Credit Agricole
China: A Surprise Rate Cut
July activity data surprised to the downside by a wide margin, indicating weaker domestic demand amid Covid curbs and property market woes. The growth recovery in China remains challenging and requires continued policy easing to boost confidence and stabilise demand.
The PBoC unexpectedly cut its policy interest rates by 10bp to show its support for growth. We think that, while policy easing will continue, it may be smaller and slower than required to drive a firm recovery in growth in H2, which will add investor concerns about global slowdown.
We think China rates will continue toheadlowerinQ3ontheweak growth recovery and further PBoC easing. We see more limited downside in short vs long-end rates, however. CNH swap points will remain under pressure as the MLF cut adds to the monetary policy divergence between the US and China. We maintain a bias towards USD/CNY upside amidst weaker Chinese growth and the resilient USD.
BNY Mellon
The RBNZ is expected to hike its Official Cash Rate (OCR) by 50bp on Wednesday, but for the first time in its tightening cycle, risks to the policy path appear tilted to the downside. Throughout the year, sustained upside surprises in data and strong domestic demand has fuelled upward revisions to the RBNZ's terminal rate: the May Monetary Policy Statement (MPS) pushed the terminal rate to 3.9% and on a forward-looking basis, markets were even willing to price in 100bp above that. Fears of inflation spirals fully discounted any demand drag on headline prices measures and, in New Zealand’s case, the strong fiscal impulse generated during the pandemic was expected to generate significant overheating risk.
The past few months have brought a reassessment on inflation pressures, however. While the general pullback has been led by the US, the lack of global demand has forced down commodity prices, including for soft commodities and agricultural products, which would have a stronger impact on New Zealand’s terms of trade. Even if the US outlook remains benign and it is only a matter of inflation peaking rather than falling, the marginal impulse for price pressures on the external front will tail off, meaning the RBNZ will likely shift to basing decisions fully on the domestic situation, which is becoming far more challenging.
ING
EURGBP & GBPUSD
News that Germany will impose a gas levy – confirming that the government cannot fully shield households from the spike in gas prices – leaves the UK less of an outlier in Europe. This will be one of the factors helping to limit EUR/GBP gains and could actually favour a drift back to the 0.8390/8400 area. Today's July UK employment data is somewhat of a mixed bag for sterling. This showed a slight slowing in hiring but strong average earnings – the latter pointing to hoarding of staff. We think the data supports a 50bp Bank of England hike on 15 September (45bp currently priced). In all, EUR/GBP can soften a little, but a stronger dollar means that Cable can go sub 1.20 again.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.