Asian markets follow heavy declines in US

Summary:

• Equity markets in Asia fall after significant losses in the US caused, to some extent, by a sell-off of EM currencies
• Mixed soft indicators from the Australian economy for July, Chinese central bank keeps devaluing CNY
• A date for the confidence motion in Italy should be set this afternoon

Bloody start to new week

The first trading day this week brought severe declines across global equity markets with Wall Street falling more than 1%. The falls were, in part, caused by a heavy sell-off in emerging market currencies after the Argentine peso tumbled on presidential pre-elections results held over the past weekend. The scale of this carnage in the Argentina’s stock market could well be outlined by the fact that the country’s index (in US dollar terms) saw the second largest one-day decline in 70 years. As a result, a bearish wave swept down through other EM currencies such as the South African rand and the Mexican peso offering market participants another reason to worry about (a possible collapse the Argentine economy). In response to a risk-off mode, the US 10Y bond yield saw a retreat from above 1.74% at the end of trading on Friday to below 1.64% at the time of preparing this commentary.

The Hang Seng has almost touched its lowest level this year. Once the price moves successfully through the 61.8% retracement, it may have the open way at least to 9100 points. Source: xStation5

Mixed Australian indices, PBoC pushes CNY lower

Gloomy mood is also seen in Asian markets where the Hang Seng has performed the worst so far losing 1.3%. In terms of macroeconomic releases we got overnight, it is worth mentioning soft indicators from Australia from the NAB. The first one, concerning business conditions, declined to 2 from upwardly revised 4, while the second one, regarding business confidence, rose to 4 from 2. The data may have helped the Aussie to some extent during Asian hours trading. The Antipodean currency is the second best in the G10 basket right behind the greenback. On top of that, let us note that the People’s Bank of China chose to set the USDCNY reference point higher once again (7.0326 vs. 7.0211 yesterday), the rate has already reached its highest level since March 2008. Along with this decision, the PBoC injected as many as 60 billion yuan liquidity via 7-day reverse repo agreements (it was the net injection given that no repos took place).

Soft indicators from Australia turned out to be mixed, on balance, they may have shored up the lately beleaguered Aussie. Source: Macrobond, XTB Research

In the other news:

• A date regarding the confidence vote for the Italian government should be set this afternoon with a session beginning at 5 pm BST

• Japanese PPI for July declined 0.6% YoY after falling 0.1% YoY in June

• Singapore's economy contracted 3.3% QoQ (annualized), below the expected 2.9% QoQ contraction