PBOC Cut Interest Rates

Market Update

The People’s Bank of China announced a ten-basis point cut to the one-year medium term lending facility rate from 2.95% to 2.85% earlier today, and 7-day reverse repo open market operation rate cut from 2.20% to 2.10%.

Market was largely expecting the rate cut, so the reaction was muted, potentially, the market focus on Omicron arriving in Beijing ahead the 2022 Winter Olympics, which is just days away now.

In reaction to the Omicron news in the capital city of China tighter restrictions are now in place. Local health authorities have told residents not to leave the city unless necessary. Nationally, another 104 locally transmitted cases were reported Saturday.

The AUDUSD pair, a classic proxy for Asian risk sentiment and overall market sentiment, is down quite heavily, so we are likely to see some risk-off sentiment coming back into the market over the Omicron fears.

Following on from the rate cuts, we have also seen China publish Q4 GDP, which beat expectations, but was notably down on the last quarter, and was the slowest growth reading in 18 months.

Just to break down the Gross Domestic Product Figures in greater detail, the Chinese economy grew by 1.6 percent quarter on quarter, while the Chinese economy grew 4.0 percent year-on-year.

Just to add to the confusion coming from China, December economic activity data from the Chinese economy showed industrial output beating expectations, but similar to the US report on Friday, Retail sales data missed expectations.

In terms of market moves elsewhere, the FX market is fairly quiet, and we should also consider that the United States is on holiday today, so it could be a slower day than usual in financial market.

The precious metals market has been very lively, and with the Chinese new year just two-weeks away I would expect that gold is likely to remain well-bid over this period, however, some selling could come back after the holiday period as seasonal effect end.

Bitcoin is under pressure today alongside the other main cryptos. An article from Bloomberg today is out today showing data that BTC is losing its place as the preferred payment option in crypto.

Day Ahead

There isn’t a great deal to get excited about on the data from this Monday. SNB total deposit data is coming out, however, it won’t be a market mover. I would expect Omicron and the hangover from this mornings Chinese data dump to drive sentiment and today’s market narrative.