Yuan weakness leaves PBOC little room for manoeuvre

Asia-Pacific equity markets

Equity markets were mixed in the Asia-Pacific region on Monday. Hong Kong's Hang Seng was the worst performer as the People's Bank of China (PBOC) cut the 1-year Loan Prime Rate (LPR) by 10 basis points to 3.45%. for the 5-year LPR, the PBOC decided to keep it at 4.2%. After a reduction of the medium-term loan facility rate by 15 basis points last week, the market expected the People's Bank of China to do the same with loan prime rates this Monday.

This decision highlights the economic conundrum Chinese authorities are facing. On the one hand, it needs to do something about its declining growth trend and stimulate weakened demand in the country. But on the other hand, the Yuan has been on a downward trend since the start of the year, and any further easing would trigger further selloffs.

German producer price index

In Germany, the latest producer price index, measuring the average change in the price of goods sold by manufacturers, fell further in July and more than anticipated. -1.1% compared to June and -6% on an annual basis.

Macroeconomic indicators

Among the macroeconomic indicators expected this week, we will be keeping an eye tomorrow on the UK government's public sector borrowing figures and US existing home sales. We also have a busy day Wednesday on the purchasing managers (PM) front with flash data on how manufacturing and services have been doing in the Eurozone, UK, and US. Then on Thursday, US durable goods orders and initial jobless claims will be released, so we will get a good gauge of how the US jobs market is doing.

On Friday, we get an insight into consumer confidence in the UK and the business climate in Germany. Europe's first economy will also share its final reading of the GDP growth rate. The first, or advanced, estimate released at the end of July showed that real GDP in Q2 grew at an annual rate of 2.4% in the second quarter of this year.

US Federal Reserve

After recording a fifth straight week of gains, the USD was little changed on Monday as traders awaited the Jackson Hole Symposium, certainly the biggest macroeconomic event this week. Running from Thursday to Saturday, the annual central bankers' symposium in Wyoming is hosted by the US Federal Reserve, and the bank's chair, Jerome Powell, will be speaking at the event. The markets will be looking for hints on the trajectory of interest rates, inflation, the economy, and anything else the central banking cohort decides to discuss in the coming days.

Zoom

On the equity markets, Zoom is expected to report Q2 earnings after the US closing bell. The Street expects earnings of $1.06 per share, which is one cent more than the same quarter a year ago. Revenue should come in at $1.11 billion. Zoom is one of the companies that benefited the most from the pandemic. Its technology allowed friends and families to stay in close contact and companies around the world to resume work remotely.

This couldn't last, and Zoom has so far failed to find alternatives to boost its profits. Even Zoom itself seems not to believe in remote working anymore. A couple of weeks ago, the group announced it had ordered workers to go back to the office.

Other earnings

Other earnings are expected throughout the week. It will be another important week for the retail sector, with reports from Urban Outfitters on Tuesday, followed by Foot Locker and Abercrombie & Fitch on Wednesday, and Dollar Tree and Gap on Thursday.

NVIDIA

But the real interest will be in the retail sector. NVIDIA reports on Wednesday evening, and the question is: can NVIDIA beat earnings expectations for a third time? NVIDIA is one of Wall Street's favourites since it has been surfing the wave ahead all its competitors. Earnings per share are expected to come in at $2.07 per share on $11.07 billion in revenue.

To understand how artificial intelligence is a game changer for NVIDIA, you just need to have a look at its quarterly report from a year ago: it then posted earnings of 58 cents per share, roughly a quarter of what it is forecast to post on Wednesday. and revenue came in at $5.93 billion.