Replacing the TRY for another risk barometer means focus on CNY, JPY and CHF and their crosses. The relationship of Japan to China and investments abroad maybe the issue that captures forex risks driving other money flows in bonds and stocks, writes Bob Savage Monday.
There is positive divergence this Monday as markets expect little for the week in terms of economic news or big decisions. The focus is on central bankers with their minutes and their speeches going into the Fed Jackson Hole Symposium.
This means that the news behind the news drives markets and there was plenty of it last night – here is a partial list to get you going as Monday starts early.
Note that Turkey which has been the headline risk barometer for the last two weeks is on holiday all this week. This passes the baton of fear to other stories.
• Shots were fired at the U.S. embassy in Ankara – U.S. dollar/Turkish lira (USD/TRY) is higher – back over 6 – with focus on US new sanctions and escalation in the battle over the U.S, pastor release and Turkish bank fines. Also, Moody’s and S&P cut Turkish debt 1 notch – as most expected on Friday.
• China and the U.S. trade talks start Wednesday with path to Xi/Trump meeting in November.
• China shadow banking continues to shrink, according to Moody’s. Shadow banking assets as a share of GDP dropping to around 73% at the end of June 2018 from 79% at the end of 2017 and the peak of 87% at the end of 2016. In absolute terms, shadow banking assets fell by RMB2.7 trillion in the first six months of 2018 to RMB62.9 trillion. “We expect the contraction in shadow banking assets to moderate in the rest of 2018, as regulators are taking a more gradualist approach in response to slower domestic credit growth and a more challenging external environment,” noted Michael Taylor, a Moody's chief credit officer for Asia Pacific.
• Italy plans to roll out a new infrastructure package in September. After the tragic Genoa bridge collapse the new government plans to spend E80 billion on better infrastructure. The plan is to invoke the “golden rule” which removes public investments from the budget deficit – used by the UK Brown previously – seen as smashing of EU rules.
• Oil markets focus on OPEC production as Iran reiterated that “no member country should be allowed to take over another member’s share of oil exports.” This also comes at a time when questions continue to swirl regarding the stability of Libyan oil production.
• Merkel and Putin discuss Syria and Ukraine. The push of Putin to normalize relations with Germany is seen as taking an opportunity caused from U.S. trade and foreign policy disruptions. The Kremlin said the pair discussed the transit of gas to Europe from Russia, the conflicts in Ukraine and Syria, the Iran nuclear deal and the consequences of the U.S. administration’s trade and economic policies for third countries.
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