USD

Chinese getting cautious.

from MNI FX Bullets

CHINA PRESS: The Chinese government must be "extremely cautious" in
taking any further tightening steps, as data showing a continued
slowdown in manufacturing sector growth restricting policy leeway, the
official China Securities Journal said in a front-page editorial
published today. The report comes after official manufacturing PMI
released by the China Federation of Logistics and Purchasing (CFLP) on
Monday showed a deceleration in manufacturing sector growth for the
fourth month in a row, with the index falling from 50.9 to 50.7, the
lowest level since February 2009.

Well actually, the HSBC PMI fell below 50.. to 48.9


Ashraf

Bits & Takes on Debt Ceiling Talks from MNI

15:16 EDT 07/25 US Crisis Watch: Senate Dems Unveil $2.7 Tln Spending Cut Plan>



WASHINGTON (MNI) - The following is a roundup of key developments

and events Monday on the ongoing stand-off over the U.S. debt ceiling:



* Senate Democrats Monday unveiled a $2.7 trillion plan to cut

spending that includes large savings from domestic and defense programs

to try to end the stand-off over raising the debt ceiling. According to

news reports, the measure also includes $1.2 trillion in defense and

nondefense spending cuts. Other savings are $30 billion from Fannie Mae

and Freddie Mac, as well as $400 billion from lower interest payments.



* In a statement Monday, the White House said Senator Reid has

put forward "a responsible compromise" that cuts spending in a way that

protects critical investments and does not harm the economic recovery.

It removes the cloud of a possible default from our economy through

2012, the White House added. "Senator Reid's plan is a reasonable

approach that should receive the support of both parties, and we hope

the House Republicans will agree to this plan ... . The ball is in their

court."



* House Speaker John Boehner briefed House Republicans in

Monday on his revised debt ceiling plan, which would raise the debt

ceiling by $1 trillion this year and $1.6 trillion next year. According

to a Boehner staffer, passing the initial $1 trillion debt ceiling

increase would require Congress to pass $1.2 trillion in spending cuts

through imposing caps on discretionary spending. Approval of the second

tranche of $1.6 trillion would require passage of $1.8 trillion in

spending cuts in entitlement programs. Under Boehner's plan, the House

and Senate would also have to vote on a balanced budget constitutional

amendment between this October and the end of the year.



* It seems likely that Boehner will bring his debt hike plan to

the floor of the House this week where it is likely to be approved on a

party line vote. No Democrats are expected to vote for his plan and

Boehner may have to struggle to get the most conservative faction in his

caucus to support it.



* Insurance against a default on the USA tested the 18-1/2 month

wide Monday as worries about the inability of Washington lawmakers to

find a deficit reduction solution as well as a debt ceiling legislation.

Five-year CDS insurance on the USA hovered at 56.5 basis points, some 3

bps wider on the day. High volatility was seen in the credit as the

insurance traded within a 52.5 bps to 57.5 bps range. The move put

insurance on the USA just below last Monday's 18-1/2 month wide of 61

bps. Since September 2009 the average for 5-year CDS on the USA has been

pegged at 42 bps.



* Amid continued uncertainty on when and how the White House and

Congress might strike a deal to raise the U.S. debt ceiling and agree on

a deficit reduction plan, the International Monetary Fund board stressed

the urgency of both, according a report Monday. A "downgrade would be

very damaging for both the U.S. economy and the rest of world," Rodrigo

Valdes, senior advisor for the IMF's Western Hemisphere Department, told

reporters in a conference call. The report notes that the U.S. has the

potential for "uniquely large policy spillovers ... which directly

affect financial conditions abroad and seep into domestic activity

everywhere. These spillovers strengthen the case for clear communication

of U.S. policies and for better-defined medium-term fiscal policy

framework."



* Market analysts have begun to more seriously warn of the

consequences of a downgrade to the United States debt rating, which may

occur whether or not the U.S. debt ceiling is raised. Traders pointed to

an e-mail purportedly sent by well-respected PIMCO manager Mohamed

El-Erian that pointed to the "increasing risk that it (the U.S.) might

lose its sacred AAA rating." "In most likelihood, a last-minute

political compromise will avoid a default, but will leave the AAA rating

extremely vulnerable," he said.



* Investment-grade corporate debt issuance slowed to a crawl on

the dollar-denominated new bond offerings calendar Monday as

uncertainties over U.S. debt ceiling/budget deficit negotiations

overshadowed other global issues. With continued uncertainties over a

resolution to U.S. debt ceiling/budget deficit negotiations in the

forefront of most bond investors minds Monday, the tone in the credit

market turned a bit more sour from the optimism seen last week.



Ashraf