Over the weekend, PBoC bureau director Wang Xin, said that there was room for a further reduction in the Reserve Requirement Ratio (RRR) from the current average of 6.6%. Friday’s loan data showed that the economy remained void of increased investment, dropping by less than half for the same period last year. Later today, we will see essential housing, industrial production, and retail sales data from the beleaguered economy. The housing data will be key as it is an integral piece of the jigsaw for China’s economy. The current interest rate in China is 3.1%. The global trend for central banks (CB), except for the US (4.75%) and Australia (4.35%), is to loosen monetary policy to promote growth as inflation is within most CBs’ acceptable bands. CBs from Canada and Europe stepped up momentum last week, with the BOC lowering rates by 50bpts to 3.25% and the ECB by 25bpts to 3.15%. Both economies have been hit hard and the CBs have been responsive by reducing rates. Last week, Moody moved to lower France’s credit rating to negative (Aa3), sighting the current or next government's inability to be able to reduce government deficits. This trend is something to be mindful of for European economies.  Equity markets in the US closed flat, with the Dow extending its losing streak to seven sessions in a row, marking its longest streak since 2020. This week in the US we get a plethora of economic data, which concludes on Thursday with the FOMC meeting on rates. The market wants a 25bpts reduction. 

But first to China, over the weekend, Wang Xin, Bureau Director at the People’s Bank of China (PBoC), stated that there remains room for further reductions in the Reserve Requirement Ratio (RRR), which currently stands at an average of 6.6%. The RRR, a key monetary policy tool, determines the minimum reserves banks must hold against deposits. Lowering this ratio injects liquidity into the financial system, encouraging banks to extend more loans to businesses and households. Such a move would aim to spur investment and consumption, which have remained subdued in China’s slowing economy.

The urgency for further policy easing comes after Friday’s loan data, which underscored the ongoing lack of investment appetite in the economy. New loan growth fell by more than half compared to the same period last year, highlighting continued economic malaise and the challenges the government faces in revitalizing business confidence. The weak credit data points to sluggish demand across key sectors and raises concerns about the effectiveness of existing stimulus measures.

Today sees important economic data from China, which should provide the base for Wang Xin’s comments. The housing market is arguably the most critical piece of the puzzle for China’s economy. Real estate accounts for nearly 25-30% of the nation’s GDP (including construction and related sectors). A sustained downturn in the property sector threatens economic stability, consumer confidence, and local government revenues. Key indicators, such as housing prices, property sales volumes, and construction starts, will be closely scrutinised.

China’s property market remains in crisis following defaults by major developers like Evergrande and Country Garden, which have shaken investor and buyer confidence. Despite government efforts to support the sector through stimulus and lower mortgage rates, demand remains tepid. Should today’s data show further declines, it could add pressure on policymakers to step up support. China’s new home prices in 70 cities declined by 5.9% year-on-year in October 2024, following a 5.8% drop in the previous month. This marked the 16th consecutive month of decrease and the steepest pace since April 2015. The market is braced for further weakness at -6%.

Housing price index of 70 cities in China.

Industrial Production and Retail Sales data are both expected to show a softening economy, adding further weight to Wangs Xin’s comments. Industrial Production is expected to show a gain of only 5%, with last month’s data 5.3%. Retail Sales is expected to gain 4.5% against last month’s read of 4.8%. The data will reveal the health of China’s manufacturing sector and consumer spending patterns, reiterating policymakers' decisions to ease credit conditions and fiscal stimulus to improve spending. China’s benchmark interest rate is 3.1%, one of the lowest among major global economies.

In the U.S. the Federal Open Market Committee (FOMC) meets on Thursday. Last week’s core inflation data was as expected. However, the MoM inflation data was slightly higher than expected at 0.3% against an expected 0.2%. Although one reading doesn’t make a trend, it is a focus to keep in check as the MoM is more a leading indicator that flows to the YoY data and should be looked at. Although the Federal Reserve(FED) will not decide based on this, it will look towards a plethora of economic data this week to confirm a decision to move on rates on Thursday. 

MoM 0.3% The FOMC is widely expected to announce a 25-basis points rate reduction as markets continue to price in a more accommodative stance from the Fed. However, much will depend on the following data before the FOMC meeting concludes. Wednesdays sees Retail Sales, Industrial Manufacturing and Capacity Utilizations these will be key decision points for the FED. Forecasts for the entire data set do not look positive, and as such it is getting more likely that the FED will lower rates, which currently stand at 4.75%. The key will be in how the market responds to this.  On Friday, the Dow extended its losing streak to seven sessions, marking its longest streak since 2020. Given how poor the data is expected, the market may shift its sentiment from an economy needing a boost to sentiment suggesting an erosion of earnings and, therefore, a question mark over earnings and company valuations. 

As mentioned, next week, the Fed's interest rate decision will take centre stage. Other key highlights in the US include retail sales, PCE prices, personal income and spending, the final estimate of GDP growth, industrial production, manufacturing and services PMIs, building permits, housing starts, and existing home sales. Globally, China will release industrial production, retail sales, jobless rate, housing prices, and loan prime rates. In the UK, the BoE's policy decision, inflation figures, retail sales, and jobs report will draw attention. Japan will feature the BoJ's interest rate decision, inflation and foreign trade data. Meanwhile, interest rate decisions are also expected in Mexico, the Philippines, Sweden, Norway, Indonesia, and Thailand. Canada will release inflation data, Germany will publish the Ifo business climate index, and ZEW economic sentiment; and the Euro Area will report trade and PMI figures. So there is a lot on. 

On the position front, we are still … out on …, … equity positions (ASX … and SP…). The ASX 200 flirts with … and significant support level. Wheat, we remain … but are still happy to … off doing anything for a longer period of time. Gold and Silver traders, we remain … and happy to …  The AUD/USD is a concern however, if we get a bounce this week, it should cement an important low. We have bounced off this level three times in the past. 

Trade Focus:

DOW Jones

Fundamentals:

US equity markets remain mixed to negative. The Dow Jones closed the week with its seventh consecutive loss. Sentiment from the tech stocks helped drag it lower. The losses in major tech stocks like Nvidia (-2.2%), Meta (-1.6%), and Amazon (-0.6%) weighed on the general market. The "Magnificent Seven"—Apple, Microsoft, Alphabet (Google), Amazon, Meta Platforms (Facebook), Tesla, and NVIDIA—are the seven largest technology companies in the U.S. equity markets…

Technical Analysis:

Lower … point to a … correction. The last seven sessions of … suggest that technical traders are happy to sell on …  With negative sentiment and weak momentum for the past week, we could expect a slight uptick as … traders take profits ahead of data this week….

Support              …

Resistance         …

Momentum        …