China’s central bank is expected to leave key interest rates unchanged on Thursday, but easing pressure is building almost daily.
Japanese trade, Australian unemployment and Hong Kong inflation data topped the regional economic calendar on Thursday, and investors hope continued gains fueled by corporate earnings on Wall Street will boost local risk appetite. .
The Dow Jones Industrials is now up eight straight days for the first time since September 2019. It last posted a nine-day winning streak in September 2017.
Sentiment was positive again in Wednesday’s US session, but that could fluctuate depending on how investors digest leading US earnings and outlook releases after the closing bell, including from IBM, Tesla and Netflix.
On Thursday, attention in Asia turns to the People’s Bank of China (PBOC).
After keeping the rate on mid-term loans maturing this week unchanged, all 26 analysts in a Reuters poll expect prime rates on benchmark one- and five-year loans to remain unchanged at 3.55%. and 4.20%, respectively.
However, the clamor for further easing is mounting and it is unlikely to let up – the economy is flirting with deflation, growth is weak, youth unemployment is above 20% and there are no signs of a reversal on the horizon.
But the PBOC is not acting impulsively. Its 10 basis point easing in June was its first rate cut in nearly a year, and only the fourth since the pandemic.
The main argument against lowering rates – and it is valid – is the currency. The yuan languishes near the November 15-year low against the dollar, and the widening yield gap between the United States and China will add downward pressure and risk triggering large-scale capital outflows.
Given all of this, it’s no wonder that Chinese assets continue to trade poorly, even if the degree of underperformance is surprising. Blue chip Chinese stocks fell for a third day on Wednesday and are virtually flat for the year – significantly lagging Asian, US and global benchmarks.
Meanwhile, Chinese authorities pledged on Wednesday to make the private economy “bigger, better and stronger” with a series of policy measures designed to help private businesses and support the faltering post-pandemic recovery.
The measures include protecting the property rights of private companies and entrepreneurs and measures to ensure fair competition in the market by removing barriers to market entry.
These are no doubt welcome steps for investors, but the tangible benefits will not be felt for a long time.
Elsewhere in Asia on Thursday, another sharp drop in imports is expected to narrow Japan’s trade deficit in June to 46.7 trillion yen, which would be the smallest gap in nearly two years of uninterrupted monthly trade deficits.
