China Trade Stays Strong (10-14 August)

China's trade surplus widened to $112.5 billion, beating forecasts as exports surged 23.9% YoY.

Strong AI and semiconductor demand supported shipments, although China's surplus with the US narrowed slightly.

Weak US labor data drove the macro picture, with July payrolls falling 23K and previous months revised sharply lower. The unemployment rate slipped to 4.1%, but falling participation pointed to underlying weakness, pushing September Fed hike odds down to 44% from 67%. The Dollar Index fell toward a two-month low, helping the euro and pound strengthen.

Currencies

Dollar Index: The Dollar Index fell 0.5% to 99.4 Friday, nearing a two-month low after weak US jobs data reduced Fed hike expectations. July payrolls fell 23K, with sharp downward revisions, while unemployment slipped to 4.1% as participation declined. Trump reported progress in Iran-Oman talks over Hormuz, although no agreement was reached.
Euro: The euro climbed above $1.157, its highest since June 16, as weak US jobs data weighed on the dollar. Lower oil prices also eased eurozone inflation concerns. Iran-Oman talks remained unresolved, while the ECB held rates in July after its first hike in three years in June.
British Pound: The pound rose to $1.350, its highest since July 15, supported by a softer dollar and lower oil prices. Hormuz talks showed some progress but produced no agreement. BoE Governor Bailey said disinflation remains on track despite external risks, supporting a gradual policy approach.
Japanese Yen: The yen weakened past 158 per dollar, giving back gains from the joint US-Japan intervention. Wide rate differentials, fiscal concerns, higher energy costs, and rebounding oil weighed on the currency. Japanese household spending fell 3.3% in June versus expectations for 1% growth, while a September BOJ hike remains possible.

Commodities

Gold Rides the Fed Repricing

Gold held above $4,300/oz Monday after gaining more than 7% last week. July payrolls fell 23K following a downwardly revised June reading, pushing September Fed hike odds to 44% from 67%. Gold held its gains despite higher oil prices and uncertainty over Hormuz, with Iran denying direct US talks.

Diplomacy Can't Cool Oil Yet

Brent rose above $84/barrel for a third session as uncertainty over the Strait of Hormuz persisted. Iran said talks with Oman were close to an agreement but warned reopening would take time, while rejecting direct US negotiations. The Houthis claimed an attack on Saudi Arabia's Jazan refinery, and an ADNOC tanker was attacked in Hormuz.

Silver Keeps Its 10% Gain

Silver traded near $64/oz after gaining more than 10% last week. The 23K decline in July payrolls helped cut September Fed hike odds to 44% from 67%. Prices stayed firm despite higher oil and uncertainty over Hormuz reopening efforts.

Fixed Income

US 10 Year Treasury Note Yield: The US 10-year Treasury yield rose to 4.68% on August 10, up 0.02 percentage points from the previous session. It has gained 0.06 points over the past month and 0.39 points year-on-year.
UK 10 Year Bond Yield: The UK 10-year gilt yield held near 4.95%, above Tuesday's three-week low of 4.891%, as higher oil prices renewed rate concerns. Yields were still 9bps lower for the week on hopes of a future Hormuz reopening. The BoE held rates in July, with Bailey pointing to steady disinflation despite risks.
Japan 10 Year Government Bond Yield: Japan's 10-year JGB yield rose to around 2.78%, ending a two-session decline as higher oil prices added to inflation concerns. Household spending fell 3.3% in June against forecasts for a 1% increase. A September BOJ hike remains possible after July's hold, with policymakers expecting broader price increases.
Germany 10-Year Bond Yield: Germany's 10-year Bund yield traded near 3.12%, down more than 8bps for the week, as hopes for progress in the Middle East supported expectations for lower oil prices. A broader US-Iran agreement remained uncertain. Markets price one more ECB hike by year-end, while German factory orders beat expectations in June.

Economic Data

United States Non-Farm Payrolls

The US economy lost 23K jobs in July, far below forecasts for an 80K increase, while June's gain was revised down to 20K. May-June revisions removed a combined 103K jobs. Local government education lost 50K, retail 19K, and financial activities 14K, while healthcare added 22K.

United States Unemployment Rate

The unemployment rate fell to 4.1% from 4.2%, largely due to workers leaving the labor force. Unemployment dropped 178K to 6.916M, but employment also fell 87K to 162.177M. The labor force shrank 264K to 169.094M, pushing participation to 61.4%, its lowest since early 2021. The employment rate fell to 58.9%, while U-6 unemployment stayed at 7.9%.

United States Job Openings

US job openings fell 178K to 7.359M in June, below the 7.40M forecast. Healthcare (-147K), leisure and hospitality (-86K), wholesale trade (-74K), and business services (-71K) led the decline. Transportation, warehousing and utilities added 97K openings, while federal government openings rose 39K. Hires (5.3M) and separations (5.4M) changed little.

China Balance of Trade

China's trade surplus widened to $112.5B in July from $97.70B a year earlier, beating the $107B forecast. Exports jumped 23.9% YoY to $397.85B, helped by AI demand and shipments before new 12.5% US tariffs. Semiconductor exports nearly doubled and high-tech exports rose 40.7%. Imports increased 27.7% to $285.35B, while China's US trade surplus narrowed to $28.03B from $28.9B.

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