Chinese Monetary Policy Eased, Powell to Speak, and Some Important Data Releases

September 6, 2019

The People’s Bank of China cut the reserve requirement ratios of commercial banks for the seventh time since early 2018, releasing a potential extra CNY 900 billion of liquidity. About CNY 3.63 trillion ($500 billion) had been unleashed in the six earlier actions. The latest easing comes as the U.S. imposes further tariffs and in the wake of data suggesting that Chinese growth may soon slide below 6.0%.

Investors are awaiting a speech by Fed Chairman Powell that may shed more light on the future path of Fed policy.

German industrial production fell 0.6% in July. That’s about a percentage point weaker than street expectations and was associated with a 4.2% year-on-year drop following June’s 4.7% on-year decline.

Italian retail sales declined 0.5% in July, their second monthly drop in three months.

Real GDP in the euro area increased 0.2% in the second quarter, half as much as in 1Q, and on-year growth slid to 1.2% from 1.3% in the first quarter and 2.1% in the second quarter of 2018. Individual growth rates last quarter ranged -0.1% in Germany (0.4% on year) to 0.0% in Italy (-0.1% yoy), 0.2% in Austria and Belgium, 0.3% in France, and 0.5% in Spain, Portugal, Finland and the Netherlands.

Employment in the euro area recorded slower quarterly growth of 0.2% in 2Q that sliced the on-year increase to 1.2%.

Japan’s index of leading economic indicators was unchanged in July from June’s level, which had been the weakest reading since April 2011.

Japanese real cash earnings posted an on-year drop of 0.9% in July, almost twice as much as in June. Nominal labor cash earnings were 0.3% lower than in July 2018.

Japanese forex reserves jumped $15.1 billion in August, bringing the net 3-month increase from May to $23.6 billion.

The global service sector and composite purchasing manager indices in August were at 3- and 2-month lows.

Australia’s construction purchasing managers index rebounded 5.5 index points to a 5-month high in August, but at 44.6 such signified an appreciable rate of continuing contraction.

The French current account in July recorded its first surplus since January, albeit of only EUR 170 million.

The British Halifax house price index rose 0.3% in August, yielding a 1.8% advance from a year earlier. That was up from 1.5% in July but down from 2.8% in March.

In market action overnight, the dollar rose 0.5% versus the Swiss franc, 0.2% against sterling and 0.1% relative to the euro but fell 0.5% against the yuan and kiwi, 0.3% relative to the peso and 0.2% vis-a-vis the Australian dollar. The yen and loonie are unchanged against the dollar.

Ten-year sovereign debt yields fell four basis points in the U.K. but have risen four bps in the U.S. and 2 basis point in Japan.

Prices for WTI oil and Comex gold are 2.0% and 0.7% lower.

Equity markets advanced 0.9% in India, 0.7% in Hong Kong, 0.5% in Japan, China and Australia. Stocks have traded up 0.6% in Switzerland and 0.4% in Germany but are little changed in other key European markets.

The Central Bank of the Russian Federation, as it had done in June and July, cut its policy interest rate by 25 basis points at today’s meeting, citing in a released statement the continuing downtrend of inflation, lower-than-expected economic growth and elevated global risks. Officials lowered their projections for both growth and inflation slightly, and predicted that more reductions of the policy interest rate would be forthcoming if economic trends evolve as they are expecting.

U.S. and Canadian labor statistics will be released momentarily.

Charleston was not impacted by Hurricane Dorian as hard as feared. The storm is now a Cat 4 and affecting North Carolina’s Outer Banks.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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