Chinese authorities another attempt to boost the flagging economy
Wall Street managed its 41st high this year as the Chinese authorities attempted once again to reignite their economy. One Bloomberg journalist described the actions as a massive adrenaline shot for the world’s second-largest economy. China’s broad package of monetary stimulus on Tuesday included reduced reserve requirements for banks and at least 800 billion yuan ($114 billion) of liquidity support for stocks; as a consequence, Chinese stocks had their best day since July 2020. Those sectors most exposed to China’s economy, such as commodities, had a strong day. China also announced about $113 billion to support the onshore equities market in a “stock stabilisation fund”, sending the Shanghai Shenzhen CSI 300 higher. Part of the woes of the German economy has been laid at the doorstep of the weakness in China’s economy, the Dax rising almost 1% yesterday.
The S&P 500 gains may have been slightly held back by a weaker-than-expected Conference Board Consumer Confidence report, which came in below expectations. The report also indicated a further softening in the labour market. In contrast, the flash PMI for this month suggests the service sector remains strong. However, manufacturing remains weak. The composite PMI for the UK remained above 50 but came in slightly below expectations.
Sterling continues to rally against the euro and the dollar, breaching 1.2 against the euro and 1.34 against the dollar. The pound’s strength probably reflects the differences in interest rate expectations for the coming months. The ECB and the Fed are expected to be more aggressive in easing monetary policy than the Bank of England.
There is nothing noteworthy out today; tomorrow and Friday, we will get a raft of US labour data, Michigan Consumer confidence, and a selection of inflation reports. We shall see what Goldilocks’ porridge tastes like at the end of all that.