Fears of a quick sharp devaluation of the Chinese yuan, disrupting the global economy, sparking a currency war, have eased. For the second session, the yuan stabilized. The central reference rate (fix) was CNY6.3969, having finished the Shanghai session before the weekend at CNY6.3912. The fix then was CNY6.3975.

While the oil downtrend is continuing today, bond prices are generally falling Curves are flattening as the long-end is down more than the short-end. Most of the major 10-year benchmarks are off 2-3 bp today, while two year yields are most little changed (+/- 0.5 basis points). With the hint over the weekend that Greece could qualify again for having its bonds accepted as collateral by the ECB has helped lift Greek bond yields that have fallen below 9% for the first time in six months. We note that the officials have ruled out the bail-in of depositors, but not senior bondholders in the coming recapitalization of Greek banks. Those bonds have fallen sharply today. 

Equities are mostly higher. The Nikkei gained 0.5%. Chinese shares are up about 0.7%. The Shanghai Composite is just below 4000, and at its highest level since July 27. Officials seem to have put in a bottom near 3500. At 4500, some of the support fades. Energy and financials were the two main sectors lower today.  

European bourses higher, with the FTSE being the main exception. The Dow Jones Stoxx 600 is up about 0.2%, led by utilities and healthcare.  Telecom, materials and energy are drags. The same sectoral performance is evident in the UK too. 

There have been two economic developments that have peppered the otherwise bland news stream. First, Japan’s GDP contracted by 1.6% at an annualized pace in Q2. That is a 0.4% contraction on the quarter, a smidgen better than the 0.5% fall expected. Yet private consumption and business spending fell more than expected. Consumption slid 0.8%, twice the decline that the consensus expected and Q1 was revised to 0.3% from 0.4%.  Business spending edged lower by 0.1%. The consensus has expected a flat report. It was revised to 2.8% from 2.7% in Q1.  Growth is expected to return to Japan in the current quarter. The consensus is for 2.0% growth Q3 and Q4.