Morning Brief – Quiet holiday session

So far it has been a quiet start to the week, and the Asia session saw low volumes due to the US holiday on Monday creating a low volume trading environment.

The news and data flow has been very light, with China news remaining the sole focus, especially since no major moves have been seen in FX commodities, or stock markets.

US Secretary of State Blinken met with Chinese officials over the weekend. Reports suggest he has spent over 7 hours in talks with his counterpart, China’s Foreign Minister discussing issues.

On the topic of China, Goldman Sachs analysts joined in to become the latest bank to cut their forecasts for China’s economy, citing limited options to boost stimulus.

UBS, Nomura, and Standard Chartered were amongst those that had already done so. The more subdued outlook for Chinese economic growth has been weighing on the market mood.

Sources note that China is said to be weighing broad stimulus with property support and rate cuts which the State Council may discuss this Friday. The ongoing growth concerns have prompted other support measures from Beijing.

The PBoC is likely to cut its Loan Prime Rates next week with the 1-Year LPR, which most loans are based on, currently at 3.65% and the 5-Year Loan Prime Rate, the reference rate for mortgages, currently at 4.30%.

Expectations for the PBoC to cut its benchmark lending rates follow the recent developments in China where the Big 4 banks and other lenders reduced their deposit rates at the request of authorities in Beijing to support the economy after a spate of weaker-than-expected data releases.

Other points to note in expectations of an action is that the yield gap between China’s benchmark 10-year government bonds and their US counterparts is hovering at the widest level in two months.