Chinese equities rallied, when trade numbers indicated a higher level of activity than expected for July against this credit supply was lower with total social financing dropping to 10.3% YoY. Evergrande, an embattled construction conglomerate, got official permission to restructure its debt leading the market to price in 75% haircut in its bonds. This negative shift in valuations, removes a large unknown and will allow restructuring to proceed in an orderly manner.
Metals rallied as a coup in Guinea led to a surge in Aluminium prices. Overall commodity indices did rise but energy less so and softs traded lower.
The ECB’s Thursday meeting was notable for its dovish taper. Bond markets initially sold off on expectations of a sizeable ECB tapering, but duly rallied back as the dovish details, of a suggested small reduction to between 60-70b euros per month (80b prev.) sunk in and managers scrambled for duration. The BoC meeting lacked any change or surprise.
The Bank of Canada kept its policy rates unchanged, at +0.25% (0.25% exp., 0.25% prev.) and recent soft GDP numbers only generated limited concern. The Banks’ focus now seems to be the “absorption of economic slack”, that is jobs. Both full time and part time employment increased but the participation rate declined which led to a decline in the unemployment rate to +7.1% (7.2% exp., 7.5% prev.)
Job openings increased and jobless claims dropped more than expected, although there was suspicion that hurricane Ida prevented fillings.
The ECB kept its policy rate unchanged, with the refi-rate at +0.0% (0.0% exp., 0.0% prev.) and the depo-rate at -0.5% (-0.5% exp., -0.5% prev.). The main excitement was a reduction in the current pace of the PEPP. This reduction was delivered in a very dovish manner with the odd cliché thrown in to make the point. French 2Q payrolls beat expectations at +1.1% (1.0% exp., 0.3% prev.). Production measures were expansionary but mixed, with Industrial printing +0.3% MoM (0.4% exp., 0.5% prev.) manufacturing printing +0.6% MoM (0.2% exp., 0.9% prev.) German data beat expectations for factory orders +3.4% MoM (-0.7% exp., 4.1% prev.) and industrial production +1.0% MoM (0.8% exp., -1.3% prev., although the ZEW survey declined in expectations and current situation. Italian retail sales declined more than expected -0.4% MoM (-0.2% exp., 0.7% prev.) however industrial production was very strong +0.8% MoM (-0.1% exp., 1.0% prev.)
Norwegian Industrial and manufacturing production weakened. Core CPI, which had been running at 3.7% YoY in Aug-2020, declined to -0.6% MoM (-0.5% exp., 0.6% prev.) and 1.0% YoY (1.1% exp., 1.1% prev.) Swedish household consumption increased by +0.7% MoM (0.5% prev.) with the focus switching to services. Industrial orders declined by -1.4% MoM (1.1% prev.) in line with recent PMIs
Bank Lending was positive +0.6% YoY (1.0% prev.) and household spending was positive, but less than expected at +0.7% YoY (2.4% exp., -5.1% prev.)
Monthly GDP, despite its volatility, disappointed the market printing +3.6% (3M/3M) (3.8% exp., 4.8% prev.) Production measures were positive, neutral and negative for industrial, manufacturing and construction respectively.
The RBA kept its policy rates unchanged, at +0.1% (0.1% exp., 0.1% prev.) but did make a change to the QE program from A$5bln/week to A$4bln/week with the dovish indication that this would remain unchanged until the February meeting.
Card spending dropped, as expected form the recent lockdown, but good news came from a decrease in Covid cases.