Key News
* India’s Growth Accelerates for First Time Since 2007 (Bloomberg)
* German First-Half Rail Cargo Traffic Declines Most on Record (Bloomberg)
* Japan DPJ Election Win Brings ‘Bloodless Revolution’ (Bloomberg)
* Canada to Sell Debt as Spreads Fall to Lowest in Year (Bloomberg)
*China’s Stocks Slump Most Since June 2008, Cap Monthly Loss (Bloomberg)
The Event Agenda
The Morning Run-Down
Chinese stocks took another dive overnight. The 6.7% decline puts global risk appetite on unstable footing. As a result, crude is down 3%, U.S. stocks are down over 1%, U.S. Treasuries are up and the dollar is doing better against commodity currencies, weaker against the yen. Stock market and currency market implied volatilities are jumping this morning—a sign of fear creeping back in.
Canada announced on Friday that it would be issuing U.S. dollar denominated bonds. That’s the first foreign currency denominated bond issuance in Canada in over a decade. That puts upward pressure on USD/CAD. The USD/CAD pair is getting further support this morning from the disappointing Canadian GDP numbers and the pressure on risk appetite from lower global stocks (especially China).
Japan’s elections over the weekend did not surprise. The power shift from the incumbent Liberal Democratic Party (LDP) to the Democratic Party of Japan was expected. USD/JPY traded lower initially, but fully retraced the move and is now trading lower on the generally weaker risk appetite environment.
The Reserve Bank of Australia meets tomorrow to set interest rates. While many expect Australia to move first on rates, there should be no change tomorrow. The commentary surrounding the interest rate decision should be watched carefully. The RBA has been optimistic throughout much of the global economic downturn and has made clear indications that they will be moving rates higher sooner rather than later. The Aussie dollar is down about ½% this morning on the sell-off in Chinese stocks.
Key Charts
I showed you this chart on Tuesday last week. With the slide overnight in China, here is an updated look. Look for this divergence between the S&P 500 and the Shanghai Composite to converge. Vulnerability= lower.
