Morning Brew August 21 2023

Good Morning,

Major US stock indexes moved minutely to lose within a quarter percent from the previous day and ended the week down 2.2% -2.6%. US 10 Year yields are testing recent highs and are trading at 4.30.

The USD Index finds little inspiration from the higher Yields and remains stuck at 103.40 Gold falls to 1888 while Silver remains at 22.80.

China was less supportive of the economy than expected, it left the 5 year rate in place and lowered the 1 year only by 0.1%. This causes chinese shares fall to a 9 month low. the weak yuan is seen as the cause of the cautious move, the Yuan has already shed 5% this year. 

Our APAC Strats team put together a great compilation of the key matters this week. WE are expecting few key economic datapoints but a series of rather important events that have the potential to make or break the week.

https://www.home.saxo/content/articles/macro/saxo-spotlight--global-market-sentiment-shaped-by-jackson-hole-symposium-21082023

BRICS Summit

Japan Inflation

Nvidi, Baidi and Meituan earnigs

Jackson Hole Conference

Our Stategist Redmond Wong discusses the possibility of a paradigm shift in the Feds policy in an article titled Macro Update: Ceasing Interest Payments on Reserve Balances in a Fiscal Dominance Regime :

Should the Fed proceed with maintaining a zero reserve requirement while discontinuing interest payments on reserves, a cascade of consequences could unfold. Banks may be compelled to withdraw a substantial portion, if not the entirety, of their reserve balances held with the Fed. This exodus could entail a redirection towards investing in Treasury securities and other financial instruments that promise interest-bearing returns. Consequently, Treasury securities, including T-bills, would become an attractive option, potentially incurring costs for the fiscal authority.

It's imperative to recognize that the imposition of non-zero required reserve ratios coupled with the cessation of interest payments on reserve balances would effectively translate into a tax on banks, thereby chipping away at their profitability. The magnitude of this tax burden would likely amplify should the Fed simultaneously exhibit tolerance for higher long-term inflation rates.

Key events of the week:

Monday August 21

Data:  China 1 and 5 year Rates

Earnings Postal Savings Bank of China

Tuesday August 22

Start: BRICS Summit

Data: Norway GDP Growth, US existing Home sales

Earnings Baidu Inc, Lowe's Cos

 Wednesday August 23

Data: Japan PMI, Denmark consumer confidence, FR DE, EU PMI, EU Consumer confidence

Earnings China Construction Bank, China Life Insurance ,Analog Devices Inc, NVIDIA Corp

Thursday August 24
Start: The 2023 Economic Policy Symposium in Jackson Hole  "Structural Shifts in the Global Economy," Aug. 24-26.

Data: Turkey Rate decision, US Durable Goods orders, Initial jobless claims

Earnings CRH PLC, AIA Group, Toronto-Dominion, Workday Inc, Marvell Technology, Royal Bank of Canada

Friday August 25

Data: Japan CPI; PPI, DE GDP & IFO, University of Michigan

Earnings: China Merchants Bank China Petroleum & Chemical Zijin Mining Group