Fundamental View

This week started with news from the PBOC that the Chinese bank cut rates. This follows the surprise cut to the Reserve Requirement Ratio we had back earlier this year which acted as a booster for credit lending facilities. This recent cut to the deposit rate and one-year lending rate represents an important precursor to further loose policy changes as this move was driven by weak economic momentum and falling inflation. Analysts have also highlighted this could mean likely lower-than-expected data coming for January and February; Asian bourses are up in the wake of the release of these comments but, with scope for further downside in Chinese growth and data releases, more policy could be warranted to avoid the ‘hard landing’. We have seen this translate into oil prices also; under normal circumstances it is usual that stimulus in China often leads to increase demand for commodities to fuel the growth and expansion but, in this particular case, the ever-weakening growth story in China has merely highlighted that demand for the asset simply isn’t responding to the rate cut. Oil has remained flat to negative in the wake of the policy decision. Heading into the new month we see European bourses on their highs due to the impending asset purchases from the ECB which commence next week.


Today’s View

This morning we return to a market with apparent Euro strength coupled with Sterling and Yen weakness. In the data-space we had Manufacturing PMIs from Europe with Greece, Germany and Italy beating analysts’ estimates. France missed by a small margin, printing near to in-line with expectations and Spain missed also, printing 54.2 against the expected 55.1. The UK also printed above expectations with a reading of 54.1 against the expected 53.3 estimate. Eurozone CPI estimates also printed higher, with -0.3% against the expected -0.4% and in-line for the core reading. Ahead into the afternoon we have the US PCE Deflator for January expected at 0.4%; we also have Manufacturing PMI for February, Construction spending and ISM Manufacturing, the latter expected at 53.3. It is a big week ahead for macro data, culminating with US Non-Farm Payrolls on Friday. We have seen generally quiet price action so far this morning and we have a mild risk-off theme in our strategies for this afternoon.

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