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Weekly Market Outlook (19-23 February) 0 (0)

UPCOMING EVENTS:

  • Monday:
    US/Canada
    Holiday, Canada PPI.
  • Tuesday:
    RBA
    Meeting Minutes, PBoC LPR, Canada CPI, New Zealand PPI.
  • Wednesday:
    Australia
    Wage data, FOMC Meeting Minutes.
  • Thursday:
    Australia/Japan/Eurozone/UK/US
    Flash PMIs, ECB Minutes, Canada Retail Sales, US Jobless Claims, New
    Zealand Retail Sales.
  • Friday:
    Japan
    Holiday, German IFO.

Tuesday

The PBoC is expected to keep the LPR rates
unchanged at 3.45% for the 1-year and 4.20% for the 5-year. The MLF decision is
generally a precursor for the LPR change and the PBoC decided to keep the rate
unchanged at 2.50% on Sunday. The central bank surprised
recently by cutting the RRR by 50bps vs. 25 bps expected and sparked a rally in
the stock market (although most of the gains were
erased in the following weeks). There’s a very low chance of a cut at this
point and if the market was positioned for such an outcome, then we might see the disappointment already on Monday.

The Canadian CPI Y/Y is expected at 3.2%
vs. 3.4% while the M/M measure is seen at 0.4% vs. -0.3% prior. The BoC is
focused on the underlying inflation measures (common, median and trimmed mean)
and although the rates are getting closer to the 1-3% target range, the central
bank wants to see more progress both on inflation and wage growth fronts.
As a reminder, the last
inflation report went in the opposite
direction with the underlying figures reaccelerating.

Wednesday

The Australian Q4 Wage Growth Y/Y is
expected at 4.1% vs. 4.0% prior, while the Q/Q measure is seen at 0.9% vs. 1.3%
prior. The RBA is expecting wage growth to ease as the labour market comes
into better balance. The last week’s ugly labour
market report is indeed pointing into
that direction.

Thursday

Thursday will be the Flash PMIs day for
many major economies, but the market will likely focus on the US ones:

  • Eurozone Manufacturing
    PMI 47.1 vs. 46.6 prior.
  • Eurozone Services PMI
    48.7 vs. 48.4 prior.
  • UK Manufacturing PMI 47.1
    vs. 47.0 prior.
  • UK Services PMI 54.4 vs.
    54.3 prior.
  • US Manufacturing PMI 50.2
    vs. 50.7 prior.
  • US Services PMI 52.0 vs.
    52.5 prior.

The US Jobless Claims continue to be one
of the most important releases every week as it’s a timelier indicator on the
state of the labour market. Initial Claims keep on hovering around cycle
lows, while Continuing Claims remain firm around cycle highs. This week the
consensus sees Initial Claims at 217K vs. 212K prior,
while there’s no consensus for Continuing Claims at the time of writing
although the last week’s data showed an increase to 1895K vs. 1865K prior.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

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PBOC leaves MLF rate unchanged at 2.5%, as expected 0 (0)

China’s central bank, the People’s Bank of China, left its Medium-term Lending Facility (MLF) rate unchanged at 2.5% on Sunday.

Surveys had shown around two thirds of analysts had expected the rate to be unchanged, others expecting a small cut.

500 billion yuan will be injected as one-year loans

  • 499 bn yuan mature, which means a net injection of 1 bn yuan
  • In Open Marker Operations the Bank injected 105bn yuan

No signs of monetary policy relief from China in this today. The most recent easing from the PBOC was the Reserve Requirement Ratio (RRR) earlier this month:

The People’s Bank of China

—

What is the MLF?

The PBOC’s MLF rate is a benchmark interest rate that banks in China can use to borrow funds from the People’s Bank of China for a period of 6 months to 1 year, as medium-term liquidity to commercial banks.

  • The rate is typically announced on the 15th of each month. Last week was a holiday in China, hence the announcement today
  • The interest rate on the MLF loans is typically higher than the benchmark lending rate (more on these below), which encourages banks to use the facility only when they face a shortage of funds.
  • MLF loans are secured by collateral, which can be a wide range of assets including bonds, stocks, and other financial instruments. The collateral ensures that the PBOC can recover the funds if the borrower defaults on the loan.

The MLF rate sets the scene for the monthly Loan Prime Rate (LPR) setting on the 20th of each month. Current LPR rates are:

  • 3.45% for the one year
  • 4.20% for the five year

This article was written by Eamonn Sheridan at www.forexlive.com.

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