Market Recap
Headlines
Chinese Market
1. The People's Bank of China cuts reserve requirement ratio for the second time this year
The People's Bank of China has decided to lower the reserve requirement ratio for financial institutions by 0.25 percentage points (excluding those institutions already at a 5% reserve requirement ratio) on September 15, 2023. This adjustment brings the weighted average reserve requirement ratio for financial institutions to about 7.4%. Six months after the previous cut, this second comprehensive reduction within the year is expected to release more than 500 billion yuan in medium- to long-term liquidity.
2. Central bank media suggests potential alleviation of external pressure on the Yuan exchange rate
The Financial Times, supervised by the People's Bank of China, mentioned that the depreciation pressure on the Yuan against the US dollar is short-term and periodic. Even though the US dollar index has recently strengthened significantly, and the interest rate differential between China and the US has continued to invert, leading to a short-term depreciation of the Yuan, the external factors supporting the US dollar are weakening. It is expected that the yen's shift to a more hawkish policy could restrain the dollar index in the future.
3. Middle Eastern capital increases allocation in Chinese assets
In recent years, Middle Eastern capital has increased its allocation to Chinese assets through secondary market purchases and private equity investments among others. Data from listed companies' semi-annual reports shows that as of the end of June this year, the Abu Dhabi Investment Authority and the Kuwait Investment Authority were among the top ten shareholders in 26 and 36 A-share listed companies respectively, marking a significant increase from the end of last year. Additionally, the United Arab Emirates' third-largest sovereign wealth fund, Mubadala Investment Company, has officially established an office in Beijing.
Overseas Markets
1. U.S. August PPI experiences the largest increase in over a year
Driven by rising energy costs, such as gasoline, the U.S. Producer Price Index (PPI) rebounded beyond expectations, indicating stubborn inflation. According to data from the U.S. Department of Labor, the PPI for August increased by 1.6% year over year, higher than the anticipated 1.3%, marking the second consecutive month of surpassing expectations. On a month-to-month basis, the PPI rose by 0.7%, witnessing the largest increase since June 2022's 0.9%. The report emphasized that a significant portion (80%) of the rise in August's PPI was due to the increase in final demand goods prices, with the final demand goods index rising by 2.0%, its largest gain since June 2022.
2. U.S. August retail sales far exceed expectations
Data on August retail sales from the U.S. Census Bureau, supported by strong gasoline prices, revealed that retail sales for August increased by 0.6% month over month, not only surpassing the revised previous value of 0.5% and market expectations of 0.1% but also marking the fifth consecutive month of growth. Sales at gas stations rose by 5.2% month over month, recording the largest increase in over a year and serving as the main driving factor for the rise in retail sales (as illustrated below).
3. European Central Bank lowers economic and core inflation forecasts
Following the European Central Bank's interest rate meeting, the main refinancing rate, deposit facility rate, and marginal lending rate were all raised by 25 basis points. After these increases, the deposit facility rate reached its highest level in twenty-two years at 4%, with the refinancing rate at 4.50%, and the marginal lending rate at 4.75%. Since ending an eight-year era of negative interest rates in July last year, the European Central Bank has implemented ten consecutive rate hikes, totaling an increase of 450 basis points, marking the fastest pace of tightening in history.
4. Escalation in Australian LNG worker strike
Media reports indicate that workers at Chevron's key Liquid Natural Gas (LNG) plant in Western Australia have intensified their strike action. A union official confirmed that after initiating a partial strike on September 8, workers have started a planned escalation of their actions. This escalation could include limits on activities such as mooring and loading of oil tankers or other vessels, laboratory analysis, and equipment restarts. Australia, as the world's largest LNG exporter, not only supplies half of Western Australia's gas consumption through the Gorgon and Wheatstone projects but also approximately 7% of the global LNG supply.
Today’s Focus
Today, investors should keep an eye on the Eurozone July trade balance, US import price index, industrial production, University of Michigan consumer sentiment index, and other economic data. Additionally, investors should pay attention to the National Development and Reform Commission's economic operation press conference in China and European Central Bank President Lagarde's speech, among other risk events.
