China surprised by cutting its one-year medium-term lending facility (MLF) rates by 15bp to 2.50% today to give a jolt to its economy but Chinese equities remain under pressure, the Chinese yuan fell to the lowest levels against the US dollar since last November, and crude oil stagnates around the $82.50pb.

Elsewhere, Argentina devaluated its currency by 18% to 350 per dollar, the dollar ruble traded past the 100 mark for the first time since Russia invaded Ukraine and the Indian rupee traded near record, as well. All that helped the US dollar index shortly trade above its 200-DMA yesterday, a day before the release of the FOMC minutes.

Today, investors will focus on the US Empire manufacturing index and the retail sales data, and earnings from Home Depot will also hit the wire.
The S&P500 recovered yesterday, as Nasdaq 100 advanced more than 1% with technology stocks leading the rebound. Nvidia was one of the best performers with a 7% jump after a Morgan Stanley analyst reiterated his $500 per share price target yesterday. But Tesla didn’t benefit from the tech rally of yesterday and closed the session below $240 per share after cutting its car prices in China, yet again.

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The week starts on a bad mood as the Chinese property worries escalate with Country Garden suspending almost a dozen of onshore bonds starting from today. Plus, Zhongzhi Enterprise Group, which has around 1 trillion yuan under management failed on its payments linked to products issued by its companies last Friday, further fueling the stress among investors.

American crude is under pressure around $85/82.50, the MACD indicator just turned bearish hinting that we could see some more downside correction in case of weak news this week.

Some easing in energy and metal prices could be a good thing, as Friday’s producer price index in the US came in stronger than expected, both for the headline and the core metrics. The USD gained, the EURUSD slipped below its 50-DMA on the back of a stronger US dollar and the USDJPY is about to test the 145 mark. Gold remains under the pressure of rising yields and a stronger US dollar across the board.

This week, investors’ focus will shift to US retail sales and earnings from US big retailers, including Walmart, Target and Home Depot. Strong sales data and encouraging earnings could halt bleeding in US stocks, where both the S&P500 and Nasdaq posted their second straight weekly decline last week.

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Released yesterday, the latest CPI data showed that the headline inflation in the US ticked higher from 3 to 3.2%. That was slightly lower than the 3.3% penciled in by analysts, core inflation eased to 4.7% in July from 4.8% expected by analysts and printed a month earlier.

Today, eyes will be on the July PPI figures before the weekly closing bell, where core PPI is seen further easing, but headline PPI may have ticked higher to 0.7% on monthly basis, probably on higher energy, crop and food prices.

Yesterday’s slightly softer-than-expected inflation numbers and the initial jobless claims which printed almost 250K new applications last week - the highest in a month - sent the probability of a September pause to above 90%, though the US 2-year yield advanced past the 4.85% level, and the longer-terms yields rose with a weak 30-year bond action, which saw the highest yield since 2011.

Major stock indices stagnated.

The USD index consolidates above the 50 and 100-DMAs while the EURUSD sees support at the 50-DMA, near the 1.0960 level, and could benefit from further weakness in the US dollar to attempt another rise above the 1.10 mark.

European nat gas futures fell 7% yesterday after a 28% spiked on Wednesday on concerns that strikes at major export facilities in Australia could lead to a 10% decline in global LNG exports, while the escalating property crisis in China weighs on investor sentiment, as major Chinese indices, including technology stocks are down, except for Alibaba.

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US equities fell, while yields pushed higher in the run up to today’s most important US inflation data. Inflation in the US is expected to have rebounded from 3 to 3.3% in July and core inflation may have steadied at around 4.8%. Any bad surprise on the inflation front could revive the Federal Reserve hawks, but we are far from pricing another hike in September just yet; activity on Fed funds futures assesses more than 85% chance for pause in September FOMC meeting. Rising oil, crop and rice prices are the major upside risks, while potential downside pressure on shelter could counter higher raw material prices.

The idea of further Fed hikes is not helping sentiment in bond markets, especially since Fitch downgraded the U.S. credit rating from AAA to AA+. Moody’s downgraded credit ratings for 10 small and midsize US banks, citing higher funding costs, potential regulatory capital weaknesses and risks tied to commercial real estate loans. And speaking of banks, Italian banks also sold off earlier this week on news of a new windfall tax. The latter triggered some risk averse inflows into bonds until Italy issued a clarification of its new tax on banks’ windfall profits, saying that the impact may be limited for some banks and the levy won’t exceed 0.1% of a firm’s assets.

The U.S. 2-year yield rebounded past 4.80%, while the 10-year yield is back to around%, after a spike to 4.20% on Fitch downgrade.

In China, slow imports-exports, deflation and property crisis counterweight stimulus news led rally.

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