Morning Brief – Busy Asian Session

A lively US session Asian equity markets traded lower on the day as they took their cue from Europe, and we also saw a rate cut from the PBOC and the releases of the RBA Minutes.

Breaking down the stock decline in Asia, Japan’s Nikkei 225 lost -0.6% and Hong Kong’s Hang Seng declined by -1.3%. South Korea’s KOSPI traded down-0.3% and Australia’s S&P/ASX 200 bucked the trend with a +0.5 gain.

The decision was expected from the PBOC as The People’s Bank of China cut its 1- and 5-year Loan Prime Rates today by 10 bp each. It is the first LPR cut in 10 months.

The cuts were expected and followed 3 cuts to separate policy rates last week. In addition, the Bank set a weaker CNY rate at the daily reference rate fixing. In the FX market the Offshore yuan and CNH slid lower on the session, while the Yen continued to slide and edged close to 142.00.

In Australia, the Reserve Bank of Australia released the minutes of the June meeting. The Minutes indicated that the recent interest rate hike was a close call.

The central Bank also discussed wage developments, noting higher-than-expected wage gains. On jobs, the Minutes noted that given the strong labour market data last week a rate hike in July could happen.

Note that while reference to further rate increases were dropped in the minutes, Reserve Bank of Australia Governor Lowe did mention this in a speech he gave the day following the June rate hike.

RBA Deputy Governor Bullock was also out on the wires and indicated that there are further rate hikes to come from the Bank. The comment on ‘need to slow demand’ is a clear indication.

The Bank’s tool right now is rate hike, which is how it will slow demand for goods and services. In her earlier comments she indicated the Bank is comfortable with a higher unemployment rate.