Aurelia Butler

SHANGHAI/SINGAPORE (Reuters) -China’s banks will cut deposit rates soon as part of efforts to make mortgages more affordable and revive property demand, analysts reading China’s cryptic policy messages reckon.Beijing’s decision to leave a key mortgage benchmark lending rate unchanged even as it cut short-term policy rates this week seemed at odds with a pledge made just weeks ago to support the property sector via monetary policy.But China did not opt for a broad rate cut that would further depress banks’ narrow net interest margins, instead deferring to banks to cut their deposit rates and give themselves room to cheapen mortgages, analysts said. Like in previous instances of monetary easing, major state-owned banks might take the lead in cutting deposit rates, setting off a chain of such cuts, two banking sources told Reuters. Lowering deposit rates will give banks much needed wiggle room to cut mortgage rates.Bankers also said households are making a beeline for bank-issued certificates of deposit (CDs) to lock in current yields.”Further reductions to the deposit rates are ‘arrows on the string,'” said Wang Yifeng, banking analyst at Everbright Securities.”At the current stage, the biggest uncertainty lies in the contradiction among the narrowing net interest margins (NIM) at banks, supporting the real economy and maintaining financial stability.”Such concern among policymakers is rare in the communist state that has in the past often pressed banks into national service, demanding commercial banks sacrifice profits to serve the economy.In its second-quarter monetary policy statement published this month, the PBOC said “commercial banks need to maintain a reasonable level of profit and net interest margin, in order to keep prudent operations and prevent financial risks.” It speaks to the state of the economy, struggling to grow after three years of strict COVID restrictions and regulatory crackdowns, and the systemic risks to bank balance sheets from the debt burdens of property firms and local governments.Chinese commercial banks’ net interest margins, a gauge of profitability, was at a record low of 1.74% at the end of June, below a regulatory red line of 1.8%. China cut its one-year loan prime rate (LPR) by 10 basis point this week but left the five-year tenor, which influences the pricing of mortgages, unchanged at 4.2%. The People’s Bank of China (PBOC) has reduced rates on its lending to banks.RATE CUTS WILL CASCADEOutstanding personal mortgages in the country amounted to 38.6 trillion yuan ($5.30 trillion) in June, according to PBOC data. Rates for existing mortgage loans are revised every year, based on the 5-year LPR in December.Zhu Qibing, chief macro analyst at BOC International China, estimates the weighted average rate of new mortgages is 4.11%, while the average rate on all existing mortgages is at least 100 basis points higher. The five-year LPR has been trending down, it was 4.3% in December and 4.45% in July 2022. The LPR is one among rates set by China’s banks, and counts among the de facto policy rates as the PBOC does not set bank rates directly.If banks cut their interest rates for existing mortgage by 30 basis points, their annual interest earnings will shrink by more than 70 billion yuan, or about 3% of the 2.3 trillion yuan net profit of the banking industry in 2022, Zhu said.Lu Ting, chief China economist at Nomura, wants markets to pay close attention to whether Beijing nudges banks to lower deposit rates in the coming weeks.With the need for protecting their net interest margin, banks will only lower their new loans’ lending rates when they are able to reduce their deposit rates,” Lu said.Xing Zhaopeng, a senior China strategist at ANZ, points to how deposit rates are pegged to the one-year LPR and estimates banks will cut those by 20 basis points. He also expects a tweak to rules so that existing mortgage rates can be reset lower.”The plan to reduce existing mortgage rates is in the making,” Xing said.($1 = 7.2890 Chinese yuan) More

(Reuters) -The United Auto Workers (UAW) union on Friday said members voted overwhelmingly in favor of authorizing a strike at the Detroit Three automakers if agreement is not reached before the current four-year contract expires on Sept. 14.The authorization was approved by 97% of voting members at General Motors (NYSE:GM), Ford Motor (NYSE:F) and Stellantis (EPA:STLAM), said UAW President Shawn Fain, who leads the union that represents about 150,000 workers.Fain reiterated that the union did not plan to extend the deadline to get a new labor contract. “The deadline is Sept. 14. We have a lot of options that we are looking at but extension on the contract is not one of them.”Separately, President Joe Biden, who met with Fain last month, told reporters in Nevada he is concerned about a potential UAW strike.”I think that there should be a circumstance where jobs that are being displaced are replaced with new jobs” for UAW members “and the salaries should be commensurate.”Some senators want national UAW agreements to cover jobs at battery joint ventures that currently pay less.Fain said workers had made numerous concessions over the last two decades including giving up wage hikes, defined benefit pensions and post-retirement health care benefits.”We’re fed up,” Fain said, listing a series of demands. “We’ve sat back for decades while these companies continue to just take and take and take from us.”Fain has outlined an ambitious set of demands, including wage hikes of 46%, an end to the tiered wage system that pays new hires less than veterans, reinstating cost-of-living adjustments and restoring defined-benefit pension plans for new hires that the automakers ended in 2007. At Stellantis, just 30% of hourly U.S. workers are eligible for defined benefit pensions.Fain said he expected the Detroit Three to come to the bargaining table next week with counter proposals to the UAW demands. He said talks were “still going slow” after opening in July. Analysts estimate a more than 50% chance of a strike.It was not clear how long it would take a strike to significantly reduce Detroit Three inventories. Through July, Stellantis U.S. Ram, Jeep, Chrysler and Dodge each had more than 100 days’ inventory but many specific popular models have less.The vote does not guarantee a strike will be called, only that the union has the right to call a strike if there’s no agreement by Sept. 14.GM, Ford and Stellantis have said they want to reach a deal that is fair to workers but also gives the companies flexibility, as the industry shifts to electric models that have fewer parts and require less labor.Ford shares were up 1%, while General Motors were unchanged in afternoon trade. More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.As the week gets underway, asset markets across Asia yet again will be dominated by key economic indicators, market- and growth-supportive policy steps and diplomatic signals from China.Asian markets also will get their first chance on Monday to react to the Jackson Hole speeches from the world’s most powerful global policymakers last Friday, Jerome Powell, Christine Lagarde and Kazuo Ueda, although trading will be lighter than usual with UK markets closed for a holiday. Looking at the Asian economic calendar this week, purchasing managers index reports for several countries – including China – will give a first glimpse into how activity fared in August. GDP data from India and inflation figures from Indonesia and Vietnam are also on tap. The biggest market-mover of all these will probably be China’s services and manufacturing PMIs later in the week. Investors – and policymakers – will be desperate for signs that the economy is picking up, but the forecast is for yet another month of weakness.Figures this weekend showed that profits at China’s industrial firms fell 6.7% in July from a year earlier, extending this year’s slump to a seventh month, and year-to-date earnings shrank 15.5% compared with the same period last year. In their latest effort to try and reverse the malaise, Chinese authorities this weekend halved the stamp duty on stock trading. The move, effective Monday, will see a 0.1% cut in the duty on stock trades “in order to invigorate the capital market and boost investor confidence”.Stock exchanges have also lowered their margin financing requirements, according to the China Securities Regulatory Commission. This comes as U.S. Commerce Secretary Gina Raimondo arrived in Beijing on Sunday for a four-day visit aimed at boosting business ties between the world’s two largest economies. Relations between the two superpowers are near rock-bottom. Asian stocks start the week on a slightly better footing than recent weeks, but not much. The MSCI Asia ex-Japan index snapped a three-week losing streak but the rise of only 0.2% was the smallest since November, an even more underwhelming rebound after a cumulative 10% slide in the previous three weeks.The Asian market headwinds are strong and clear – financial conditions are tightening sharply, in large part due to the steady rise in U.S. Treasury yields. According to Goldman Sachs’s financial conditions indexes, global, emerging market and Chinese financial conditions last week hit their tightest levels this year. Higher U.S. yields and a stronger dollar may be justified from a fundamental perspective but the dollar has appreciated for six consecutive weeks and the two-year U.S. yield is up 13 out of the last 16 weeks. Time for a pause?Here are key developments that could provide more direction to markets on Monday:- Australia retail sales (July)- U.S. Fed’s MIchael Barr speaks – Euro zone money supply (July) (By Jamie McGeever; Editing by Diane Craft) More

Good morning. Western companies are warning that China’s gloomy business outlook threatens to have global repercussions, as the world’s second-largest economy recovers weakly from strict Covid-era lockdown.Corporate reports from a disparate array of companies around the world have documented their worries about China, which has for decades provided a booming market for everything from chemicals to cars, healthcare and travel.“Demand in China is sluggish,” lamented Joel Smejkal, chief executive of US semiconductor manufacturer Vishay Intertechnology. José Ferreira Neves, chief of UK ecommerce fashion group Farfetch, agreed: “The recovery is not as explosive as everyone thought it would be.”Qi Wang, chief investment officer of MegaTrust Investment, which specialises in domestic Chinese stocks, said he could not remember a time when consumer, real estate and business confidence had been so low. “This isn’t just a simple, cyclical issue. It looks like something secular and structural.” Read the full story.US-China news: US commerce secretary Gina Raimondo has arrived in China, where she is aiming to boost business ties and tourism between the world’s two largest economies despite Washington’s move to ban American investment in sensitive Chinese technologies.Here’s what else I’m keeping tabs on today:Japan rocket launch: The Japanese Aerospace Exploration Agency is scheduled to launch a rocket in an attempt to become the fifth nation to successfully land on the Moon. The launch, originally scheduled for Sunday, was pushed back a day due to bad weather.Results: China’s biggest electric-car maker BYD reports second-quarter earnings. Sport: The US Open tennis tournament begins in New York.Five more top stories1. Genetic testing has confirmed the death of Wagner paramilitary group leader Yevgeny Prigozhin, Russian authorities said on Sunday. Western officials assumed that the warlord was killed on the orders of President Vladimir Putin in retribution for a mutiny he led in June. The Kremlin has denied any involvement. Here’s more on the mounting speculation about the future of the group.More Russia news: Arkady Volozh, co-founder of Russian tech giant Yandex, has formally requested that the EU lift sanctions against him in the first big test of whether the bloc will reward prominent figures who publicly break with the Kremlin.2. The world’s largest shipping and logistics groups are locked in an increasingly intense rush to buy facilities in Asia in an effort to help their customers expand supply chains beyond China. The facilities support the increasingly complex supply chains developing between countries including Vietnam, India and Malaysia. Our report details how Asia’s trade environment is changing. 3. Leading officials and economists gathered in Jackson Hole, Wyoming for their annual meeting have traded last year’s angst about inflation and central banks’ credibility for fears that the upheaval caused by the pandemic and the war in Ukraine have ushered in a new era for the global economy. “There is no pre-existing playbook for the situation we are facing today — and so our task is to draw up a new one,” said Christine Lagarde, president of the European Central Bank. Colby Smith reports from the US Federal Reserve’s three-day symposium. 4. Vietnam’s leadership is under pressure to introduce reforms to reinvigorate the property sector after leverage restrictions designed to limit risks to the economy and an anti-graft crackdown last year hobbled developers and sent bond prices tumbling. Here’s how Vietnam’s property woes mirror those in China.5. Corporate sponsors are distancing themselves from Spain’s football chief Luis Rubiales, who has been suspended from his job after he forcibly kissed a female player during last weekend’s World Cup final medal ceremony. Rubiales has resisted stepping down despite public outrage after he grabbed the head of top player Jenni Hermoso and kissed her on the lips as players received their medals after Spain’s first World Cup win. Read the full story.News in-depth

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North Koreans are relying on cheaper solar panels to keep the lights on, bypassing the state electricity grid that routinely leaves them without reliable power for months. Citizens are “becoming more self-supporting and self-sufficient” from the government for electricity, one North Korean escapee told the FT. But signs have emerged that the regime intends to assert tighter control over the sector, as it increasingly turns to renewables to help meet its energy needs.We’re also reading . . . Obituary: Anthropologist Isabel Crook was a rare bridge between the west and China, and a participant-observer as the country transformed. She died at the age of 107 in Beijing. ‘Profession of the century’: Here’s why so many workers, from farmers to investment bankers, are ditching long-held jobs to retrain as therapists.Fast fashion: The proliferation of cheap, shortlived garments has come at an enormous environmental and social cost. The EU is preparing to end it.Chart of the day

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Robots are widely used in South Korea’s car and semiconductor plants, but they are also an increasingly visible part of day-to-day life. An influx of cheap Chinese robot waiters is fuelling anxiety over labour shortages and intensifying competition from Chinese tech companies. Take a break from the newsCan AI crack comedy? British scientist Alan Turing once warned that it would be fiendishly hard for machines to pass as humans by displaying a sense of humour. But robots are getting better at making us laugh — and challenging our notion of human exceptionalism.

© Robert Ormerod More

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The country’s second-biggest bank would begin the layoffs as early as this week but is yet to announce the changes internally, AFR said.The move, if confirmed, would come after reports of larger peers Commonwealth Bank of Australia (OTC:CMWAY) and Westpac Banking (NYSE:WBK) Corp axing of several hundred jobs to reduce higher costs amid high interest rates and inflation. Layoffs at NAB would include capital markets types working within its corporate and institutional banking unit, where its markets business sits with a team of about 600.NAB did not immediately respond to a Reuters request seeking comments outside normal business hours. More

US commerce secretary Gina Raimondo has arrived in China, where she is aiming to boost business ties and tourism between the world’s two largest economies despite Washington’s move to ban American investment in sensitive Chinese technologies.Raimondo, the fourth senior Biden administration official to visit Beijing this summer, said she would stress that the US did not want to “decouple” from China’s economy. But she insisted protecting national security was “the top priority, period”.“The US and China share a large, dynamic, growing economic relationship, one of the largest trade relationships in the world,” Raimondo told reporters ahead of her trip. “Both of our countries, in fact the entire world, need us to manage that relationship responsibly.”US president Joe Biden this month announced a ban on American investment in some of China’s critical tech industries, including quantum computing, advanced chips and artificial intelligence.The flurry of senior visits to China are part of a concerted effort by the Biden administration to smooth relations. High-level engagement stalled this year when China flew an alleged spy balloon over US soil.Raimondo, whose visit comes as China’s economy is struggling to recover after pandemic-related lockdowns last year and amid a deep property slowdown, said she would “lean into” promoting travel and tourism between the two sides. She estimated that a return to pre-pandemic levels of Chinese visitors would generate tens of thousands of jobs for US workers.But she cautioned that there were “many challenges” to “doing business in China and exporting to China”, alluding to what she called Beijing’s “unfair trade practices”.“If you wanted to put a tagline to the trip and the mission, it is: protect what we must and promote where we can,” Raimondo said.The commerce secretary will face deep scepticism from Chinese officials, who question Washington’s sincerity in wanting to improve trade ties while the Biden administration tightens controls on tech investments.The restrictions announced this month, which come into force next year, are an effort to stop the Chinese military from accessing US funding, knowledge and capital. They are expected to affect private equity and venture capital firms as well as US investors in joint ventures with Chinese groups.The order was the latest in a series of actions designed to limit Chinese access to advanced technology in what US national security adviser Jake Sullivan has called a “small yard, high fence” strategy.Raimondo’s visit follows recent trips to Beijing by other US cabinet officials, including secretary of state Antony Blinken, Treasury secretary Janet Yellen and climate envoy John Kerry.During her trip in July, Yellen told an audience in Beijing there was “ample room” for US and Chinese companies to boost trade and investment, despite security tensions.Chinese media cited some positive signs for US-China relations ahead of Raimondo’s visit, including a move by Washington to seek an extension to a decades-old science and technology agreement with China and its lifting of export control restrictions on 27 Chinese entities last week.“China will continue to raise relevant economic and trade concerns with the US, and strive to create a fair and stable business environment for enterprises to carry out trade and investment co-operation,” the Communist party-run Global Times tabloid quoted China’s commerce ministry as saying.

Bryan Mercurio, a law professor at the Chinese University of Hong Kong, said there were signs Beijing was open to a thaw in relations and more dialogue, which could help pave the way for potential meetings between Biden and Chinese president Xi Jinping at the G20 summit next month in India or the Apec forum in San Francisco in November.But the outlook for relations in the long run is not positive, Mercurio said, with a fractious US election due next year in which ties with China will be a contentious issue.“They can smooth things over in the short run leading up to the Biden-Xi meeting, but in the long term, are there any signs the two will come close together? I would say if anything, it’s the reverse,” Mercurio said. More

TORONTO (Reuters) – Canada’s second-quarter GDP report, due on Friday, is likely to show a sharp slowdown in economic growth, a Reuters poll of economists showed, which could lead the Bank of Canada to pause its interest rate hikes despite recent hotter inflation data.The GDP report will be the last major piece of domestic data before the Canadian central bank makes its next policy decision on Sept. 6. It is expected to show the economy growing at a 1.1% pace in the second quarter, down from 3.1% in the first three months of the year, and below the BoC’s 1.5% estimate.That would be a relief to the market after the latest CPI report showed inflation rising above 3% in July, moving further away from the BoC’s 2% target and raising expectations for another rate hike in September.The BoC raised its benchmark rate to a 22-year high of 5% in July. The central bank has said it would study economic data closely before determining whether it raises interest rates further. “We think this print is very important for the BoC’s (September) decision,” said Carlos Capistran, ‎head of Canada and Mexico economics at Bank of America Merrill Lynch (NYSE:BAC). “The BoC is in a data-dependent mode and has not closed the door to further hikes.”Some of the expected slowdown in the second quarter could be down to transitory factors, such as wildfires, maintenance on energy projects and a civil servants strike, which could mean that a preliminary estimate for July, due for release the same day as the quarterly data, will also be key for the rate outlook, say analysts.”If there are clear signs the economy is slowing, that will likely give the BoC comfort it can hold the line at 5% for now and see more data,” said Benjamin Reitzes, Canadian rates & macro strategist at BMO Capital Markets.Money markets see a roughly 70% chance that the BoC will move to the sidelines in September but lean toward further tightening by the end of the year, which would result in interest rates peaking at 5.25% in the current cycle. The July estimate follows recent preliminary data that showed a contraction in June activity and could be affected by a dock workers strike last month at ports along Canada’s Pacific coast.”Because we had that likely drop in GDP in June and then we’ve got the port strikes in July, there is a reasonable chance we get a negative GDP print for Q3,” said Stephen Brown, deputy chief North America economist at Capital Economics.The BoC has projected 1.5% growth for the third quarter, matching its second-quarter estimate.Still, not every economist expects a pause. Some argue that the composition of growth in the second-quarter data, including the split between internal and external demand, could also be a consideration.”If domestic demand still looks too strong, led by a rebound in housing and consumer spending on services, and the July figure points to a decent start to Q3, the Bank of Canada may still choose to continue hiking interest rates at the September meeting,” said Andrew Grantham, a senior economist at CIBC Capital Markets. More