Market Report:
📉 Is China becoming a buyer country like the US?
Export growth slowed to 7% YoY in July, missing forecasts and marking the slowest pace in 3 months. This adds to concerns about pressure on China’s manufacturing sector. Imports grew a stronger-than-expected 7.2% YoY, driven by a rush by Chinese firms to stockpile semiconductors ahead of expected new US tech restrictions. External demand faces challenges from Western tariffs on Chinese goods and a global economic slowdown, weighing on the outlook for exports. The sell-off in markets this week amid US recession fears adds uncertainty, and exporters face pressure from lower prices and fierce competition in industries shifting production abroad.
📊 As promised in the previous report, fears of a faster than expected recession in the US are beginning to emerge. Believe it or not, this is the trigger for the movements in Japan in the early hours of Monday morning.
📉 Job growth slowed sharply in recent months and the unemployment rate rose to a post-pandemic high of 4.3%. The rise in unemployment aligns with the “Sahm rule” that typically precedes recessions. While growth has held up, the job market deterioration and downside surprises suggest the Fed’s soft landing may be out of reach and a recession cannot be ruled out based on recent data. The Fed still has room to cut rates but fiscal response options are more limited.
💱 Additionally, traders are still worried about how much longer the yen carry trade unwinding will take. Since July, the USDJPY has fallen by more than 12%.
🛢️ Low oil prices despite geopolitical tensions in the Middle East could be explained by Canada’s increased exports. Canada recorded a surprise trade surplus of C$638 million in June, led by a jump in crude oil exports from the expanded Trans Mountain Pipeline and higher gold exports. Energy product exports jumped 11.7% on higher crude oil volumes and prices, while metal/non-metal exports rose 11.8% on gold. The data suggests Canada’s exports are benefiting from new pipeline capacity unlocking Asian markets for crude producers.
📈 However, since 2021, the trend of the dollar against the Canadian has been clearly bullish, and the charts are showing a powerful figure, which indicates that, if the USDCAD passes 1.40, it could shoot up to the next high of 1.4630.
📈 Market View:
📉 Markets seem to be calming down after Monday’s panic. SP500 futures are approaching a key barrier at 5350, which was a major resistance in the spring of this year. Likewise, the Nasdaq 100 will have to break above the 18,500 level, currently climbing to 18,320. More worrying is the case for the rest of the non-tech equities, the Russell 2000 barely recovered a few points after the falls, but remains above 2000 points, which could serve as an important support.
💵 The DXY dollar index shows a calmer dollar in recent hours, but still below 104 points at 103.20 at the moment. This makes it easier for the EURUSD not to lose 1.09, but the charts indicate that this is likely to be the case as the dollar advances.
📈 US bonds normalise. The 2 year bond is already at 4% yield, which would show an easing of the panic we experienced on Monday that pushed safe haven bond demand.
📈 European markets are also trying to recover from the falls. The Dax 40 is advancing towards 17600 points, but seems to be lagging behind the US markets, and will certainly face a major challenge when it reaches 18,000 – 18,200 points.
