- China cuts repo rate after big data miss
- Wall Street ignores weaker US reports
- Europe looking forward to a rebound in PMIs
Asia – is the rate cut a sign of something bigger?
The PBOC has “surprised” markets by cutting weekly repo rate for the first time in 4 years. However, given a tiny scale of the move (5 basis points), weak macro landscape and reported liquidity shortages – is that really a surprise? Indeed, the hard data for October failed to feed into a market-popular story of sudden recovery. Output, sales, investments – all slowed down and slowed down below already slowing trend (see chart). Furthermore, we’ve dwelled into the car sales data a bit and while the affluent Chinese still line up for those BMW X5’s (thus only a moderate impact on DAX stocks), demand for domestic brands has been falling dramatically – not boding well for output recovery. Investors are hoping for a 2016-like recovery but this rate cut will not get it done.
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Economic slowdown has recently gathered pace in China. Source: Macrobond, XTB Research
Key economic event this week: flash PMI in Japan (Friday, 12:30 am GMT)
US – output, sales miss expectations
The latest report from the US economy do not quite support Trump’s statements on the “record economy” – unless he meant a record decline in industrial output in October (steepest since May 2009). October retail sales wasn’t as bad but weaker core sales could indicate softer consumer demand. Finally, the first US indicator for November – the NY Fed index, also came below expectations (2.9 points vs 5 points, 4 points in October).
US economy has been disappointing lately but that hasn’t stopped the bull market. Source: Bloomberg, XTB Research
Key economic event this week: FOMC minutes (Wednesday, 7:00pm GMT)
Europe – recovery hopes
The fact that Germany escaped a “technical recession” (two quarters of declining GDP) is fairly meaningless. What matters is a) how long the manufacturing downturn will last and b) to what extent will it affect broader economy. The PMIs for November will provide another update on those questions. Investors see a moderate pick-up as a result of somewhat better readings on orders in October PMIs. From the macro perspective (and especially with European markets this high) Friday’s PMIs are headliners for this week.
DE30 has been locked in a narrow trading range at the highs. Will the German PMI provide a necessary impulse? Source: xStation5
Key economic event this week: manufacturing PMI in Germany (Friday, 8:30am GMT)
