Asia FX Talk - Host of stimulus measures from China

Ahead Today

G3: US New Home Sales

Asia: China 1 year MLF rate, Thailand Exports, Taiwan Industrial Production

Market Highlights

China announced a whole host of monetary stimulus to support its economy, in a somewhat rare press conference led by the Governor of the PBOC Pan Gongsheng and flanked by the CSRC and NFRA. The key measures include a 20bps cut in the 7-day reverse repo rate to 1.50% from 1.70% currently, 50bps cuts in the Reserve Ratio Requirement, together with policies to support the property market with lower mortgage rates for existing households and reduced minimum down-payment ratios for second-home mortgages. More importantly, the PBOC will effectively support the stock market by setting up a new swap facility for non-bank financial firms to exchange collateral for purchase of stocks, re-lending loans for share buybacks, coupled with possible establishment of a market stabilisation fund. We view these policy moves as positive, but with more stimulus moves likely needed on the fiscal front to further support the economy (China: Positive policies announced, more are likely to come).

Meanwhile, US Consumer Confidence fell to 98.7 in September from an upwardly revised 105.6 number previously, driven both by a decline in confidence about the present situation and forward-looking expectations. More importantly for Fed policy, the widely-watched labour market differential moderated further, with fewer respondents indicating that jobs plentiful and more saying that they were hard to get. 

Regional FX

Asian FX markets were stronger, with USDCNH in particular briefly touching the 7.000 level at one point before settling around that level during Asian trading time. The weaker Dollar and lower US yields helped, but certainly the collection of stimulus measures announced by China yesterday was also an important driver. China’s equity markets rose sharply with MSCI China surging more than 5%, while onshore A shares market rising 4%. All these also had positive spillovers to other Asian currencies, with the economies most closely linked with China benefitting. MYR in particular was the standout, rising close to 1% and now touching 4.122, while KRW (+0.7%) and THB (+0.6%) also outperforming. Meanwhile, Taiwan’s export orders were stronger than expected rising 9.1%yoy from 4.8%yoy previously. We will have industrial production data for Taiwan and exports from Thailand later today and both show some continued positive trends given the regional trend thus far.