No Surprises from China

China was not going to be left out of all the CBank fun this week. In a surprise move and for the second time in less than a month, the PBoC has lowered the one-year rate by -0.31% and the deposit rate by -0.25%. Policy makers have obviously taken a peek at next week’s data and the easing is a good indicator in what to expect for growth and inflation releases. Internal reporting supposedly is beginning to show that domestic bank lending was lower last month than in May. This is a capital markets worry as Chinese economic recovery depends greatly on a rebound in credit growth. The cut is a “welcoming step in the easing process which tends to lower the real interest rate.” For China and the rest of us, the quantity of liquidity is paramount; so expect the PBoC to remain on the loose side of policymaking.

Below are some other highlights of the week:

ASIA

• CNY: China’s PMI improved on a seasonally adjusted basis and showed particularly supportive reporting with modestly increasing aggregate and new orders readings.
• JPY: The BoJ’s June Tankan survey of business conditions for large manufacturers rose +3pts to -1, while non-manufacturing confidence was up +3pts to +8, beating expectations for a small decline.
• KRW: South Korea reported a big drop in its PMI, to 49.4 in June from 51 in May, offsetting an improvement in the trade numbers for the first 20 days of the month due to lower oil prices.
• Asian inflation: South Korea’s inflation rose at the slowest pace in three years with the CPI down -0.1%, m/m, in June, following a +0.2% gain in May. On a y/y basis, it rose +2.2% last month. INR’s inflation was stable at +4.5%, y/y, while THB’s rose +2.6% in June, and in line with consensus.
• CNY: Risk was still with us mid-week after an increase in the Chinese services PMI from 55.2 to 56.7. However, it has not hung around long enough.
• WSJ: Reported that the average price of housing in 100 major Chinese cities ceased to decline in June, up marginally by +0.05% after nine consecutive months of decline.
• PHP: When the market struggled to digest inflows associated with a Philippine bank rights issue of about $1b it was necessary for the CBank to intervene in the currency market.
• AUD: As expected, the RBA left rates unchanged. The dovish statement acknowledged that “as a result of the sequence of earlier decisions, there has been a material easing in monetary policy over the past six months” and that the more subdued international outlook supports the central bank’s dovish outlook. The RBA, like all CBank’s, remains able and willing to ease further should conditions call for it.
• NZD: Kiwi commodity prices have fallen to the lowest level in two-years with the ANZ Commodity Price Index down -2.4% last month, following a -4.2% fall in May. Analysts expect further weakness in commodity prices to continue to put pressure on the currency.
• AUD: Aussie home-building approvals increased by a record +27.3%, m/m, in May, following a revised -7.6% drop in the previous month. On a year-on-year basis, it advanced +9.3% compared to a revised -23% fall in April.
• JPY: The BoJ reported that the monetary base in Japan was up by +5.9%, y/y, in June, compared with a +2.4%, y/y, increase in May. Interestingly, labor cash earnings in Japan posted the first drop in four-months and fell by -0.8%, y/y, in May, compared with +0.8% gain in April.
• S&P: The rating agency hiked Philippines’ long-term foreign currency debt rating one notch to BB+, the highest level in nine-years. The upgrade reflects the agency’s assessment of gradually easing fiscal vulnerability and also the country’s strengthening external position, with remittances and an expanding service export sector continuing to drive current account surpluses.
• PHP: The country’s CPI rose by +2.80%, y/y, in June, the slowest rate in three-months compared with +2.90% in May. Core-inflation stood at +3.7% in June, unchanged from the reading in May.
• MYR: Malaysia’s central bank kept their policy rate unchanged at +3%, in line with market expectations.
• AUD: Aussie Treasurer Swan said that the “Yuan’s internationalization is clearly in the interests of Australian businesses and the broader Australian economy.”
• CNY: PBoC cuts deposit rate -25bp to 3.0% and not RRR. The cut temporarily buoys demand for riskier assets. The Chinese cut lowers the floor for lending rates.
• HKD: HSBC’s Hong Kong PMI rose to 49.8 in June from 49.4 in May but remained below 50, signaling a “sustained deterioration in manufacturing activity as global economic uncertainties weigh on demand.”
• TWD: Taiwan’s CPI rose +1.77%, y/y, in June, compared with +1.74% in the previous month.
• AUD: Analysts note that the Aussie construction sector activity in June remains weak. Construction contracted for the 25th month in a row with the AiG Performance of Construction Index increasing slightly to 34.8, compared with 34.7 in May.

AMERICAS Week in FX

EUROPE Week in FX

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