US yields surge, Saudi Arabia may stem oil rout

Summary:

  • There has been a significant turnaround in market sentiment in recent hours, US bond yields have pushed higher as a result
  • Saudi Arabia mulls over stemming a rout in the oil market driven mostly by the worsening US-China trade war
  • Chinese foreign trade data surprised to the upside, imports from US tumbled

Sentiment improvement

Equity investors saw a massive turnaround in market sentiment yesterday afternoon in the US markets. As a result, the SP500 managed to recoup its 2% loss and closed the day 0.1% above the flat line. The Dow Jones lost 0.1% while the NASDAQ gained as much as 0.4%. A truly impressive retreat was seen in the bond market with the US 10Y bond yield surging from 1.6% to above 1.74% (now it is trading at 1.722%) and this optimistic sentiment has also been seen in Asia where the Shanghai Composite is leading the gains and adding 1.1%. On top of that, investors were also reassured after the PBoC set the USDCNY reference point at 7.0039, below the expected value, signalling it does not want to use its currency as a way to offset upcoming duties from the United States. In response to the new reference point, we saw a substantial reversal in the USDCNH falling from above 7.10 toward 7.0650 (now it is trading slightly above 7.07).

The NASDAQ managed to stay above its pivotal upward trend line and it seems that it may head higher in the near term. Source: xStation5

Saudi guards oil market

We have seen a decent 3% rebound in oil prices in response to the news brought by Bloomberg that Saudi Arabia contacted other producers to discuss options to stem a rout driven by the worsening US-China trade war. “Saudi Arabia won’t tolerate continued price weakness and is considering all options,” according to an official from Saudi Arabia. In fact, oil prices plummeted on Thursday last week after US President Donald Trump announced the US would hit China with fresh tariffs effective on September 1. Since then, we have not had many downbeat information justifying such a deep pullback in prices, hence Saudi Arabia might be right that the recent weakness has mostly been caused by deteriorating market sentiment. Let us notice that this communique came several hours after the DoE data showed a surprising build in US inventories, the first one in eight weeks.

Brent oil prices have bounced off $56 and moved toward $58 in the wake of the above-mentioned news. The first more notable resistance can be localized nearby $60. Source: xStation5

Chinese foreign trade data

Last but not least, China released its foreign trade data for July showing better than expected values in general. In dollar terms, exports increased 3.3% YoY, while imports slid 5.6% YoY, leaving a trade surplus of $45.1 billion. Expectations had called for a 1% YoY decline in exports and a 9% YoY decline in imports. Focusing on the twelve month rolling sums and annual growth rates between them one may notice that imports from the US deteriorated to -22.5%, compared to -20.3% in the previous month. In turn, a trade surplus with the US slightly reduced to $28 billion, compared to $29.9 billion. The data have yet to reflect the effect of the lately announced tariffs. Looking forward, one may expect a bounce in Chinese exports to the US in August as US companies may ramp up purchases ahead of the new tariffs coming into effect in September. 

In the other news:

  • RBNZ’s Orr reiterated that negative rates were within the realm of possibility 

  • Japanese current account surplus for June came in at 1211.2 billion JPY, the consensus had called for a 1148.8 billion JPY surplus

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