SignalPlus Macro Research Report(20230809): Fixed income market rallies significantly worldwide.

Yesterday, the market showed a clear risk-off sentiment due to weak Chinese trade data (YoY exports -14.5%, YoY imports -12.4%, YoY exports to the US -23%). Additionally, China's foreign direct investment data released the day before was also disappointing, dropping to the lowest level in 25 years. Following that, troubled developer Country Garden announced its inability to pay a total of $22.5 million in interest on two US dollar bonds, triggering a 30-day grace period for payment and raising concerns about the recovery of the Chinese economy once again.

Traders rushed to hedge the downside risk related to China, and according to DTCC/Bloomberg data, USD/CNY forex options were the most active currency pair in the global forex market yesterday (over $18 billion). The official USD/CNY fixing rate was also weaker than expected, surpassing 7.15.

Europe also continued its negative market sentiment as the Italian government announced a 40% windfall tax on banks due to rising deposit rates, shocking the market and setting a precedent for other regions. This is similar to the windfall tax imposed on oil companies by the UK in 2021, as governments around the world become increasingly active in redistributing corporate profits into shrinking fiscal funds.

As investors seek the safety of fixed income, the fixed income market has seen a significant rebound globally, with Japan (30-year), Europe (5-year), and the US (3-year) bond auctions all receiving extremely high bid-to-cover ratios. However, due to a lack of noteworthy US economic data (although the Atlanta Fed's GDP Nowcast just raised its Q3 GDP estimate to 4.1%), the US stock market continued the downward trend from the European close, with bank stocks falling 2.8% at one point and the Nasdaq index dropping 1.3%. However, the weak performance did not persist, as the SPX staged a strong recovery before the close, ending with only a 0.4% decline. This momentum continued into the Asian trading session before the opening of the Chinese market.

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