Economy

The People’s Bank of China (PBOC) would cut the reserve requirement ratio (RRR) for all banks by 50 basis points (bps), thereby freeing up 1 trillion yuan ($139.45 billion) to the market.Chinese blue-chip stocks, which hit five-year lows earlier this week, bounced 1.8% on the day. Hong Kong’s benchmark index soared by 3.6%, having endured its most volatile start to the year since 2020 and after plunging on Monday to 15-month lows.The yuan hit its highest since Jan. 12. On the offshore market, the yuan held mostly steady against the dollar at 7.168.COMMENTS: SAKTIANDI SUPAAT, REGIONAL HEAD OF FX RESEARCH AND STRATEGY, MAYBANK, SINGAPORE:”It’s in some ways, in line with expectations… the aim is actually to increase liquidity so that banks can lend more to customers and take a bit more risk and buy more bonds to support economic growth.Beyond this, I think they need to do a bit more to do ‘animal spirits’, and animal spirits is (one of) probably a robust economy, a feeling of improving wealth effects, the function of equity being more robust… so I think more needs to be done.”REMI OLU-PITAN, HEAD OF MULTI-ASSET GROWTH AND INCOME, SCHRODERS, LONDON:”We think that it’s a step in the right direction, but more is needed.””In our opinion, the incentive to reduce exposure is pretty powerful and so we think this provides a pause, but we’re worried that any recovery will be an opportunity to de-risk.””We need more powerful forces. Two powerful forces are, one, maybe more transparency in terms of the direction of regulation and policy…an additional support actually will come from the U.S. in terms of the Fed – a cutting cycle provides liquidity not just to the U.S. market but externally and typically that comes from a weaker dollar. And with liquidity you get animal spirits.”GARY NG, SENIOR ECONOMIST FOR ASIA PACIFIC, NATIXIS, HONG KONG:”The RRR cut is what the economy needs, and the recent weakened sentiment may have just brought the timing forward. It offers the certainty that the government is willing to stabilise the economy, but it is also unlikely to be a fully lax monetary policy mode. Consumption and real estate data after the Spring Festival will be critical for any anticipation of further easing.”FRANCES CHEUNG, RATES STRATEGIST, OCBC BANK, SINGAPORE:”The cut has been well anticipated, but the market was unsure about the exact timing. The long-term liquidity can facilitate banks to extend loans, or – in an environment where loan demand may be weak, the liquidity released can support bond issuances thereby fiscal stimulus.” “It underlines our medium-term upward bias to yuan rates and CGB (Chinese government bond) yields as markets shall ultimately respond to the better growth outlook resulting from various support measures, and if bond supply is coming through.””We maintain a 10-year CGB yield expectation at 2.70-2.80% by year-end.”SAMY CHAAR, CHIEF ECONOMIST, LOMBARD ODIER, GENEVA: “It’s part of the toolbox where they are taking incremental steps basically to put a floor under economic activity and potentially financial markets.” “We’re still very, far from any kind of decisive policy intervention to really change the economic direction of the country. Rather, it’s a continuation of the small steps we’ve seen.” “It does put a floor under Chinese growth, and certainly allows some form of stability.”KIYONG SEONG, LEAD ASIA MACRO STRATEGIST, SOCIETE GENERALE, HONG KONG:”The scale of 50-bps cut is larger than expected, but the timing of a cut before the Lunar New Year might not be a big surprise to some extent, especially after a stock market rescue plan announcement earlier. Furthermore, another policy announcement for property developers will be out soon, as the PBOC hinted.””We would like to wait to see a full set of policy supports before concluding the impact on the overall market.”KELVIN WONG, SENIOR MARKET ANALYST, OANDA, SINGAPORE:”In the short-term, it will be a positive for Chinese equities, but in the medium-to-long-term, it’s difficult to say if it will have a significant impact on the economy.””The only way to see more positive flows back into the stock market is to have some new stimulus that directly boosts confidence among consumers.”ALVIN TAN, HEAD OF ASIA FX STRATEGY, RBC CAPITAL MARKETS, SINGAPORE:”It’s worth bearing in mind that this’ll be the third cut in a year. It’ll be more than the previous ones, which were 25 bps each. But it’s just injecting more liquidity in the system and it does seem that there’s a growing lack of demand and consumption. The economic situation is poor so people aren’t in any urgency to borrow money.””I think the more important thing is yesterday’s news about the stock market rescue package, so that might be a reason to keep downside pressure on dollar/renminbi”, (because it would reportedly involve off-shore funds buying Chinese stocks through Hong Kong, likely involving selling dollars for yuan).KEN CHEUNG, CHIEF ASIAN FX STRATEGIST AT MIZUHO BANK”The RRR cut wasn’t too unexpected to me.””I think the purpose of the RRR cut is meant to lift the stock markets before the Lunar New Year holidays. And the PBOC also announced other supportive measures.””The RRR cut could free up some funds that will be needed before the holiday. Its side effect on the yuan won’t be huge.”TIM GRAF, HEAD OF EMEA MACRO STRATEGY AT STATE STREET, LONDON:”My initial thoughts are that this is a little bit overdue as we have expected more easing to support the economy.””Along with some of the stimulus announced yesterday, it does seem like they (the authorities) are paying more attention to stimulus that can support growth and markets.””But the challenges are still there and the banking system is still in trouble.””This is not entirely unexpected and this is not the panacea that will change the narrative too much. More targeted stimulus would be a more powerful lever to push and they seem to reluctant to do that.”KHOON GOH, HEAD OF ASIA RESEARCH, ANZ, SINGAPORE:”It’s probably not surprising. Markets and ourselves have been calling for RRR cuts to happen given that the economic recovery has been pretty weak, and I guess the timing is not unexpected, especially coming after the news yesterday about some kind of rescue plan for the stock market. In terms of market reaction, I think the equity market obviously has taken the news fairly positively, so the rally managed to continue.”CHRISTOPHER WONG, CURRENCY STRATEGIST, OCBC, SINGAPORE:”Markets have been expecting the RRR cut for a while so the announcement is not entirely a surprise. That said, policymakers should ride on the positive momentum by announcing some form of support measures for the economy targeting consumption. This, alongside the 1 trillion liquidity injection (RRR) and potential support for the equity market can help rebuild credibility and shore up investor confidence.”CHRIS SCICLUNA, HEAD OF ECONOMIC RESEARCH, DAIWA CAPITAL MARKETS, LONDON:”It’s one of the usual tricks the authorities resort to when they want to provide some support, whether to the markets or to the economy as a whole. It’s arguably a more effective tool than a rate cut in China, given that we’re in this environment of excess capacity in so many sectors and the ongoing structural and cyclical adjustments.””It’s a welcome step, but it’s not going to be game-changer. There are still questions about the extent to which the National Team, and various institutions can try to pull together to try to support the market and start up the buying of stocks and draw a line under the sell-off there.””But there are obvious question marks as to the extent to which that can turn around the market or not. It’s clear this isn’t any speculative pressure against the market that is causing the rout. It’s a reflection of the trend going forward.” More

Bullard, who has been known for his hawkish stance on inflation, indicated that he expects core inflation to approach the 2% mark by the third quarter of this year. This forecast comes despite ongoing concerns about the tight labor market and persistent inflationary pressures.Following Bullard’s remarks, there was a noticeable dip in Treasury yields. The ten-year note fell to 4.10%, and the two-year notes saw a decline to 4.32%. The personal consumption expenditures price index, a key measure of inflation, dropped to an annualized rate of 2.6% in December last year. The next release is scheduled for January 26. While this decrease suggests a cooling of inflation, some analysts remain wary of the potential risks associated with premature policy easing, particularly in light of the still-tight labor markets.Bullard’s comments have added to the debate over the Fed’s next steps as it navigates between curbing inflation and supporting economic growth. The possibility of a rate cut by March, as posited by Bullard, will be closely watched by markets and policymakers alike in the coming weeks.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

BERLIN (Reuters) – The proportion of German firms exiting the Chinese market or considering doing so has more than doubled to 9% in the past four years, according to a survey by the German Chamber of Commerce in China.The survey highlights the challenges faced by German companies operating in China, including increased competition from local companies, unequal market access, economic headwinds and geopolitical risks, the chamber said.“Last year was a reality check for German companies operating in China,” said Ulf Reinhardt, chairperson of the chamber for southern China.Some 2% of the 566 firms surveyed between Sept. 5 and Oct. 6 said they were selling off business operations in China while 7% said they were considering doing so. That compared to a total of 4% exiting China or considering doing so in 2020.Moreover 44% have taken steps to address risks linked to their business operations in China – including building up China-independent supply chains.The survey comes half a year after the government unveiled a strategy toward de-risking Germany’s economic relationship with China, its biggest trade partner and confirms anecdotal evidence reported by Reuters of German firms reducing their dependence on China.Other countries in the West are also promoting risk mitigation amid concern about China’s increasingly assertive attitude towards Taiwan and in the South China Sea, as well as its tightening grip over its domestic economy.China’s economy is facing a downward trajectory, some 86% of German firms said in Tuesday’s survey, although most deemed it to be temporary and predicted a bounceback within the next 1-3 years.China’s recovery from the pandemic has proven shakier than many expected, with a deepening property crisis, mounting deflationary risks and tepid demand casting a pall over this year’s outlook.Some 54% of surveyed German firms said they nonetheless planned to increase investment to stay competitive. More

Investors have been snapping up the debt of some of the eurozone’s most indebted countries to lock in attractive yields, as the traditional dividing lines between the bloc’s riskier and safer bond markets become increasingly blurred. Traders have been encouraged by declining debt ratios in Italy, Portugal, Greece and Spain, say analysts. That has come on top of a broad rally in eurozone debt late last year on hopes of interest rate cuts, and helped narrow the gap between Italian and German borrowing costs — a key measure of eurozone risks — to 1.56 percentage points, near a two-year low. In October, the gap was more than 2 percentage points. The tightening of these spreads marks a major shift in sentiment across the euro area, just over a decade after a long-running debt crisis almost broke the single currency and led to bailout loans for a number of countries.“We think 2024 will be the year when the boundaries blur between core and periphery,” said Aman Bansal, lead European rates strategist at Citi.He pointed to falling debt to GDP levels among peripheral nations and higher net debt issuance in France and Germany.Christian Kopf, head of fixed income at Union Investment, Germany’s third largest asset manager, said he had profited “handsomely” from buying the debt of Greece and Portugal, adding that their public debt ratios were falling.“It’s really quite simple,” he said. “Bonds that yield more than German Bunds are likely to also return more — unless the issuer’s solvency deteriorates significantly, which is not the case in the euro area periphery.”According to IMF forecasts, debt to GDP will rise in France and Belgium over the next two years but decline significantly in Greece and Portugal, with modest declines also forecast in Italy and Spain.Eurozone debt prices have fallen this week ahead of the European Central Bank’s rate-setting meeting on Thursday, where investors will watch for any hints as to when the central bank will start lowering rates. Markets are pricing in 1.3 percentage points of ECB cuts this year.Still, despite the ECB’s deposit rate currently at a record high of 4 per cent, economic growth has been higher over the past year in Spain, Greece and Portugal than it has been in Germany or France, while Italy’s economy has stagnated. “Spain and Portugal have suffered less from the impact of the Russian war against Ukraine as the Iberian peninsula was less dependent on energy imports from Russia, while the Next Generation EU common debt issuance programme has benefited smaller countries the most,” said Oliver Eichmann, head of rates fixed income at Europe, the Middle East and Africa at DWS. Next Generation EU was set up in 2020 to reconstruct the region’s pandemic-stricken economies. “There is a high likelihood that these established instruments will be used again in the future and that works in favour of less volatile spreads,” Eichmann said. The tightening of spreads comes in spite of the ECB’s announcement it would stop buying government debt earlier than planned and a gush of bond sales this month. Citi forecasts a record €165bn of eurozone government debt will be issued this month, 13 per cent higher than January last year. But demand has remained robust as markets bet the ECB will cut rates this year, with Spain attracting the largest ever order book for a sovereign bond on January 10 while Italy received €91bn in bids for a 30-year debt sale, the largest Italian order book since the start of 2021. Citi’s Bansal said pressures from net issuance — after excluding bond redemptions and the ECB’s purchases — were greatest in the eurozone’s core countries, with France on track to issue a record €140bn net this year. “France is slowly moving from a core to a periphery economy in terms of fiscal vulnerabilities,” said Tomasz Wieladek, chief European economist at T Rowe Price.France’s annual budget deficit was 4.8 per cent of GDP in the third quarter of last year, up from 4.4 per cent the previous quarter, according to data from Eurostat this week, while Portugal, Greece and Ireland each clocked a surplus. Meanwhile, many investors believe the ECB’s so-far untested transmission protection instrument, which allows the ECB to buy unlimited amounts of bonds of any member country judged to be suffering from an unjustified rise in its borrowing costs, offers protection against high interest rates for the bonds of “peripheral” countries.Mary-Therese Barton, chief investment officer for fixed income at Pictet Asset Management, said she expected a continued convergence of eurozone borrowing costs this year owing to the “collectivity of risk” across the bloc, alongside growing pressure for the eurozone’s largest countries to boost spending on defence and the energy transition. “Despite all the doom mongers on the European project there is just this border narrative about socialisation of the debt more broadly . . . in which case spread convergence makes every sense,” Barton said. Additional reporting by Martin Arnold in Frankfurt More

LONDON (Reuters) – London remains the world’s top financial centre as New York slips into second place, after tying with the UK capital last year, the City of London Corporation’s own survey showed on Wednesday.Bottlenecks in business activity caused by Brexit, which largely cut the City off from the European Union, and the COVID-19 pandemic have been cleared, while regulatory efficiency, immigration policies and workers returning to the office have all improved London’s business ecosystem, the survey said.”Although London saw a decrease in capital markets activity and assets under management, it ranked top in both sustainable finance and talent and skills,” the City of London said in a statement.”New York leads the way in tech and wider financial activity, but its score fell this year as the bull market of the Covid period was halted by high inflation and steep interest rate rises.”Other surveys like Z/Yen put New York well ahead of London, fighting off Singapore and Hong Kong to remain in second place.The City’s survey, however, may not be enough to fully ease post-Brexit angst in the financial sector as UK-based companies like chip designer ARM choose to list in New York rather than London.U.S. stock markets also hit record highs over the past week as investors bet on U.S. interest rates falling later this year, with the economy outpacing its main international peers, including Britain.Britain has set out a welter of financial reforms to make listing in London more attractive and to direct pension cash into growth companies to deepen market liquidity.The City of London said these reforms helped to land it the top spot in its survey, with an overall competitiveness score of 59, though down from 60 last year due to shrinkage in fund assets under management and a fall in foreign listings.New York fell by three points to 57.City of London policy chief Chris Hayward said further reforms were needed as Britain’s banks face a much higher tax rate than their U.S. rivals.Singapore came in third again, dropping three points to 48, with Frankfurt fourth at 44 points, and Paris fifth with 40.The survey is based on 101 metrics across five key competitiveness areas. More

SEOUL (Reuters) -South Korean flatscreen maker LG Display (NYSE:LPL) flagged continued economic instability this year as it posted on Wednesday its first profit in seven quarters on increased shipments of smartphone screens and TV panels during the year-end holiday season. “Although market volatility will continue this year due to prolonged unstable macroeconomic conditions, we will… (be) strengthening the competitiveness of our organic light-emitting diode (OLED) businesses,” said Chief Financial Officer Sung-hyun Kim.The Apple (NASDAQ:AAPL) supplier posted an operating profit of 132 billion won ($98.67 million) for the October-December quarter, versus a loss of 876 billion won a year earlier. The result matched LG Display’s estimate of 132 billion won released earlier this month. Shipments of OLED displays for smartphones have increased in the fourth quarter, and demand for large and medium-sized screens for products such as TVs and notebooks have increased during the holiday season, the company said. In the current quarter, analysts expected earnings to weaken due to low seasonal demand, but full-year earnings were seen improving from last year’s 2.5 trillion won operating loss on overall demand improvement for electronics products. LG Display supplies screens for Apple’s new headset Vision Pro which starts sales next month, and analysts expect it to boost supply of liquid crystal display (LCD) panels for Samsung Electronics (KS:005930)’ TVs this year.Shipments of both small and large OLED panels are also expected to improve, as stocks have been used up and demand improves, they said. Fourth-quarter revenue rose 1% from a year earlier, to 7.4 trillion won. ($1 = 1,337.7400 won) More

The company concludes fourth-quarter reports from the world’s top oilfield services providers. International demand also helped rivals SLB and Halliburton (NYSE:HAL) beat estimates amid slowing activity in the U.S. shale region. International rig count, an indicator of future production, stood at 948 on an average in 2023, 11.4% higher than a year earlier, as per Baker Hughes data, while U.S. rig count fell 4.4% to 689.Baker Hughes reported a 15% rise in international revenue for its oilfield services segment, while North America revenue slipped 1%. Revenue from its industrial and energy technology segment jumped 24% to $2.88 billion.The company has also benefited from equipment supply contracts from new LNG producing facilities as energy firms are betting on long-term demand for the super chilled commodity.An “unprecedented surge” in LNG projects coming online from 2025 is set to add more than 250 billion cubic metres (bcm) per year of new capacity by 2030, the International Energy Agency said in October.On an adjusted basis, the company posted net income of 51 cents per share for the quarter ended Dec. 31, compared with the average analysts’ estimate of 48 cents, according to LSEG data.Shares were marginally higher after the bell. More

(Reuters) – A look at the day ahead in Asian markets.Investor sentiment towards China has picked up following a report that Beijing is considering a hefty package to support its ailing markets, and Wednesday’s trading activity will give some insight into whether it will be fleeting or something more lasting. Elsewhere in the Asia & Pacific region on Wednesday New Zealand inflation, purchasing managers index reports from Australia and Japan, and a monetary policy decision in Malaysia all have market-moving potential. The broader mood music, however, will probably be set by the S&P 500’s third consecutive record closing high, and by how Chinese and Hong Kong markets trade. The performance of Chinese stocks on Tuesday was not particularly strong – Hong Kong stocks rallied much harder – but any rebound has to start somewhere. Authorities and China bulls will be hoping this has legs. And it might if policymakers can mobilise about 2 trillion yuan ($278 billion), mainly from offshore accounts of state-owned enterprises, as part of a stabilization fund to buy shares onshore through the Hong Kong exchange link.By some measures, these markets are attractive. Valuations are cheap, indexes are the lowest in years, and if authorities can put a floor in, then a fair bit of the capital that has fled China and Honk Kong lately could be tempted back.Perhaps.The CSI 300 index’s rise of 0.4% and the Shanghai Composite’s rise of 0.5% on Tuesday were not big by most measures. But they were the biggest rise in almost a month, and enough to lift the indexes up from five- and four-year troughs, respectively.In Hong Kong, the benchmark Hang Seng and Hang Seng tech index jumped 2.7% and 3.7%, respectively, for their best days in two months, but they too are coming from low bases. The Hang Seng is flirting with levels it was at when Hong Kong returned to China from Britain in 1997. Before Tuesday’s spike, Hong Kong tech stocks were down 20% this month. Japan’s equity bull run took a breather on Tuesday after the Bank of Japan stood pat at its policy meeting but appeared to err on the hawkish side, while the yen eventually gave back its initial gains and drifted down to 148.50 per dollar.There was something for everyone, however, in Governor Kazuo Ueda’s comments, as he noted that inflation seems to be heading back toward the bank’s 2% target in a sustainable manner. If this narrative prevails, expect the Nikkei to resume its upswing and the yen and bond yields to remain under pressures.Meanwhile, Bank Negara Malaysia is widely expected to leave its overnight policy rate unchanged at 3.00% on Wednesday and hold it there until at least the end of next year. Here are key developments that could provide more direction to markets on Wednesday: – Australia PMIs (January)- Japan PMIs (January)- Malaysia interest rate decision (By Jamie McGeever; Editing by Bill Berkrot) More