BNY Mellon
Sluggish demand from corporates and households was the feature of China's macro data in July. While M2 credit growth accelerated 12.0% y/y, the fastest pace since early 2016, similar upward momentum in lending growth was nowhere to be found: aggregate financing ticked lower, to 10.7% y/y from 10.8% y/y in June; and financial institution loan growth slid to 10.96% y/y from 11.24%. The slowing in aggregate financing growth might in part be attributable to the seasonally weak July, as well as to the diminishing of “front-loaded” support; the special government bond issuance program was unusually expedited, with the CNY 3.45trn target for government and local bonds completed ahead of schedule in July.
Financial institution loans, in particular medium- to long-term loans, which are typically seen as a proxy of investor confidence, painted a bleak outlook. Household loans dropped to multi-year lows, to 7.7% y/y from 12.8% y/y at the end of 2021. Non-financial enterprise borrowing posted a marked shift in behavior, with acceleration of short-term borrowing rising to 8.1% y/y in July compared to 2.9% y/y at the end of 2021. Medium- to long-term borrowing, by contrast, declined over the same period, with the growth rate down to 11.9% y/y from 14.2% y/y. The overall decline in longer-term borrowing is in our view testament to the overall worsening in macro and credit uncertainties.
ING
The dollar goes into today’s release of the 27 July FOMC minutes about 2% off the highs of the year. This particular meeting had triggered a sell-off in the dollar on the view that the Fed might have already taken the policy rate to some kind of neutral level and that future rate hikes would be undertaken on a meeting-by-meeting basis.
The question is whether the Fed wants to use these minutes as a communication tool to push back against the view of a 2023 easing cycle. Post-meeting rhetoric from the Fed suggests that this is more likely to be the case – especially since the Fed funds futures price the policy rate being cut from 3.60% to 3.20% in the second half of next year.
A further rejection of this market pricing should help the dollar. And bearish flattening of the US Treasury curve could pressure the commodity currencies. Here, currencies like AUD/USD could come under pressure again – hit by the Fed applying the brakes to growth at the same time as Chinese growth prospects are being revised even lower.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.