PBOC stimulus efforts bring stability to Chinese markets

• PBOC stimulus efforts bring stability to Chinese markets;

• Fed comments in focus as Jackson Hole gets underway;

• US GDP, jobless claims and housing data eyed later.

Europe is expected to open almost 2% higher on Thursday, boosted by a strong session in the US on Wednesday and a positive session in China on the back of People’s Bank of China’s stimulus efforts.

The PBOC cut interest rates and the reserve requirement ratio on Tuesday in an attempt to encourage lending to boost China’s slowing economy and rebuild investors crumbling confidence in it. The measures appeared to bring some stability but selling continued so yesterday the central bank announced that it will inject 140 billion Yuan into the financial system via short-term liquidity operations.

The combined effort of these two stimulus measures appears to have brought some stability to Chinese markets for now and the Shanghai Composite is actually on course to record its first gains since last Wednesday. Of course, as we’ve seen repeatedly and not just in China, these gains can be rapidly reversed and investor behavior into the close today will tell us a lot about just how much anxiety there still is.

For now, investors in the US and Europe appear content with the stabilization efforts of the PBOC which is setting us up for a more positive end to the week. Barring another steep sell-off at the end of the day in China, focus will now shift to the Jackson Hole Symposium, where a collection of central bankers and finance ministers, among others, will congregate to discuss “Inflation Dynamics and Monetary Policy”.

There will be particular attention on the Fed and what its voting FOMC members have to say on the recent activity in the markets, China and what it all means for interest rates. The Fed had previously been very clear in its views that rates should rise this year if possible but the events of the last few weeks may have changed that.

Unfortunately, a number of Fed policy makers will not be attending this year including Chair Janet Yellen. In recent years, former Chairman Ben Bernanke has used this events to strongly hint at impending changes in monetary policy, something that Yellen had the opportunity to do this week. Vice Chair Stanley Fischer is due to speak instead so we could get something but it seems much less likely.

The only notable data today will also come from the US with the usual weekly jobless claims data due out ahead of the open. This will accompanied by the first revision to US second quarter GDP which is expected to be revised higher on an annualized basis to 3.2% from 2% previously. Pending home sales and manufacturing data will also be released later in the session.