China – Weak momentum continues
China’s Caixin PMI’s fell last week by 3.1 points to 52.5, extending the ongoing decline in sentiment. Although the country’s growth is still expected to reach 5% this year, the government is expressing concerns that the sluggish momentum could potentially undermine its target. Consequently, efforts are being made to reassure the markets through discussions about targeted stimulus measures and stronger currency fixes. The currency is near the lows, both against the USD and on a trade-weighted basis, but for now the People’s Bank of China (PBoC) remains on the sidelines as speculative positioning is muted.

Markets – Good news is bad news
Global markets suffered last week, as continued strong US data caused long end yields to rise, spilling over into tighter financial conditions and thereby hurting risk. Steeper curves also mean that markets think the odds of a recession are lower, as central bank rate cuts are pushed further out the curve. In our view, low summer liquidity and stretched positioning is exacerbating the price action, and we think yield levels are looking attractive.

Algebris Investments’ Global Credit Team