China refutes phone calls to US, US treasury 10-year-2-year inversion deepest since 2007

View in PDF

China refutes phone calls to US on trade

Against the dollar, Thai baht on the previous trading day, still on a strengthening trend, closed around 30.59.

US-China tensions were not eased as expected since China refused President Trump’s claim that China phoned the US to resume trade talks, bolstering risk-off sentiments again.

Former New York Fed President Dudley discouraged rate cuts that could help Trump’s 2020 election, which would jeopardize Fed’s independence from politics. The Fed then declined the advice and said that Fed’s decisions are solely on economic expansion, price stabilization, and employment maximization.

Moody’s revised down the outlook of overall global investment banks (GIB), comprising Goldman Sachs, JPMorgan, HSBC, etc., from ‘positive’ to ‘stable’ as they have been increasingly exposed to mounting risks, such as slowing global economy and low or negative interest rates.

As the yuan has been weakening on the dollar for days on intensifying trade tensions, China’s PBoC set USDCNY reference rate quite below anticipation, 7.0835 referenced vs 7.1126 expected. This could help steady the yuan, which moved around 7.1575 this morning, down from 7.1623 yesterday.

Japanese Economy Ministry said that Japan and the US have agreed in principle to key components of their trade deal and soothed car companies’ concerns.

Germany’s finalized Q2 GDP growth was -0.1% qoq and 0.4% yoy that is lowest since 2013, mainly on collapse of exports, heightening market recession fears.

Asian countries, including Hong Kong, Indonesia, Thailand, and South Korea, are arranging fiscal stimulus packages in order to buffer against their economic sluggishness and damages from US-China retaliatory tariffs. Hong Kong: USD 2.4 billion stimulus (15 Aug), Indonesia: USD 178 billion 2020 budget (16 Aug), Thailand: USD 10.3 billion stimulus (20 Aug), and South Korea: USD 421 billion budget (23 Aug).

Moving around 30.63-30.68 his morning, USDTHB could be between 30.61-30.71 today.

 

US treasury 10-year-2-year inverts, deepest since 2007

Thai benchmark government bond yield (LB28DA, 9.3 years) on the previous trading day was 1.46, -0.2 bps. Meantime, the latest closed Thai and US 10-year bond yields were 1.46%, -0.1 bps, and 1.49%, -5 bps, respectively.

Since US-China situations were not relieved as previously perceived, US treasury yields, especially medium- to long-dated, dropped. US 10-year fell beyond 2-year yield by -4 bps, deepest since 2007. Such attention-grabbing yield curve inversion, which is viewed as a predictive downturn signal, amplified investors’ recession anxiety.

Spread between long- and short-dated yields: negativity implies a possible upcoming recession. US 10y3m: -49 bps, US 10y2y: -4 bps, Japan 10y2y: +3.4 bps, German 10y2y: +19.3. bps, UK 10y2y: +11.8, Thai 10y2y: +4.4 bps.

Thai benchmark government bond yield (LB28DA, 9.3 years) could be between 1.41-1.46% today on downward pressures.

 

Sources: Bangkokbiznews, BBC, Bloomberg, CNBC, CNN, Financial Times, ING, Investing.com, Reuters, South China Morning Post

Back