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MNI: PBOC To Aim To Drive Inflation Higher- Advisors

MNI: China To Issue More Bonds As Stimulus Targets Consumption

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MNI: US NOV IMPORT PRICES +0.1%

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AUSTRALIA: 2025 Election Outcome Looking More Uncertain According To Newspoll

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MNI EUROPEAN OPEN: China Loan Prime Cut Smaller Than Expected


EXECUTIVE SUMMARY

Fig. 1: Hang Seng Properties Index & CSI 300 Real Estate Index

Source: MNI - Market News/Bloomberg

U.K.

HOUSE PRICES: UK property sellers cut the prices they’re asking at the sharpest pace since December, adding to evidence that soaring interest rates are weighing on the ability of buyers to afford purchases. The property portal Rightmove said its index tracking the cost of homes coming to market fell 1.9% to £364,895 ($465,620) this month. It was the biggest decline for August since 2018 and the sharpest drop since the end of last year, when sellers were trying to wrap up deals. (BBG)

EUROPE.

ITALY: Italian Premier Giorgia Meloni’s government is planning to back former Finance Minister Daniele Franco as its candidate for the European Central Bank’s Executive Board, according to people familiar with the matter. Franco, 70, finance minister in the administration of ex-central banker Mario Draghi, became the leading candidate after it became clear that he wouldn’t win the top job at the European Investment Bank, said the people, who declined to be named because the discussions are private. (BBG)

UKRAINE: Denmark pledged to send 19 F-16s to Kyiv and the Netherlands also promised to provide the fighter jets during surprise visits by President Volodymyr Zelenskiy, a major step in giving Ukraine advanced weapons to beat back Russia’s invasion. (BBG)

U.S.

POLITICS: Former U.S. President Donald Trump on Sunday said he would skip the upcoming Republican primary debates, citing his large lead in opinion polls as evidence that he was already well-known and liked by voters ahead of the 2024 election. (RTRS)

OTHER

TURKEY: Turkey's central bank began rolling back on Sunday a growing and costly scheme that protects lira deposits from FX depreciation, marking another move toward more orthodox policies following a shift toward interest rate hikes. (RTRS)

INDIA: India will impose with immediate effect a 40% export duty on onions up to Dec. 31 in an attempt to improve domestic availability of the vegetable, the ministry of finance said in a notification on Saturday. (RTRS)

TAIWAN: Taiwan's election next year is a choice between democracy and autocracy, Vice President William Lai said in comments broadcast after China carried out military drills around the island in anger at his visit this month to the United States. (RTRS)

TAIWAN: Taiwan’s total defense spending in 2024 will be over NT$534b, Taipei-based Commercial Times reports, citing unidentified people familiar with the matter.The spending includes almost NT$440b of defense budget, about 7.5% increase y/y, and other special budget. (BBG)

THAILAND: The majority of Thais disagree with efforts by populist Pheu Thai Party to form a coalition government after snapping ties with election winner Move Forward, a recent opinion poll showed. (BBG)

AUSTRALIA: Negotiations are underway for Australia to host China’s foreign minister for high-level government talks, according to Foreign Minister Penny Wong. “Officials are working through when this might work,” Wong said Sunday in an interview with ABC News. “We would anticipate that dialogue to occur in Australia at an appropriate time.” (BBG)

COMMODITIES: Strike action in Australia’s LNG sector could begin as early as Sept. 2 if new talks between Woodside Energy Group Ltd. and union officials on pay and conditions fail to resolve disputes. Ballots are also taking place on potential walkouts by workers at Chevron Corp. facilities. (BBG)

NEW ZEALAND: New Zealand exports decline 14% y/y to NZ$5.45b in July, Statistics NZ said Monday in Wellington. Dairy product exports fall 19% to NZ$1.48b. (BBG)

CHINA

LPR: China's one-year Loan Prime Rate was cut to 3.45% from 3.55% on Monday to guide down funding costs, but the reduction was smaller than expected as five-year LPR remained stable. (MNI BRIEF)

PROPERTY: China seems inclined to deal with property developers’ debt risks using broad stimulus to boost home sales and ensure delivery of unfinished housing projects, rather than by bailouts which risk fomenting moral hazard, advisors told MNI after a warning over missed bond payments from Country Garden, formerly the country’s largest developer by sales. (MNI)

LOANS: China’s central bank and financial regulators met with bank executives and told lenders again to boost loans to support a recovery, adding to signs of heightened concern from policymakers about the deteriorating economic outlook. (BBG)

DEBT: China will coordinate financial support to resolve local government debt problems, the central bank said in a statement on Sunday, as policymakers look to shore up an increasingly shaky economic recovery and reassure worried investors. (RTRS)

LOCAL GOVERNMENT: China plans to allow local governments to sell 1.5 trillion yuan ($205.9 billion) of special financing bonds to help 12 regions repay debt, Caixin reported. The regions involved are under more pressure to repay local government debt, and they include Tianjin, Guizhou, Yunnan, Shaanxi and Chongqing, Caixin reported on Saturday, without saying where it got the information. (BBG)

ECONOMY: China’s economy is expected to stabilize toward the end of the third quarter and reach its 5%-plus growth target for the full year, according to a Securities Daily report Monday, citing China Galaxy Securities economist Zhang Jun. (BBG)

STOCKS: Some Chinese brokerages have been notified by securities regulator that they should formulate and submit plans on lowering commissions and fees by Thursday following the latest official pledge to cut trading costs for investors, according to a Securities Times report Monday. (BBG)

CHINA MARKETS

MNI: PBOC Injects Net CNY28 Bln Monday

The People's Bank of China (PBOC) conducted CNY34 billion via 7-day reverse repos on Monday, with the rates unchanged at 1.80%. The operation has led to a net injection of CNY28 billion after offsetting the maturity of CNY6 billion reverse repo today, according to Wind Information.

  • The operation aims to keep banking system liquidity reasonable and ample, the PBOC said on its website.
  • The 7-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.8000% at 09:35 am local time from the close of 1.9221% on Friday.
  • The CFETS-NEX money-market sentiment index closed at 42 on Friday, compared with the close of 45 on Thursday.

PBOC Yuan Parity Higher At 7.1987 Monday Vs 7.2006 Friday

The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 7.1987 on Monday, compared with 7.2006 set on Friday. The fixing was estimated at 7.2867 by Bloomberg survey today.

MARKET DATA

NEW ZEALAND JULY EXPORTS NZD 5.45bn; PRIOR 6.18bn
NEW ZEALAND JULY IMPORTS NZD 6.56bn; PRIOR 6.29bn
NEW ZEALAND JULY TRADE BALANCE NZD -1107mn; PRIOR -111mn
NEW ZEALAND JULY TRADE BALANCE 12MTH YTD NZD -15806mn; PRIOR -16113mn

UK AUG RIGHTMOVE HOUSE PRICES M/M -1.9%; PRIOR -0.2%
UK AUG RIGHTMOVE HOUSE PRICES Y/Y –0.1%; PRIOR 0.5%

SOUTH KOREA AUG EXPORTS 20 DAYS Y/Y -16.5%; PRIOR -15.2%
SOUTH KOREA AUG IMPORTS 20 DAYS Y/Y -27.9%; PRIOR -28.0%

CHINA AUG 5YR LPR 4.20%; MEDIAN 4.05%; PRIOR 4.20%
CHINA AUG 1YR LPR 3.45%; MEDIAN 3.40%; PRIOR 3.55%

MARKETS

US TSYS: Marginally Cheaper In Asia

TYU3 deals at 109-15+, -0-05,a 0-08+ range has been observed on volume of ~64k.

  • Cash tsys sit 1-3bps cheaper across the major benchmarks, the curve bear steepened.
  • Tsys were pressured on Monday after China held the 5-Year LPR steady at 4.20%, a cut of 15bps had been expected. The 1-Year LPR was cut 10 bps when a cut of 15bps was expected.
  • The move lower didn't follow through and losses were marginally pared, tsys dealt in a narrow range for the remainder of Monday's Asian session.
  • PPI from Germany headlines an otherwise thin docket on Monday.
  • The data calendar this week is headlined by S&P Global Mfg and Services PMI on Wednesday and on Friday Fed Chair Powell speaks at the Jackson Hole Symposium.

JGBS: Futures Dealing At Session Cheaps In Tokyo Afternoon Trade

In afternoon trade, JGB futures are dealing near Tokyo session lows, -14 compared to settlement levels.

  • A thin local docket on Monday left participants on headlines and US tsys watch.
  • US tsys have been pressured after China held the 5-Year LPR steady at 4.20%, a cut of 15bps had been expected. The 1-Year LPR was cut 10 bps when a cut of 15bps was expected. Regional equities are lower, and the USD is marginally firmer. Cash tsys sit 1-3bps cheaper across the major benchmarks, with the curve bear steepening.
  • Bloomberg reports that the BoJ is purchasing government bonds at a record pace this year, a factor that likely prompted its recent move to allow larger yield movements to reduce the strain on its control of longer-term interest rates. (See link)
  • Cash JGBs are cheaper, with yields 0.1-1.1bp higher. The benchmark 10-year yield is 0.8bp higher at 0.643%, above BoJ's YCC old limit of 0.50% but below its new hard limit of 1.0%.
  • The swaps curve has bear steepened, with rates 0.2-2.0bp higher. Swap spreads are wider.
  • Tomorrow the local calendar is empty, apart from Liquidity Enhancement Auction for OTR 5-15.5-Year JGBs.

AUSSIE BONDS: Weaker, Near Session Cheaps, Pressured By PBoC’s Decision To Leave The 5Y LPR Unchanged

ACGBs (YM -1.0 & XM -2.0) are weaker and near Sydney session cheaps. With the local calendar light today, local participants have been on headlines and US tsys watch.

  • Against consensus expectations, the China 5-yr LPR was left unchanged at 4.20%, versus a forecast of 4.05%. The 1yr LPR was cut by 10bp to 3.45%. The consensus had been for this rate to fall to 3.40%. At the margin, the market was disappointed, particularly in terms of no change to the 5yr LPR rate, as these longer-term rates tend to feed into home mortgage rates etc. So, it may dent sentiment around expectations for the housing market.
  • US tsys sit 1-3bp cheaper in Asia-Pac trade, with the curve steeper.
  • The cash ACGB curve has bear steepened, with yields flat to 2bp higher. The AU-US 10-year yield differential is 4bp tighter at -3bp.
  • Swap rates are flat to 1bp higher, with the 3s10s curve steeper and EFPs little changed.
  • The bills strip is mixed, with pricing -1 to +1.
  • RBA-dated OIS is little changed, with a 5% chance of a 25bp hike in September priced.
  • This week the local calendar is very light, with Judo Bank PMIs on Wednesday being the only release.

NZGBS: Closed On A Weak, $-Bloc Bonds Pressured By China’s Unchanged 5Y LPR

NZGBs closed on a weak note, with benchmark yields finishing 2bp higher.

  • $-bloc bonds US tsys have been pressured on Monday after China held the 5-Year LPR steady at 4.20%, a cut of 15bp had been expected. The 1-Year LPR was cut 10 bp when a cut of 15bp was expected.
  • Swap rates closed flat to 1bp higher, with the implied long-end swap spread narrower.
  • RBNZ dated OIS pricing closed 1-5bp firmer for meetings beyond November. Terminal OCR expectations nudged higher to 5.70%.
  • NZ’s trade deficit widened to NZ$1.11bn in July. Exports to China and Australia declined respectively by 18.1% m/m (-24% y/y) and 9.4% m/m (+8.9% y/y). Dairy product exports fell 19% to NZ$1.48bn in July.
  • Bloomberg reports that Westpac NZ economists expect the Treasury’s pre-election economic and fiscal update will project a wider budget deficit in the year through June 2024. They expect the 2023-24 forecast deficit to widen by NZ$4-5bn, with the 2023-24 borrowing program rising by ~NZ$6bn. (See link).
  • Tomorrow the local calendar is empty, ahead of Q2 Retail Sales Ex-Inflation on Wednesday. Spending appetites likely remained subdued through the June quarter. The softness in retail spending reflects that high inflation and interest rate rises have squeezed households' purchasing power.

EQUITIES: Lower Than Expected LPR Cut Weighs On China Shares

Regional equity trends are mixed, with HK and China markets mostly under pressure, while trends elsewhere are somewhat more encouraging, albeit in selective markets. US equity futures have been range bound, Eminis drifting sideways and last near 4384, slightly firmer for the session (Friday's low came in at 4350). Nasdaq futures are also up a touch, last near 14763. Both indices ticked down after China held the 5-yr LPR steady.

  • The 1yr LPR was cut, but by 10bps, more was expected, with the consensus looking for a -15bps cut. The bigger surprise though was the 5yr LPR held steady at 4.20%, against a -15bps cut expectation.
  • These moves have weighed on China equities, with the CSI 300 down 0.52% at the break and comfortably sub the 3800 level. The real estate sub index is down 1.17% at this stage. In HK the HSI is down 1.38% at the break.
  • Japan stocks have fared better the Topix last up 0.50%, the Nikkei 225 +0.75%. Sentiment has recovered from the earlier dip post the China LPR announcements. Toyota gains have aided broader sentiment, along with gains in information and communication.
  • The Kospi is doing better, after faltering late last week. The index is up +0.60%, away from the 2500 level. The Taiex is close to flat at this stage. In SEA, trends are mixed, with major markets not too far from flat at this stage.

FOREX: Narrow Ranges In Asia

There have been narrow ranges across G-10 FX in Asia today, as moves have had little follow through. The USD firmed off early session lows after China held the 5-Year LPR steady at 4.20%, a cut of 15bps had been expected. The 1-Year LPR was cut 10 bps when a cut of 15bps was expected.

  • Kiwi is the weakest performer in the G-10 space at the margins. Pressure was seen on NZD after the Chinese LPR decisions however support came in ahead of YTD lows and losses were pared.
  • AUD/USD is holding above the $0.64 handle dealing in a narrow range for the most part on Monday. Technically the trend remains bearish, support comes in at $0.6365 Aug 17 low and $0.6285 low from Nov 4 2022. Resistance is at $0.6480, high from Aug 16.
  • Yen is little changed from opening levels, moves have had little follow through in today's Asian session. The uptrend in USD/JPY remains intact, resistance is at ¥146.56 (high from Aug 17) and ¥146.93 (8 Nov 22 high). Support comes in at low from Aug 18 ¥144.93.
  • Elsewhere in G-10 EUR and GBP are marginally firmer
  • Cross asset wise; BBDXY is marginally firmer and 10 Yr US Tsy Yields are up ~2bps.
  • July PPI from Germany headlines an otherwise thin docket on Monday.

OIL: Outperforms Broader Risk Sentiment Today

Brent crude is tracking higher today, last near $85.35/bbl, down slightly from session highs of $85.66/bbl. We opened at $84.80/bbl. This puts Brent around 0.65% above Friday closing levels in NY, which if maintained would be the third straight session of gains. WTI last tracked near $81.90/bbl, slightly firmer for the session so far at +0.80%.

  • Oil moves today have slightly outperformed the broader risk tone in markets, particularly post the surprise hold in China's 5yr LPR rate. Regional equities are mixed, while the USD indices are steady, albeit with the USD outperforming some higher beta plays.
  • Oil's resilience may be more reflective of tighter supply conditions biting. Outside of the well documented OPEC+ cuts, the US rig count is down to 520, its lowest level since early 2022.
  • There are also some signs of concerns around diesel supply as we head into the winter months for the northern hemisphere, which may be spilling over into Brent/WTI.
  • For Brent, on the downside, lows from last week came in near $83/bbl, while the 200-day EMA is near $82.75. On the topside, earlier August highs rest just above $88.00/bbl.

GOLD: Slightly Higher Today After A Torrid Week

Gold is slightly higher in the Asia-Pac session, after closing basically unchanged at $1889.31 in trade ahead of the weekend. Friday’s close capped off a torrid week for the yellow metal, as the USD appreciated fuelled by higher US yields and EM-related frailties.

  • It was a quiet end to the week for US tsys, with no economic data or Fed speakers. US tsys finished 1bp cheaper to 2bp richer across the major benchmarks on Friday.
  • There is no US economic data of note today either. Market participants await details on this week's KC Fed Economic Policy Symposium in Jackson Hole: ‘Structural Shifts in the Global Economy,’ from August 24 to August 26 (schedule/attendees list is likely announced on the evening of the 24th).
  • MNI’s technicals team reports that bullion sits around Friday’s close but has breached key support at $1893.1 (Jun 29 low). This signals scope for $1865.8 (76.4% retrace of Feb 28 – May 4 bull leg).

UP TODAY (TIMES GMT/LOCAL)

DateGMT/LocalImpactFlagCountryEvent
21/08/20230600/0800**DE PPI
21/08/20231530/1130*US US Treasury Auction Result for 13 Week Bill
21/08/20231530/1130*US US Treasury Auction Result for 26 Week Bill
22/08/20230600/0700***UK Public Sector Finances
22/08/20230600/0800**NO Norway GDP
22/08/20230800/1000**EU EZ Current Account
22/08/20230900/1000*UK Index Linked Gilt Outright Auction Result
22/08/20231000/1100**UK CBI Industrial Trends
22/08/2023-*FR Retail Sales
22/08/20231230/0830**US Philadelphia Fed Nonmanufacturing Index
22/08/20231255/0855**US Redbook Retail Sales Index
22/08/20231400/1000***US NAR existing home sales
22/08/20231400/1000**US Richmond Fed Survey
22/08/20231530/1130*US US Treasury Auction Result for Cash Management Bill
22/08/20231830/1430
US Chicago Fed's Austan Goolsbee
23/08/20232300/0900***AU Judo Bank Flash Australia PMI

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