Yen, Treasurys Gain as China Worries Spread

 
Snapshot: 

        -USD/JPY at 121.58-59; 10-year Treasury yield at 2.195%; U.S. stock futures sharply lower; Nymex at $51.83; gold at $1149.60
        -Watch for: FOMC meeting minutes and economic forecast; U.S. consumer credit; Canada building permits; speeches by U.S. Treasury Secretary Lew, IMF's Lagarde; EIA weekly petroleum; earnings from Alcoa, Tecsys
        News: Tsipras Pledges Concrete Proposals to Bridge Impasse; Eurozone Sets Sunday Deadline for Greece Financing Deal; China Bonds Follow Stocks Lower
        Early in European trade, the U.S. dollar was up 0.2% against the Canadian dollar and up 0.7% against the Russian ruble as a fall in crude prices hit currencies of economies that rely heavily on oil.
        The euro, meanwhile, edged higher against the dollar to trade at $1.103.
        Greek Prime Minister Alexis Tsipras pledged to make "concrete proposals" in the next few days aimed at bridging an impasse with international creditors, who have given Athens until Sunday to reach a deal that could prevent the country from crashing out of the currency union.
        Ahead, Wednesday's release of the Federal Open Market Committee meeting minutes from the Federal Reserve's June meeting could increase conviction for dollar strength against the eurozone's common currency. If the FOMC minutes reveal that more members of the rate-setting committee are optimistic on the economy and favor raising interest rates this year, EUR/USD is likely to fall and close below 1.0993. This is a bearish technical signal that could encourage traders to sell the euro for a target of 1.0783.
        Elsewhere, the yen strengthened against the dollar as a drop in Chinese stocks prompted investors to seek safety in the Japanese currency. The dollar fell to a 6-week low of Y121.41.
        U.S. Treasurys traded near their best level in nearly six weeks as fears of a Greek exit from the euro and Chinese equity losses drove safe-haven flows.
        Chinese markets fell sharply Wednesday, even as Beijing scrambled to arrest a three-week stock selloff. The Shanghai Composite was down 5.9%. More than 40% of the country's listed companies were suspended for trade at the start of the session.
        At 4.35am ET, the 10-year yield was at 2.195%, having fallen nearly 25 basis points since right before the employment report on Thursday, "while strong gains also at the front end have been supported by repricing in futures to mostly remove risk of a September Fed rate hike," according to Ted Wieseman at Morgan Stanley.
        The September Treasury contract was 9/32 higher at 127-130. A $21 billion 10-year note sale is ahead.
        In Europe, the yield on the 10-year German government bond was slightly higher at 0.64%. The yield on China's benchmark one-year government bond rose 0.3 percentage point to 2.32%.
        U.S. stock futures pointed sharply lower on Wednesday, as investors grappled with a major selloff in Chinese shares, jitters over Greece and the upcoming Fed minutes.
        Futures for the Dow dropped 158 points, or 0.9%, while those for the S&P 500 lost 20.70 points, or 1%, and those for the Nasdaq shaved off 1.1%.
        The unofficial start to the earnings season, which comes with Alcoa's report after the market close on Wednesday, was also weighing on investors' minds.
        Ahead, the FOMC minutes could help shed light on the central bank's thoughts on the timing of its first rate increase.
        "The FOMC minutes have … potential to move the dollar, where investors will want to see how improved inflation prospects and wage growth might translate into greater potential for a September rate hike," said Angus Campbell at FxPro.
        "But given the dovish bias to growth forecasts, and external threats to the U.S. economy that remain, we feel September is too early for the Fed to make its first move," he said.
        Consumer credit numbers for May are due at 3pm ET.
        In corporate news, Energy Transfer Equity said it would pursue a multibillion-dollar deal to acquire rival pipeline operator Williams with or without the company's cooperation.
        There are three main factors to watch in oil markets Wednesday, said Daniel Ang of Phillip Futures: a weaker euro, progress on the Iranian nuclear negotiations and changes in U.S. crude inventories.
        "With our expectations of little change to the U.S. Dollar Index and Iranian nuclear negotiations, we expect U.S. crude inventories to play a bigger part on prices," he said.
        Phillip Futures expects a decline of 2 million barrels, but more than that could see WTI and Brent rally.
        At 5.05am ET, Brent crude for August delivery was down 1.2% at $56.19, while WTI was down 1% at $51.83.
        Gold fell 0.3% to $1149.60.
        Tsipras Pledges Concrete Proposals to Bridge Impasse
        Greek Prime Minister Alexis Tsipras pledged to make "concrete proposals" in the next few days aimed at bridging an impasse with international creditors, who have given Athens until Sunday to reach a deal that could prevent the country from crashing out of the currency union.
        Eurozone Sets Sunday Deadline for Greece Financing Deal
        Eurozone leaders set Greece a Sunday deadline to reach the outlines of a new financing deal that the German chancellor said would have to include even more economic overhaul measures than before.
        China Bonds Follow Stocks Lower
        Signs that contagion from China's plunging stocks is spreading to the country's bond market emerged Wednesday as investors sought ways to raise much-needed cash.
        Growth in Major Economies Seen Slowing
        Growth is set to slow across more of the world's largest economies, including the U.S. and China, according to leading indicators issued by the OECD.
        Australian Banks Further Curb Investor Mortgage Lending
        Australia's big banks are further tightening lending to housing speculators as authorities continue to fret about risks to the country's hot property market.
        Write to Riva Gold at riva.gold@wsj.com @GoldRiva
        (END) Dow Jones Newswires

        July 08, 2015 06:24 ET (10:24 GMT)

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