Headlines

* China export growth slows, imports plunge as recovery wanes

* Biden, Congressional leaders to meet on debt ceiling today

* Fed Survey: Banks tighten credit terms, see loan demand drop

* Dollar rises slightly, sterling hovers near one-year high

FX: USD edged higher in quiet trade to start the week. The 2-year yield moved up for a second day closing at 4%.  The 10-year yield closed higher for a third day after dipping to 3.29% last Thursday. The global gauge for borrowing costs closed at 3.51% yesterday.

EUR ended on its low at 1.10 and is down again this morning.  GBP popped up to a high of 1.2668. But cable also finished on its low at 1.2612 following the bank holiday. USD/JPY ended the day higher at 135.10. In choppy trading, Governor Ueda noted that inflation expectations have heightened and remained at elevated levels. AUD was up for a sixth straight day as it touched the 100-day SMA at 0.6788. The 200-day SMA should offer some support at 0.6725. This comes ahead of the Australian Budget which is likely to record the first surplus in 15 years. USD/CAD hit a low of 1.3314 before settling near its high at 1.3372. The major had plunged over 1.2% on Friday after strong Canadian jobs data.

Stocks: US equities were little changed in rangebound trade. An early rally in regional banking stocks faded. The Fed Lending survey warned of tighter lending standards this year. The benchmark S&P 500 closed marginally in the green. The tech-laden Nasdaq 100 added 0.25%. The Dow closed lower by 0.17%. US regional banking stocks couldn’t hold their gains. The index gave up an advance of 1.1% to slide 2.8%. The moves followed a rebound at the end of  last week for banking stocks.

Asian stocks were mixed following the indecisive lead from Wall Street. Focus was on mixed China trade figures.

US equity futures are rangebound and modestly in the red.  European equity futures are indicating a better open (+0.2%). The cash markets closed up by 0.2%.

Gold managed to close in the green after Friday’s selloff hit a low at $1999. Buyers are trying to push prices higher today towards $2032, even as yields move up.

Day Ahead –Market relief over SLOOS

Markets are ever-changing and that includes what has 15-minutes of fame. A big current theme is of course banking sector stress. Yesterday saw the release of the Fed’s Senior Loan Officer Opinion Survey (SLOOS) on bank lending practices. This is published quarterly and was the first such survey since regional bank failures began in early March. This has precipitated Fed rate cuts in the coming months, going against many Fed officials.

It’s obvious that credit standards are elevated and near their highs from Covid lockdowns. Demand was weak across all sectors as 500bps of rate hikes bite. The survey adds to the evidence that a recession is probably coming. But the report was clearly not as worrying as the market had feared. Stocks recovered quickly from an initial sharp move lower. Some are asking if last month’s banking concerns as simply due to tighter monetary policy. Others think lending will continue to contract which will see the jobless rate rise.

Chart of the Day – USD/CAD steadies after sharp drop

The loonie strengthened to a two-week high on Friday following stronger-than-expected jobs data. The CAD traded 1.2% higher versus the dollar on the day. The economy added 41,400 jobs, well above the estimate of 20,000. The jobless rate remained near a record low. It all points to resilience in the underlying economy and we saw a dialling back of rate cuts. The chances of a cut in October fell to around 30% from 70% pre-data.

USD/CAD tapped the halfway point of the August rally at 1.3352 yesterday. It sank to a low at 1.3314. But it eventually settled close to its high at 1.3387. CAD bulls will look to target the February bottom at 1.3262. That comes above the November cycle low at 1.3225. Initial resistance is the 200-day SMA at 1.3449.