ON DECK FOR WEDNESDAY, SEPTEMBER 25
KEY POINTS:
- What happened in China is staying in China…
- ...as Chinese equities rallied again, but not elsewhere
- Riksbank pivoted toward more aggressive easing
- The PBOC did what it said it would on another policy rate
- Australian CPI is unlikely to change the RBA’s bias yet
- US new home sales on tap, Canada quiet
Chinese equities posted further gains overnight but western markets are not following suit. For that to happen there would have to be greater confidence that what China is doing with its stimulus announcements will drive faster growth which it may not. Other developments are fairly light and outside of core markets.
The PBOC followed through on its guidance by cutting the 1-year Medium-Term Lending Facility Rate by 30bps. This was not a surprise as the PBOC guided it would do this when it unveiled a suite of stimulus measures the previous day that were recapped here. The cuts to the Loan Prime Rates when they get announced on October 20th also should not surprise anyone when they get delivered as guided.
Sweden’s Riksbank cut 25bps as expected but its guidance was considerably more dovish this time which drove krona depreciation in the aftermath. They now say:
"If the outlook for inflation and economic activity remains unchanged, the policy rate may also be cut at the two remaining monetary policy meetings this year. A cut of 0.5 percentage points is possible at one of these meetings. Moreover, the forecast indicates one or two further rate cuts during the first half of 2025. The policy rate is thus expected to be cut at a clearly faster pace than was previously communicated, which contributes to stronger economic activity and an inflation rate close to the target."
Markets listened and pricing for the next meeting on November 7th immediately jumped by about 20bps to nearly a full 50bps priced now and just shy of -75bps for the November and December meetings combined. Chart 1 shows the revised forward rate path from the Riksbank versus the earlier projections.
Australian monthly CPI garnered light attention after the RBA said it was in no rush to do much of anything the previous day. Furthermore, there were rebates and year-ago base effects that played significant roles in driving the measures lower, and monthly trimmed mean CPI can deviate from the RBA’s preferred focus upon the quarterly gauges that won’t be updated until October 29th. I don't think the RBA will overreact to the y/y deceleration in headline CPI to 2.7% that matched consensus (3.5% prior) and is now within the RBA's 2–3% range. They'll want considerably more data and evidence including on a very strong job market.
US new home sales during August are expected to give back some of the prior month’s 10.6% m/m surge (10amET). Model home foot traffic has been declining of late.
Canada is quiet until Friday's GDP for July and August with only Canada bond auctions before then.
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