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Chinese onshore yuan sees weakest daily close against the dollar in two years USD/CNY closes the domestic session at 6.6854, its highest since 27 August 2020

  
Analysis, Forex

It isn’t very much talked about in the context of broader markets this week but the latest weakening in the Chinese yuan is arguably one of the more significant developments in FX at the moment. The PBOC already teed up the move at the end of last week and whatever the case may be, it is a notable tailwind for the dollar to move higher.

Nord Stream 1 won’t be shutting down for 3-day maintenance after all (update: not so fast)

  
  Analysis

TTF European benchmark natural gas prices are down after a Nord Stream announced it won’t be conducting a three-day maintenance shutdown at month end. The shutdown was announced on the weekend and led to yesterday’s spike in TTF prices and decline in the euro to the worst since 2002.

Nord Stream now says it won’t be carrying out the maintenance at the Portovaya offshore compressor station because it lies outside of the responsibility zone of Nord Stream.

That sounds like quite the SNAFU and also like Gazprom (and Russia) were playing games, but that’s nothing new.

TTF gas prices daily

Update: On a second read of this, some traders are informing me that what Nord Stream is saying is that it won’t be the one doing the maintenance but the work will still go ahead. Though it’s not clear who will be doing it (Gazprom?) or necessarily when. The whole thing adds a new complication.

Eurozone August flash services PMI 50.2 vs 50.5 expected

  
Analysis, Economy
  • Prior 51.2
  • Manufacturing PMI 49.7 vs 49.0 expected
  • Prior 49.8
  • Composite PMI 49.2 vs 49.0 expected
  • Prior 49.9

The manufacturing print beat estimates but still dropped to a 26-month low, while the services print continues to highlight a further decline in demand conditions – falling to a 17-month low. Meanwhile, the composite reading was slightly better than expected but still reflected a decline to a 18-month low. That signals a deeper contraction in the euro area economy in August than in July.

All in all, this points to a contraction in Q3 output and with services activity suffering already suffering ahead of the winter months, the outlook is rather bleak to say the least. S&P Global notes that:

“The latest PMI data for the eurozone point to an economy in contraction during the third quarter of the year. Cost of living pressures mean that the recovery in the service sector following the lifting of pandemic restrictions has ebbed away, while manufacturing remained mired in contraction in August, seeing another record accumulation of stocks of finished goods as firms were unable to shift products in a falling demand environment. This glut of inventories suggests little prospect of an improvement in manufacturing production any time soon.

“Declining output is now being seen across a range of sectors, from basic materials and autos firms through to tourism and real estate companies as economic weakness becomes more broad based in nature.

“The rebuilding of workforces following the pandemic is also losing steam, with firms increasingly reluctant to hire additional staff given falling new orders and relatively weak business sentiment.

“Businesses are at least continuing to see weaker rises in their costs, in turn increasing their selling prices at a softer pace. This should help to feed through to slower consumer price inflation later in the year, although it appears that any alleviation to the inflation situation is coming too late to provide any real support to demand. The remainder of 2022 is therefore looking to be one of struggle for firms across the eurozone.”

US Indices close sharply lower.

  
Analysis, US Market
  • Dow industrial average is closing down one 643.15 points or -1.91% at 33063.62-
  • S&P index is down -90.49 points or -2.14% at 4138.00
  • NASDAQ index is modestly in 23.63 points or -2.55% at 12381.58
  • Russell 2000 is down -41.60 points or -2.13% at 1915.74

All 11 sectors of the S&P move to the downside. The weakest included:

  • consumer discretionary’s, -224%
  • information technology, -2.78%
  • communication services -2.66%

The best of the worst included:

  • energy -0.25%
  • consumer Staples -1.11%
  • healthcare -1.38%

Leading the downside:

  • Intel, -4.35%
  • Salesforce, -3.64%
  • Disney, -3.46%
  • Microsoft, -2.94%

The best of the worst Dow stocks include:

  • P&G, -0.24%
  • J & J, -0.34%
  • Chevron, -0.44%
  • Verizon, -0.56%

OPEC+ reportedly miss output target by 2.9 mil bpd in July Reuters reports, citing two sources from the bloc

  
  Analysis

It is being reported that sanctions on some members and low investment by others hindered the bloc from producing as it should. For some context, the compliance with production targets stood at 546% in July – that compares with 320% in June.

In other words, OPEC+ is producing nowhere near their output targets (which have been increased over the course of the year) and even with Saudi Arabia and UAE believed to be the only ones with spare capacity, they aren’t pressing the pumps either. As a reminder, the bloc agreed to increase its output target by 100k bpd for September in what was a rather trivial gesture.

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