Uncertainty About the Impact of A Chinese Government Plan to Support Equity Values
January 23, 2024
At a Chinese government cabinet meeting, officials are reported to have conceived plans to lend direct support to the economy’s flailing stock market and thereby buttress investor confidence. The rumored scheme only lifted the Shanghai composite index by a net 0.5% overnight, and a 3.2% initial jump in Hong Kong’s Hang Seng index was trimmed to 2.6% by the close. In other stock markets in the Pacific Rim, share prices closed up by just 0.6% in South Korea, 0.5% in Australia, 0.3% in Taiwan and 0.1% in Indonesia. Japan’s Nikkei dipped 0.1% after the Bank of Japan Board left its policy guidelines unchanged, projected slower growth in fiscal 2024 than fiscal 2023, and downgraded its fiscal 2024 core CPI inflation projection to 2.4% from an estimated 2.8% made back in October.
Major European stock markets are flat to modestly softer, and U.S. stock futures are narrowly mixed.
The weighted DXY dollar index is unchanged. The biggest move overnight was a 1.5% slide against the Chinese yuan. Alternatively, the greenback is up 0.1% versus the euro, unchanged relative to sterling and 0.1% softer relative to the yen.
Bitcoin is in retreat, extending its recent slide below the 40k threshold by an additional 1.4% overnight. Gold is 0.4% firmer but WTI oil prices fell 0.9%. Lower oil costs were cited by the Bank of Japan for the reason behind the downward revision to projected Japanese inflation next year.
Producer price inflation in South Korea doubled to a 3-month high of 1.2% in December, still well below the end-2022 PPI inflation rate of 5.8%. CPI inflation in Singapore of 3.7% in December edged upward instead of conforming to analyst forecasts of a marginal further deceleration. CPI inflation had crested at a 158-month peak of 7.5% in August and September of 2022.
Consumer confidence this month rose to a 23-month high in Denmark and a 7-month high in Turkey. The respective readings in these diffusion indices of -8.4 and 80.4, however, were each below neutral levels, indicating continuing net pessimism.
The National Australia Bank’s December monthly indices of business confidence and business conditions respectively rose to a 3-month high of -1 and slid down by a further two index points to +7, which was half as buoyant as the August reading of 14.
New Zealand’s service sector purchasing managers index dropped back under the neutral 50 threshold to a 4-month low of 48.8 last month.
British net public sector borrowing last month was lower than expected, but the fiscal year-to-date tally of GBP 119.1 billion was still running about 10% above a year earlier.
The aforementioned Bank of Japan Board meeting left the short-term interest rate unchanged at -0.1% where such has been for the past eight years. Officials kept the 10-year JGB yield target at “around zero percent” while treating the plus-or-minus 1.0% surrounding range as a reference point rather than a ceiling triggering automatic and unlimited operations to cap upward movement. The overall policy framework of quantitative and qualitative easing (QQE) is to continue for as long as it takes, and the long term policy objective remains the price stability target of 2.0% in a sustainable and stable manner accompanied by wage increases. Ample wage growth has emerged as an essential pre-condition before any policy exit strategy can be implemented. But in comments after the Board meeting, Governor Ueda expressed growing confidence that the economy is achieving steady growth and thereby moving toward longer-term inflation goals. New macroeconomic forecasts were published in the quarterly Outlook for Economic Activity and Prices.
A monetary policy review was also held today the Central Bank of Sri Lanka, where the interest rate benchmark was left unchanged at 9.0%. Such had been cut by a full percentage point at the prior meeting in December. Rate reductions From a pandemic low of 4.5% maintained from July 2020 to August 2021, the rate had been lifted to 15.50% by March of last year but then lowered by a total of 650 bps during the final eight months of 2023 in response to decelerating inflation. As of September CPI inflation had imploded from 51.7% last January to just 1.3%, but such then rebounded to 1.5% in October, 3.4% in November and 4.0% last month — hence the caution in leaving the rate unchanged at this month’s review.
Tags: Bank of Japan, Central Bank of Sri Lanka, China stock market support
ShareThis
