Aurelia Butler

It is unusual for the central bank to comment on foreign policy given its responsibility is finance, suggesting that China is signalling it is ready to deploy a wide range of countermeasures in response to increasing tension with the West. The PBOC will “appropriately deal with the containment and suppression of the United States and the West”, the bank said in a statement published following an internal Communist Party committee study session.Relations between the world’s two largest economies have been tense for years but worsened last month after the United States shot down a balloon off the U.S. east coast that it says was a Chinese spying craft. While the U.S. has maintained it seeks to establish guardrails for the relationship, Xi has spoken of a need to “improve the national security system” and “build the people’s army into a great wall of steel that effectively safeguards national sovereignty, security and development interests”.China’s President Xi said on Wednesday that “frontrunners” should sincerely support other countries in their development, Chinese state media Xinhua reported. “One will not be seen in a more favourable light after blowing out others’ lamps, nor will they go further by blocking others’ paths,” Xinhua quoted Xi as saying.Xi made the remarks in a keynote address delivered at a meeting with world political parties.He added that, in pursuit of modernization, China will neither tread the old path of colonisation and plunder, nor the “crooked” path taken by some countries to seek hegemony once they grow strong, according to Xinhua.”EXTERNAL SHOCKS AND RISKS”China last week announced sweeping government reform, including the establishment of a new financial regulatory body that would take over some supervisory functions from the PBOC. The setting up of a national financial regulatory administration comes as Beijing seeks to rein in large corporate and financial institutions to shore up its economy in the face of “external shocks and risks”, as the foreign exchange regulator characterised the challenges facing the economy on Wednesday in a separate statement. The anticipated shocks and challenges from outside would likely complicate policy-making this year as China emerges from three years of austere COVID-19 policies that have weighed on its $18 trillion economy. The PBOC reiterated that it would step up financing for private, micro and small enterprises and that it will support reasonable bond financing needs of private companies. In recent years, the government has sought to tighten its grip on private businesses, by taking stakes in non-state enterprises or installing officials in large firms.”We will precisely and effectively implement the prudent monetary policy, keep an appropriate pace of loan issuance, and keep the total supply of money and credit at an appropriate amount and grow steadily,” the bank said. More

    Efforts by regulators and financial executives to ease contagion fears sparked by last week’s collapse of Silicon Valley Bank (SVB) had bought some brief stability to markets, but turmoil once more appeared to be taking over.Saudi National Bank cannot give more money to Credit Suisse as it cannot go above 10% ownership due to a regulatory issue, SNB’s chairman Ammar Al Khudairy told Reuters.European banks shares slid over 6%, European stocks were down 2.5% and U.S. stock futures pointed to a weak start for Wall Street shares. MARKET REACTION: STOCKS: Credit Suisse share trading was halted after heavy losses, last down over 20%, ING Group (NYSE:ING), ABN AMRO (AS:ABNd) were down over 6%. The euro zone volatility index shot up to its highest level since OctoberBONDS: U.S. and European bond yields fell sharply as investors flocked to safe-haven assets. German 2-year bond yields were down 30 basis points at 2.61%FOREX: The euro fell over 1% to $1.0605, the dollar index was up 0.7%.COMMENTS:ANTOINE BOUVET, SENIOR RATES STRATEGIST, ING, LONDON:”The Credit Suisse share price is falling and government bonds are rallying on the back of that. Still very much driven by the perceived health of the banking sector, but this time in Europe.”CARLO FRANCHINI, HEAD OF INSTITUTIONAL CLIENTS, BANCA IFIGEST, MILAN “Markets are wild. We move from the problems of American banks to those of European banks, first of all Credit Suisse.””This is dragging lower the whole banking sector in Europe. The shares accelerated losses after the Saudis said they’re not willing to support the bank any further. “I believe Credit Suisse’s crisis can be solved and the bank will not … go belly up. Once some calm returns to the markets, the problem will be who can take it over.” KASPAR HENSE, SENIOR PORTFOLIO MANAGER, BLUEBAY ASSET MANAGEMENT, LONDON”So the market is quite confused here on the stability of the bank (Credit Suisse) in general, and certainly doesn’t help if today the Saudis are coming out and saying that they will not increase the buffer, and so we think it will be dependent on the Swiss regulator to step in.”But in general, the balance sheet is in a much better position, with the European banks all highly regulated. That means they have substantial buffer beyond the equity portion on the senior and subordinated debt.That should, to some extent prevent an attack, but it didn’t. So, it is important that the European regulator makes clear that the underlying systemic risk, not only for deposits, but in the overall European banking market, is rather low.”RICHARD MCGUIRE, HEAD  OF RATES STRATEGY, RABOBANK, LONDON “We’re back off to the races, the markets are spooked by the Credit Suisse headline that the Saudi National Bank would not increase its stake. “That’s caused the Credit Suisse share price to fall, and the German curve has bull steepened – short end rates have fallen faster than long end – as the market reassesses yet again the outlook for ECB policy.”Credit Suisse is not new news, maybe it has come as a surprise to some, but the Saudi National Bank, was at the 10% limit before, they are at the 10% limit now, what has changed is the context. We think neither the Fed or ECB will be blown off track, inflation targeting is first and foremost. For today Credit Suisse is the dish of the day but we don’t think this will be a longer lasting trend (for bond markets).”SALMAN AHMED, GLOBAL HEAD OF MARCO AND STRATEGIC ASSET ALLOCATION, FIDELITY INTERNATIONAL, LONDON “Key central banks have all the tools now necessary to stem contagion. There was a lot of progress made after the 2008-2009 crisis. So there’s a variety of tools — we’ve seen that in the eurozone, we’ve seen that with the Fed, the Bank of Japan, obviously, can deploy a lot more liquidity there.     “So we are less concerned about widespread 2008-2009 systemic at risk. Overall, the banking sector is in much better shape. You may have these idiosyncratic issues which create wobbles. But I think the larger question remains, are we in that territory where financial instability is as important as inflation and growth? That’s the bigger question so we’re not out of the woods from that perspective.”    “I am less concerned about sustained contagion. For a few days, things can happen, but sustained contagion? We have the tools now.”More pressure would likely bring more tool deployment.” More

The Commerce Department said on Wednesday that retail sales dropped 0.4% last month. Data for January was revised higher to show retail sales rising 3.2% instead of 3.0% as previously reported. Economists polled by Reuters had forecast sales would fall 0.3%, with estimates ranging from a 1.0% decline to a 0.5% increase. Retail sales are mostly goods and are not adjusted for inflation. Economists said challenges adjusting the data for shifts in spending patterns at the end and start of the year as well as higher prices were among the factors that had exaggerated January’s retail sales surge. Nevertheless, consumers remain resilient despite higher borrowing costs as the Federal Reserve fights inflation. The U.S. central bank has raised its benchmark overnight interest rate by 450 basis points since last March from the near-zero level to the current 4.50%-4.75% range. With 1.9 job openings for every unemployed person in January, the tight labor market is generating higher wages. Consumers still have a huge amount of savings accumulated during the coronavirus pandemic.According to Bank of America (NYSE:BAC) Securities, an analysis of the bank’s card data showed that services spending significantly outperformed goods spending in February. While this suggests the rotation of spending back services helped to undercut retail sales last month, it should support overall consumer spending.Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.5% last month. These so-called core retail sales increased 2.3%% in January, revised up from the previously reported 1.7%. Core retail sales correspond most closely with the consumer spending component of gross domestic product. Consumer spending, which accounts for more than two-thirds of the U.S. economy, slowed in the fourth quarter, helping to restrict GDP growth to a 2.7% annualized rate. Growth estimates for the first quarter are currently as high as a 2.6% pace. More

“Today the Office for Budget Responsibility forecast that because of changing international factors and the measures I take, the UK will not now enter a technical recession this year,” he said as he presented his budget in parliament.”Despite continuing global instability, the OBR report today that inflation in the UK will fall from 10.7% in the final quarter of last year to 2.9% by the end of 2023.” More