesterday’s close: Settled at 4231.50, down 55.00 on Friday and 49.50 on the week
NQ, yesterday’s close: Settled at 12,268.50, down 254.75 on Friday and 309.25 on the week
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NQ (September)
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Crude Oil (October)
Yesterday’s close: Settled at 90.44, up 0.33 on Friday and down 1.02 on the week
- OPEC+ missed July output targets by 2.892 mbpd, this is 546% compliance.
- Iran Nuclear Deal front and center. Reports today point to both sides being close to an agreement with Al Jazeera saying it was “imminent”. However, Iran has accused the U.S. of slowing progress.
- We maintain a belief that an Iran Nuclear Deal will have a short-lived headline impact given how much of their Oil is already on the black market.
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Gold (December) / Silver (September)
Gold, yesterday’s close: Settled at 1762.9, down 8.3 on Friday and 52.6 on the week
Silver, yesterday’s close: Settled at 19.069, down 0.395 on Friday and 1.629 on the week
- U.S. Dollar strength, highlighted in the USDCNH above, as well as in the Dollar Index has weighed directly on the Gold and Silver.
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Silver (September)
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