Ella 
The People’s Bank of China unexpectedly lowered its key monetary policy rate this morning amid uncertainty over China’s economic outlook. The yuan weakened after the rate cut. In addition, Chinese economic data (industrial production and retail sales) released this morning also showed weakness in the Chinese economy.
The Argentine peso and the Russian ruble came under intense pressure yesterday. The peso came under pressure after an outside candidate promising to overhaul Argentina’s monetary and financial policy won a primary election. Argentina’s central bank devalued its currency by 18% and raised interest rates from 97% to 118%.
The ruble was also under pressure, trading above 100 per dollar. The Central Bank of Russia is holding an emergency meeting.
STOCKS: Stocks edged higher on Monday with little news. Renewed concerns about China’s property sector spilled over into European markets, but U.S. stocks rebounded after the open (S&P 0.6%, Nasdaq 1.1%, Stoxx 600 0.2%). Cyclicals beat defensives, but it was all thanks to big tech stocks. Beyond that, there was fairly little variation across sectors yesterday, save for European materials stocks which were weak amid China concerns. Chinese stocks continued to fall today, down around -1%, while Japanese stocks rose on the back of the macroeconomic backdrop. U.S. and European futures also showed a positive start.
Fixed income: Global bond yields rose modestly, with 10-year US Treasuries up about 3-4 basis points and 10-year German bunds up 2-3 basis points. The rise was on the back of possible stricter regulatory/policy actions by Chinese regulators to curb rising risks in China’s financial and real estate markets. However, that risk is usually quite deflationary, so we should also see a reversal after the PBOC eased monetary policy this morning. The focus this week should be primarily on Wednesday’s FOMC minutes and speeches from Fed Governor Kashkari.
FX: In yesterday’s relatively quiet market, the US dollar was at the forefront relative to other G10 currencies. Both EUR/USD and USD/JPY reached levels not seen in a while. USD/JPY climbed steadily above 145 for the first time since November. EUR/USD tested the 1.09 level for the first time in over a month.
Credit: Credit markets were mostly sideways yesterday due to relatively thin liquidity. Potential support from a less hawkish CB appears to be somewhat offset by renewed focus on problems in China’s property sector and their potential spillover effects on the broader economy. The ITraxx index narrowed 0.1 basis points to 71.6 basis points, while the Xover index narrowed 0.3 basis points to 404bp. The primary market remains sluggish.
