Aurelia Butler

While the economy continues to sputter, a weak Chinese currency has remained the key constraint limiting Beijing’s monetary easing efforts, as that could further widen the yield gap with other major economies, particularly the United States, and trigger more capital outflows.In a Reuters poll of 35 market watchers conducted this week, 34, or 97%, of respondents expected the PBOC to keep the interest rate on the one-year medium-term lending facility (MLF) loan unchanged at 2.50% from the previous operation.The lone outlier in the poll projected a marginal rate reduction.Market participants believe the significance of the medium-term lending facility (MLF) rate will gradually diminish as the People’s Bank of China (PBOC) tries improve the effectiveness of its interest rate corridor.The PBOC introduced a new cash management mechanism this week and its Governor Pan Gongsheng said recently that the seven-day reverse repo rate “basically fulfils the function” of the main policy rate”The importance of MLF rate may decline, with PBOC more focusing on buying or selling Chinese government bonds (CGB) around the reverse repo rate in the short tenor,” said Ju Wang, head of Greater China FX & rates strategy at BNP Paribas (OTC:BNPQY).The new liquidity mechanism should allow the seven-day reverse repo rate to move first, followed by other rates, including the MLF rate, said a bond fund manager.Meanwhile, a vast majority of 28, or 80% of all participants in the poll predicted that the central bank would only conduct a partial rollover, compared with 103 billion yuan ($14.18 billion) worth of MLF loans due this month.”Investors contemplate as to whether PBOC will only partially roll over MLF in the months ahead to gradually reduce the outstanding amount of the facility,” said Frances Cheung, rates strategist at OCBC Bank.Some bond traders also pointed out that demand for the MLF loans were hampered by signs of loosening cash conditions in the banking system.The interest rate on one-year AAA-rated negotiable certificates of deposit (NCDs), which measures short-term interbank borrowing costs, stayed well below the MLF rate. It last traded at 1.9642%.Apart from the PBOC’s effort to revamp its monetary policy transmission channel, it has sounded warnings and introduced a flurry of measures, including plans to sell treasury bonds, to cool a long-running bond rally.”The PBOC may reduce the need to frequently adjust various monetary policy tools, such as one-year MLF, one-year and five-year loan prime rate (LPR), seven-day reverse repo, and reserve requirement ratio (RRR), which might ease upward pressure on the dollar-yuan pair,” analysts at Societe Generale (OTC:SCGLY) said in a note.The monthly fixing of the LPR is due on July 22.($1 = 7.2636 Chinese yuan) More

(Reuters) – Asking prices for British homes coming to the market fell this month, with signs that some buyers are waiting for the Bank of England to cut interest rates, a survey from property website Rightmove (OTC:RTMVY) showed on Monday.The company said the average asking price was 373,493 pounds ($484,943) for property put on sale between June 9 to July 6, 0.4% less than a month earlier. The Rightmove data, which is not seasonally adjusted, often falls in July, although this decline was bigger than usual.Compared with a year earlier, asking prices were 0.4% higher.Other gauges of the housing market have shown slowing momentum, as expectations for an imminent BoE rate cut have increasingly been pushed back because of strong wage growth and stubborn cost pressures.Investors on Friday assigned a roughly 50% chance that the BoE will cut rates on Aug. 1, although wages and inflation data due later this week could skew that in either direction.Rightmove said the certainty provided by the July 4 election – which resulted in a landslide victory for Keir Starmer’s Labour Party – would probably prove positive for housing market sentiment.But it described the potential for a cut in the BoE’s Bank Rate as a “game-changer”.”A first Base Rate cut for over four years, together with the new political certainty, could set the scene for a positive autumn market, with improved affordability and a more confident outlook in the second half of the year,” Tim Bannister, Rightmove director of property science, said.Affordability was a hot political issue ahead of the election, as house prices have risen by around a fifth since the last election in December 2019.The new Labour government has promised to ramp up house-building, with an emphasis on affordable housing.($1 = 0.7702 pounds) More

BEIJING (Reuters) -China’s economy likely grew 5.1% in the second quarter from a year earlier, slowing from a strong start in the first three months due to sluggish consumer demand, keeping alive expectations Beijing will need to unleash more stimulus.While that kind of growth would keep China’s full-year target of around 5% in reach, policymakers still need to deal with a protracted property crisis, weak domestic demand, a sliding yuan and trade disputes with the West.Gross domestic product (GDP) in the world’s second-biggest economy is expected to expand 5.0% in 2024 year-on-year, according to the median forecast of 82 economists polled by Reuters. Analysts then tip slower growth of 4.5% for 2025. A further slowdown in the second half of 2024 could prompt policymakers to ramp up economic support, which is now mostly reliant on overseas demand, analysts said.Investors are watching next week’s key party leaders gathering for hints on the policies to address these challenges that go beyond industrial upgrades.Policy advisers also believe China could unveil tax and fiscal reforms to allow debt-laden local governments to get more tax revenues to help ease pressures on local finances.The projected second-quarter growth would be slower than the first quarter’s 5.3% growth and the weakest since the third quarter of 2023.The Reuters poll expects GDP growth would slow further to 4.8% and 4.7% in the third and fourth quarters, respectively. “Despite the continued housing crisis, China’s economy breathed a sigh of relief in the first half thanks to its robust exports, which in turn were driven by some rebalancing forces and property-related policy measures,” said Ting Lu, Nomura chief China economist, in a note on Wednesday.However, he expected headline GDP growth may slow markedly to 4.2% year-on-year in the second half from around 5.0% in the first half, “unless Beijing ramps up stimulus by speeding up fund injections significantly for completing unfinished pre-sold homes.”Authorities in May allowed local state-owned enterprises to buy unsold completed homes, with the central bank setting up a 300 billion yuan ($41.23 billion) relending loan facility for affordable housing. Analysts say markets now need to be more patient for additional property-supporting measures.China’s June consumer inflation missed expectations, official data showed on Wednesday, indicating deflationary risks persist. Analysts polled by Reuters estimate a 0.6% rise in China’s consumer prices for this year, well below the government’s target of around 3%, before picking up 1.5% in 2025. The government releases second-quarter GDP data and June retail sales, industrial production and investment data at 0200 GMT on July 15. MORE SUPPORT EXPECTEDTo counter soft domestic demand and a property crisis, China has boosted infrastructure investment and ploughed funds into high-tech manufacturing.Central bank governor Pan Gongsheng last month pledged to stick to a supportive monetary policy stance and said the bank will flexibly use policy tools including interest rates and reserve requirement ratios to support economic development.But the central bank is likely to be wary of cutting lending rates further as aggressive easing could trigger more capital outflows from China’s struggling financial markets and pressure the yuan, which slid to near eight-month lows against the greenback.It may also hurt banks already battling margin pressures, prompting pay cuts for employees. Analysts say more job losses and pay cuts would intensify deflationary risks.Analysts polled by Reuters expect a 10-basis points cut in China’s one-year loan prime rate as well as a 25-basis points cut in banks’ reserve requirement ratio in the third quarter.(For other stories from the Reuters global long-term economic outlook polls package:)($1 = 7.2755 Chinese yuan)(Polling by Rahul Trivedi, Devayani Sathyan and Susobhan Sarkar in Bengaluru and Jing Wang in Shanghai; Reporting by Ellen Zhang and Kevin Yao; Editing by Sam Holmes) More

(Reuters) – A look at the day ahead in Asian markets. A dramatic escalation in U.S. political tension and violence looms over world markets on Monday after the attempted assassination of former President Donald Trump on Saturday, with Asian assets the first to show what the impact – if any – will be on trading and investing. If the shooting strengthens Trump’s election hopes, analysts reckon so-called ‘Trump-victory trades’ could include a stronger dollar and a steeper U.S. Treasury yield curve. Bitcoin was up 4% at $60,000 early in Monday’s global session.Even before Saturday’s violence, there was no shortage of meaty issues for investors in Asia to get their teeth into on Monday – from snowballing U.S. rate cut expectations to suspected Japanese FX intervention and a deluge of economic data from China including second quarter GDP.Last week’s surprisingly soft U.S. inflation can keep the ‘risk on’ flame burning if U.S. bond yields, implied rates and the dollar all ease. Rates traders expect the Fed to cut rates by 75 basis points this year, starting in September.But if that’s being driven by weakening growth and a softer labor market, exuberance will be consumed by caution, especially with the Q2 U.S. earnings season getting underway.Asia’s calendar on Monday is dominated by the June ‘data dump’ from China as Beijing releases house price, industrial production, urban investment, retail sales, and unemployment figures for last month, and Q2 GDP.Analysts and investors have set their expectations low. Asia’s largest economy is expected to have expanded 1.1% from the January-March period, resulting in year-on-year growth of 5.1%. Both would be down from prior readings of 1.6% and 5.3%, respectively.China continues to struggle with a prolonged property crisis that has curbed investment, soured consumer confidence and demand, and kept alive the specter of deflation. Trade, bank lending figures and key money gauges last week darkened the gloom further. China’s central bank, meanwhile, is widely expected to leave the interest rate on its one-year medium-term lending facility loan unchanged at 2.50% on Monday. Japanese markets are closed for a holiday on Monday but the yen will be traded across the continent, going into the session near a four-week high against the U.S. dollar following its rise on Friday.Japanese authorities remain tight-lipped on whether they intervened last week. But the yen’s sharp rally and daily Bank of Japan money market balance projections strongly point to official action, analysts say.The yen had languished at 38-year lows around 162.00 per dollar last week, but goes into Monday around 157.90 per dollar. Does the short covering rally have more juice in it? Probably – hedge funds are holding their largest net short yen position in 17 years, U.S. futures market figures show.The surging yen triggered a 2.4% slump in Japanese stocks on Friday, its steepest fall since April. Having hit a record high above 42,000 points on Thursday, it could have more room to fall.Elsewhere in Asia on Monday, India’s wholesale price inflation is seen rising sharply to a 3.5% annual rate in June from 2.6% in May.Here are key developments that could provide more direction to markets on Monday:- China ‘data dump’ (June)- China GDP (Q2)- India wholesale price inflation (June) More

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This speculation contributed to the US dollar’s recent decline and a surge in various market sectors, including bonds, small-cap stocks, and homebuilders.Gavekal Research’s analysis pointed out that the current inflation data is more favorable for rate cuts than it was at the end of last year. As of December, the three-month annualized consumer price index (CPI) was below the Fed’s 2% target after adjustments.Moreover, core CPI, which excludes volatile food and energy prices, also fell below the target, registering at 1.8% on a three-month adjusted basis.Gavekal Research noted that if inflation continues to remain low and the Federal Reserve is confident it will stay that way, policy rates are likely to be lowered before 2023 ends, potentially ahead of the elections.”In an ideal world, Fed chair Jay Powell may prefer not to change rates before an election, but such objections can be overridden by the data,” the strategists said in a note.The research firm reflected on the historical precedent of the Federal Reserve altering rates in the months leading up to presidential elections.Since 1974, during the 10 months preceding the 13 presidential elections, the Fed has changed rates eight times and maintained them five times.This history suggests that the central bank does not shy away from making policy changes during election periods if warranted by economic indicators.While the market reacts to the latest inflation data and its implications, the Federal Reserve, under Chair Powell’s leadership, remains committed to responding to economic data.Hence, Gavekal Research strategists conclude that an interest rate change before the November elections is likely if the current inflationary trends persist. More