### Summary
China's central bank will coordinate financial support to address local government debt problems and prevent systemic risk, as concerns grow over the impact of the country's property crisis on the financial system.
### Facts
- China's central bank, the People's Bank of China (PBOC), will coordinate financial support and tools to prevent and resolve local government debt risks.
- China's deepening property crisis has raised concerns of a spillover into the financial system.
- China unexpectedly lowered interest rates last week and is expected to cut prime loan rates to stimulate economic activity.
- The Politburo has emphasized its focus on preventing local government debt risks but has not announced specific plans yet.
- China may offer local governments 1 trillion yuan ($137 billion) in bond issuance quotas for refinancing.
- A coordinated rescue package could involve additional funding, debt swaps, payment extensions, and debt restructurings.
- Debt-laden municipalities pose a major risk to China's economy and financial stability.
- Fitch Ratings expects the central government to avoid outright bailouts of troubled municipalities.
- The central bank urged banks to increase lending and optimize credit policies for the property sector, small firms, technology innovation, and the manufacturing sector.
- However, consumer and company spending and borrowing remain low due to economic uncertainty.
- New bank lending in July fell to a 14-year low.
### Summary
The global economy is showing signs of decoupling, with the US economy remaining strong and China's economy disappointing at the margin. The recent data suggests that the US economy is resilient, with consumption and other indicators pointing in a positive direction. However, there are concerns about the bear steepening of the US curve and the repricing of the long end of the curve. In contrast, China's economy continues to struggle, with weak data and monetary policy easing. Japan has surprised with positive data, but there are questions about whether the current inflation shift will lead to tighter monetary policy. Overall, there are concerns about a potential global economic recession and its impact on various economies.
### Facts
- 💰 Despite the decoupling of the US and China economies, concerns remain about the negative impact of a China slowdown on global growth.
- 💹 Recent data show that the US economy, particularly consumption, remains resilient.
- 🔒 The bear steepening of the US curve and the repricing of the long end of the curve are causing concerns.
- 🇨🇳 In China, weak data on consumption and investment and declining house prices continue to affect the economy. The PBoC has eased monetary policy.
- 🇯🇵 Japan's 2Q data surprised with strong export growth, but there are concerns about the impact of a potential inflation shift on global yields.
- 🌍 The global economy is at risk of recession, with concerns about the impact on emerging market economies and the US economy.
### Summary
Growing concerns about global economic growth and uncertainties in monetary policy have led to turbulence in financial markets, with rising bond yields and a decline in equity markets. Key factors affecting growth include interest rates, bond yields, and access to funds, which may result in a credit crunch and a more risk-averse environment in capital markets. China's shift towards self-sufficiency, combined with a more prudent policy environment, slower population growth, and trade sanctions, will lead to slower and more erratic growth in the country. Although there are near-term concerns, the longer-term outlook for global growth remains positive.
### Facts
- Global economic growth is a concern, reflected in rising bond yields and a decline in equity markets.
- Policymakers, particularly in the US, are worried about overtightening monetary policy.
- Western economies, including the UK, have proven resilient despite expectations of a recession.
- Lower inflation will boost spending power, but growth will depend on where interest rates and bond yields settle.
- Businesses face challenges in raising funds due to a credit crunch, tough lending conditions, and a risk-averse capital market environment.
- The International Monetary Fund forecasts global growth to slow from 3.5% last year to 3% this year and next, with Asia being a major driver.
- Concerns about deflation in China exist, but low inflation is more likely.
- China's shift towards self-sufficiency in response to trade wars has coincided with a more prudent policy environment and the need to curb inflation and manage debt overhang.
- A shrinking population and structural changes in China will result in slower and more erratic growth.
- Private sector activity remains strong in Asia, and Japan's economy is experiencing an economic rebound.
- Western economies previously experienced a prolonged period of cheap money, which led to imbalances and misallocation of capital.
- Prudent monetary policy in some emerging economies provides more room to act in response to economic weakness.
- Concerns exist regarding rising policy rates in the US, UK, and euro area and the tightening of central banks' balance sheets.
- The definition of a risk-free asset is being questioned, as government bonds, previously considered safe, have witnessed negative total returns.
- There has been a rise in shadow banking and non-bank financial institutions, with collateral in the form of government bonds playing a crucial role.
Overall, the focus is shifting from inflation to growth, and future policy rates may need to settle at a high level. High levels of public and private debt globally limit policy maneuverability and expose individuals and firms to higher interest rates.
### Summary
China is expected to cut lending benchmarks, including the mortgage reference rate, to revive credit demand and support the struggling property sector.
### Facts
- 🏦 China is predicted to lower lending benchmarks at the monthly fixing, including the loan prime rate (LPR).
- 📉 All participants in a survey of 35 market watchers anticipate cuts to both the one-year LPR and the five-year LPR.
- 📊 The majority of participants expect a 15-basis-point cut to the one-year LPR, while the remaining forecast a 10 bp reduction.
- 📈 Meanwhile, 94% of respondents predict a reduction of at least 15 bp to the five-year LPR, which serves as the mortgage reference rate.
- 💰 Market expectations for further monetary easing are driven by declining credit lending and increasing deflationary pressure.
- 🏠 The central bank has promised to adjust and optimize property policies to address the deepening crisis in the property market.
- 📱 Analysts believe that the central bank may also implement reserve requirement ratio (RRR) cuts and balance sheet expansion to manage risks in key sectors.
Source: [Reuters](https://www.reuters.com/business/chinas-loan-benchmarks-face-big-cut-next-month-fixing-poll-2022-10-28/)
China's central bank has cut the main benchmark interest rate in an attempt to address falling apartment prices, weak consumer spending, and broad debt troubles, but the reduction was smaller than expected, signaling the potential ineffectiveness of traditional tools to stimulate the economy.
China's one-year loan prime rate is slashed by 10 basis points, while the five-year rate remains unchanged, leading to mixed performance in Asia-Pacific markets, with Hong Kong's Hang Seng index slipping 1.8%, mainland Chinese markets in negative territory, and other markets on the rise; meanwhile, Thailand's economy expands by 1.8% in Q2, lower than expected.
China's economy is at risk of entering a debt-deflation loop, similar to Japan's in the 1990s, but this can be avoided if policymakers keep interest rates below a crucial level to stimulate economic growth.
Chinese state-owned banks are expected to lower interest rates on existing mortgages, with the quantum of the cut varying for different clients and cities, in an effort to revive the property sector and boost the country's economy.
The Federal Reserve's monetary tightening policy has led to a surge in mortgage rates, potentially damaging both the demand and supply in the housing market, according to Mohamed El-Erian, chief economic advisor at Allianz.
The Reserve Bank of Australia is expected to keep its key cash rate unchanged as inflation eases, while Asian markets show signs of revival due to China's efforts to support its property sector and wider economy.
The Bank of Canada has decided to keep its benchmark interest rate at 5% amid signs of a slowing economy, but has not ruled out further rate hikes if inflationary pressures persist.
China's new yuan loans are expected to rebound in August after a decline in July, as the central bank implements measures to support economic growth during soft domestic and international demand.
China's credit demand improved, deflationary pressures eased, and the yuan rallied, indicating signs of stabilization in the economy and financial markets after a sharp downturn.
The Federal Reserve is expected to keep its benchmark overnight interest rate unchanged and delay any rate cuts until at least 2024, according to a Reuters poll of economists, despite some suggesting that another rate hike might be needed to address inflation.
China's offshore yuan weakened after the country's central bank announced a cut in banks' reserve requirement ratio, which aims to support the economy but could further worsen the decline of the yuan.
China's central bank is expected to maintain steady borrowing costs while increasing liquidity in order to support economic stabilization, as analysts predict that the one-year medium-term lending facility (MLF) interest rate will remain unchanged.
The dollar remains stable in Asia, while the yuan strengthens due to positive economic data from China.
China's central bank rolled over maturing medium-term policy loans and maintained the interest rate unchanged, in an effort to boost liquidity and support the country's economic recovery.
China is unlikely to devalue its currency, the yuan, despite concerns that it could do so to boost exports, as such a move would risk intensifying capital flight and tightening financial conditions, according to the Institute of International Finance. Instead, the focus will be on domestic easing measures to maintain steady growth, although there is the challenge of balancing the yuan's stability against the strengthening US dollar and other major currencies.
The Federal Reserve is expected to keep interest rates unchanged at its upcoming meeting, but market participants will be closely watching for any hints regarding future rate cuts.
Signs of improvement in China's economy, such as improving credit demand and easing deflationary pressures, may not be enough to stabilize the economy due to bigger concerns of decreasing affordability, tight wages, and rising costs that have not been addressed. A comprehensive policy revamp may be necessary for China's economy to recover.
China's credit is expanding rapidly, with total social financing increasing by over 3 trillion yuan in August, mainly driven by government financing, indicating positive signs of economic stabilization and recovery from the slump in the second quarter. Additionally, recent policy measures, particularly in fiscal and property sectors, are expected to further stimulate the economy.
The Federal Reserve is expected to hold its benchmark lending rate steady while waiting for more data on the impact of previous rate hikes on the US economy, but there is still a possibility of another rate increase in the future.
China is expected to maintain its benchmark lending rates as oil prices rise and market sentiment is affected; meanwhile, the Federal Reserve's policy meeting, Japan's trade data, and the United Nations General Assembly will also influence Asian markets.
The Federal Reserve's decision to leave interest rates unchanged means that savers and individuals with surplus cash have the opportunity to earn a higher return on their money than in recent years, with online banks offering high-yield savings accounts that can provide a return above inflation.
The Federal Reserve has decided to keep interest rates steady, giving borrowers a break after 11 rate hikes and aiming to tame inflation while avoiding a recession.
The Swiss National Bank keeps interest rates unchanged at 1.75% and hints that further tightening may be necessary to ensure price stability, while also warning of a possible global economic slowdown and addressing the risk of energy shortage in Europe.
Central banks, including the US Federal Reserve, European Central Bank, and Bank of England, have pledged to maintain higher interest rates for an extended period to combat inflation and achieve global economic stability, despite concerns about the strength of the Chinese economy and geopolitical tensions.
China's limited room for further monetary policy easing means it should prioritize structural reforms, such as encouraging entrepreneurs, to revive economic growth rather than relying solely on macroeconomic policies, according to a central bank adviser.
The Reserve Bank of India (RBI) is expected to keep the benchmark interest rate unchanged at 6.5% in its upcoming monetary policy review due to elevated inflation and global economic factors.
The Federal Reserve remains committed to raising interest rates despite the rise in U.S. bond yields, as the U.S. economy shows signs of re-accelerating in the third quarter and inflation worries ease.
Asian currencies against the dollar remained relatively stable, with minimal changes observed in the latest rates, according to data compiled by Reuters.
The Federal Reserve is facing a tough decision on interest rates as some officials believe further rate increases are necessary to combat inflation, while others argue that the current rate tightening will continue to ease rising prices; however, the recent sell-off in government bonds could have a cooling effect on the economy, which may influence the Fed's decision.
China's central bank increased liquidity support for the banking system through medium-term policy loans but kept the interest rate unchanged due to concerns about the risk of further yuan declines.
The Chinese economy is expected to stabilize in the coming months with the implementation of stimulus measures, but economic growth will be slower in the long run as authorities focus on addressing structural issues such as debt and property market downturns.
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