Market Review
Market Focus
Chinese Market
1. Major Statement from the Governor of the People's Bank of China
Entrusted by the State Council, the Governor of the People's Bank of China, Pan Gongsheng, reported on the financial work since the fourth quarter of 2022 at the sixth session of the Standing Committee of the 14th National People's Congress. The report emphasized continuous implementation of a prudent monetary policy, comprehensive strengthening and improvement of financial regulation, deepening financial reforms and opening up, actively and prudently preventing and mitigating financial risks, and striving to maintain stable operation of the financial market.
2. Central Bank's Net Injection Exceeds One Trillion Last Week
Given the large scale of government debt supply and the tax period approaching, there was a significant liquidity gap within the month. To counteract the impact of the tax period peak and government bond issuance among other factors, the central bank increased fund injections, totaling a net injection of 1.077 trillion yuan for this week, calculated with Medium-term Lending Facility (MLF) plus reverse repurchase agreements. Specifically, the central bank's daily fund injections were modest from Monday to Wednesday last week but increased from Thursday onwards. On Friday, the central bank raised the net injection scale in the open market to 733 billion yuan, setting a new record high (see image below).
Overseas Markets
1. US Fiscal Year 2023 Budget Deficit Surges by 20%
The US Treasury Department released the revenue and expenditure report for the fiscal year ending September 30, 2023. With revenues falling significantly more than expenditures compared to the fiscal year 2022, the federal budget deficit of the United States expanded to $1.7 trillion, the third-largest deficit on record, equivalent to 6.3% of the GDP for that fiscal year. The data shows that the budget deficit of the US government increased by approximately $320 billion, or an increase of 23% year-on-year. The previous deficit for the fiscal year 2022 was $1.38 trillion, which was 5.4% of the GDP at that time (see image below).
2. FOMC Member Forecasts No Rate Cuts Before End of 2024
Raphael Bostic, President of the Federal Reserve Bank of Atlanta, expects the Federal Reserve not to cut rates until the end of 2024. Bostic mentioned that although interest rates have reached a "sufficiently strict" level and no longer need to be increased, the Federal Reserve still has a lot of work to do before achieving the 2% inflation target and with the economic slowdown. He predicts that the Federal Reserve might not consider cutting rates before the end of 2024.
3. US Stocks and Corporate Bonds Not Spared from "Interest Rate Shock"
Amid expectations of Federal Reserve tightening and surges in US Treasury supply, US Treasury yields have continued to skyrocket, acting as the "anchor of global asset prices," reaching new highs. This has notably pressured global risk assets, while higher US Treasury yields and spreads have also increased credit costs for companies and individuals. With the spike in long-term US bond yields, short-term bond yields saw smaller increases, resulting in a "bear steepening" of the yield curve, indicating market mispricing of long-term economic growth (concerns over the speed of growth slowdown and recession), thus pressuring risk assets.
4. Russia Considers Additional Tax on Natural Gas Producers as "Transfer Payment"
According to three informed sources, the Russian government is considering an additional tax on natural gas production to fully subsidize the country's refineries. A final decision on the tax increase has not yet been made. It's reported that the Russian government is contemplating raising the tax burden on the national natural gas industry to support the domestic fuel market without causing a strain on the national budget. The tax increase might specifically target Gazprom, the state-controlled gas giant, but could also include other Russian gas producers.
Looking Ahead to Next Week
Next week, investors should pay attention to manufacturing PMIs in Europe and the US, CPI in Australia, retail sales and job market reports in Germany, US GDP for the third quarter, core PCE price index, initial jobless claims, and the University of Michigan's consumer sentiment index among other economic data. Besides, they should also keep an eye on the ongoing situation between Israel and Palestine, as well as interest rate meetings and press conferences by the Bank of Canada and the European Central Bank.
