China cuts Reserve Ratio Requirement to start the year

Additional stimulus for the economy

Notwithstanding the fact that the US-China Phase 1 trade deal is likely to be signed early this month, China has stepped in with additional liquidity measures to ensure the economy is given an adequate boost at the start of the year.

The People’s Bank of China trimmed its Reserve Ratio Requirements (RRR) for banks by 50 bps yesterday, effective January 6, which would reduce the amount of cash banks must hold as reserves to 12.5% for big banks and is expected to free up about $115 billion in funds. It’s the eighth cut since early 2018 (when the tariff wars first started) which has seen the economy slow to its weakest pace in 30 years.

China shares rise to near two-year high

Chinese equity markets responded positively to the RRR cut, with the China50 index gaining more than 1% to 14,558, reaching the highest level since February 2018, and this lent support to other indices. Today’s gains took the latest rising streak to six days, the longest stretch since early-December.

China50 Daily Chart

Source: OANDA fxTrade

US indices rose between 0.09% and 0.13% while the HongKong33 index rallied 0.96%. Cash markets in Japan are closed for an extended holiday until January 6, but futures markets climbed about 0.6%.

Singapore economic growth stays weak

The first estimate of Singapore’s growth for the fourth quarter from the Ministry of Tarde and Industry (MTI) suggested the economy expanded 0.8% y/y, only a slightly faster pace than Q3’s revised +0.7%. This brought the annualized growth for the full year to +0.7%, a marked slowdown from the +3.1% y/y recorded in 2018, and the slowest growth since 2011.

The main culprit for the slowdown was the manufacturing sector, which makes up about 20% of the Singapore economy, which took a noticeable hit from the escalation in the US-China trade war last year. The sector contracted for a fourth straight quarter, declining 2.1% y/y in Q4. The service sector fared better, with expansion of 1.4% from a year ago.

There wasn’t much reaction to the data from the local dollar, with USD/SGD rising 0.01% to 1.3458. That could be the first daily gain in six session which had seen USD/SGD drop to its weakest level since January 31 last year. The Singapore30 index rose 0.14% to 372.5.

USD/SGD Daily Chart

Source: OANDA fxTrade

Final Markit PMIs due

It’s a relatively quiet start to the New Year on the calendar front, with the final Markit manufacturing PMIs from around the globe the major item on tap.

The full MarketPulse data calendar can be viewed at https://www.marketpulse.com/economic-events/

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