China pulls down everything
August 15, 2022
–CLU2 once again near recent lows at 88.20 this morning, down 3.89 as China’s weakening economic data caused a sharp and broad-based commodity slump. Just over one month ago, CLU2 was over 115. Sept Copper is 3.56, representing a sharp pullback from the rally over the past month. Continued real estate end covid problems in China led to softer than expected economic data and a surprise rate cut by the PBOC which lowered “…the rate on 400 billion yuan of one-year medium-term lending facility loans to some financial institutions by 10 bps to 2.75% from 2.85%.” (RTRS). Industrial Production and Retail Sales both missed and credit demand is weakening. Small rate cut, but likely a signal of more to come. US stocks slightly lower, gold off $20, grains hammered. China’s ten-yr is 2.66%, testing the year’s low set in January. It was 7 years ago in August of 2015 that China surprised by devaluing the yuan.
–US curve flattened Friday with reds down a bit more than 5 bps and golds up just over 5 bps. Tens and bonds had tight ranges with a slight bias toward lower yields, with the ten-year yield ending at 2.85%. ED 1-yr calendar spreads from the middle of next year to 2024 remain severely inverted and are pressing new lows this morning. On Friday, EDM3/M4 settled -79 (lowest on the strip). EDU3/U4 -69.5 and EDZ3/Z4 -59.0 (new lows).
