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Morning Brew September 25 2024
Erik Schafhauser
Senior Relationship Manager
Résumé: Monday: Bitcoin will be the mover of the Week China: Hold my Beer!
Good morning.
Monday Morning it looked like Bitcoin would be the asset of the week, then China stepped in and after some consideration bought everything from Chinese Stocks to commodities.
In the US, the Dow gained 0.20%; the S&P 500 0.25% and the Nasdaq 0.6%
Nvidia gained 4% and miners as well as US listed Chinese stocks were in focus. Freeport-McMoRan added 8% and Alibaba 8%.
Shares in China and Hong Kong rise substantially in the last two sessions with the China 300 up more than 7% and the Hang Seng more than 6.
Gold, Silver and Copper rise on hopes of a resurging demand in China, oil is trading a off the lows as well.
Gold remains at all time highs, Silver rose to near the resistance at 32.50 and is currently just below the 32 level. A break above the 32.50 would be significant technically.
While yields changed little, the USD lost across the board, the USD Index is at 100.27, EURUSD 1.1195, GBPUSD 1.3415 and USDJPY 143.30.
As the stimulus measures in China have a massive impact, who is better than to explain them then our desk in Asia with Charu?
The Key measures:
- 7-day reverse repo rate cut by 20bps: The new rate stands at 1.5%, surprising markets that expected smaller, gradual cuts.
- Reserve requirement ratio (RRR) cut by 0.5%: This move frees up 1 trillion yuan ($142 billion) in liquidity and could be followed by another 0.25-0.5% cut later this year.
- 1-Year MLF rate cut by 30bps: Further easing to stimulate credit and investment.
- Lower mortgage rates for existing loans: This was long expected and aims to provide relief for households, potentially boosting consumption.
- Down payment ratio for second homes cut to 15% from 25%: Aimed at reviving property market activity, though the impact is likely limited given low sentiment.
- Loan prime prate and deposit rate cuts: These will help mitigate the impact on bank margins, keeping financial institutions liquid.
- 500 billion yuan liquidity support for Chinese stocks: Funds and brokers now have access to PBOC liquidity to buy stocks, signaling strong support for equity markets.
The Big Question: Will It Work?
While these moves are impressive in their scope, they raise several questions about sustainability.
There is no silver bullet that can bring China back to the double digit growth levels markets have been used to. There is no single policy step that will resolve China’s structural issues of debt, deflation and demographics. But the direction of travel is encouraging, and this can help to repair some of the confidence levels in the economy and policymakers.
What is still needed is execution of the announced measures, coordination from other policies particularly on the fiscal side, and more follow-up measures to continue the momentum.
Investors' Outlook: Cautious Optimism
Investors, burned by previous false starts, may remain cautious. However, with valuations at attractive levels, signs of stabilization could lure buyers back into the market. There’s plenty of money on the sidelines waiting for more concrete signs of recovery.
Wednesday
- Data Japan PPI, New Home Sales
Thursday
- Data SNB , US Initial Jobless Claims, GDP & Durable Goods orders,
- speakers: Collins, Williams, Kashkari, Zelensky visits the US
Friday
- Data EU Consumer confidence, US PCE, Canada GDP