Daily Market Pulse

China Stock Rescue Plan Fizzles: Investors Wary, Seek Deeper Economic Fix
3 minute readMonday evening reports that China is mulling a US$278 billion stock rescue plan was met with investor skepticism after initial stock gains in Asia, as many market analysts feel a more fundamental fix is needed for China’s ailing economy. The USD (by BBDXY measure) ended yesterday up 0.15% after a sturdy 0.7% rebound from pre-North American session lows, gaining against almost all G10 counterparts. 10-year US treasury yields rose about 2.5 basis points to close at 4.124%.
The USD fell 0.4% overnight to enter today’s North American session near yesterday’s intra-day lows. US PMI data is at 945AM today, with a bevy of releases tomorrow than include Q4 GDP and the core PCE price index. Risk assets are responding well to reports of the People’s Bank of China saying it would cut the reserve requirement ratio for banks in early February. The
EUR/USD fell 0.3% yesterday, with intraday lows at levels last seen on December 13th. Today’s rebound has the EUR up 0.7% from yesterday’s close. Eurozone aggregate consumer confidence levels missed expectations yesterday, while today’s Eurozone PMI data was mixed. Tomorrow’s ECB rate decision is expected to be a hold, with investors keen to gauge the degree to which President Lagarde sees the Eurozone economy’s need for rate cut support potentially ahead of a US Fed move.
The GBP/USD fell about 0.25% yesterday but enters today 0.5% higher on broad USD softness. The BOE rate decision comes in just over a week on February 1st. The UK’s latest inflation reading came in higher than expected, while cooling wages and softer-than-expected holiday retail sales data point to the economic challenges that the BOE must weigh when they communicate around the potential timing of this year’s rate pivot. The
Canadian Dollar gained nearly 0.15% yesterday, outpacing its G10 peers, with another 0.2% gain in the CAD so far today. The Bank of Canada is largely expected to leave rates at 5% today, the 10AM decision accompanied by the Council’s updated economic projections in the Monetary Policy Report. Relaxing financial conditions of late weighed against evidence of inflation persistence may allow Governor Macklem to temper rate cut expectations.
The Japanese Yen fell 0.15% yesterday, with today’s USD reversal driving a JPY gain of 0.9%. Investors are increasing bets of a BOJ easy policy exit in the coming months, with BOJ head Ueda saying the certainty of achieving the bank’s price projections is gradually increasing, a necessary precondition for the BOJ to tweak its policy.