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Asia shares edge higher as China data beat forecasts

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Asian shares edged higher on Monday as Chinese economic data surprised on the high side, challenging wagers the economy was stuck in a downturn although a decline in mainland house prices was a worry.

Annual growth in retail sales and industrial output both handily beat forecasts, with the bounce in consumption a positive given pandemic restrictions.

On a negative note for the stressed housing market new home prices in China fell 0.2% month-on-month in October, the biggest decline since February 2015.

Economists at CBA argued there was a chance the People’s Bank of China would cut bank reserve requirements (RRR) this week to support activity.

“We estimate a 50 basis point cut to the RRR can release CNY 1 billion of liquidity,” they said in a note “In our view, mild easing measures can help meet funding requirements for property developers and offset downside risks to the economy.”

Chinese blue chips were steady on the data, while MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4%, after popping higher late last week.

Japan’s Nikkei gained 0.5% as data showing economic activity shrank by more than expected in the third quarter only reinforced the case for aggressive fiscal stimulus.

Elsewhere, the U.N. climate conference in Scotland managed to hammer out a deal on emissions, but only by watering down a commitment to phase out coal.

Wall Street eased last week to break a string of gains, though the major indices were only a shade off all-time highs. S&P 500 futures firmed 0.1% in early trade on Monday, while Nasdaq futures added 0.2%.

A key release this week will be U.S. retail sales on Tuesday for any impact from the drop in consumer sentiment to a decade low reported for November as people fretted over higher prices, particularly for petrol.

There are also doubts about whether firms have the pricing power to maintain margins in the face of rising costs.

Analysts at BofA noted 75% of U.S. companies had beaten earnings estimates in the latest reporting season but forecasts for the fourth quarter were only flat, breaking more than a year of rising expectations.

The grim survey helped Treasuries steady a little, but yields were still up a hefty 11 basis points for the week as the market priced in a greater risk of an early tightening by the Federal Reserve.

BofA economist Ethan Harris suspects the market still has not priced in enough given the high starting level of inflation means rates need to rise more to reach neutral.

“If inflation stays high and comes in above the planned overshoot, the Fed will need to become much more hawkish and either accept a market correction or deliberately induce such a correction,” warns Harris.

Higher U.S. yields have combined with general risk aversion to benefit the dollar, which boasted its best week in almost three months. Against a basket of currencies, the dollar was firm at 95.017 and just off its highest since July 2020.

It was holding at 113.85 yen, preparing for another challenge of the October top at 114.69.

The euro looked vulnerable at $1.1455, having broken decisively lower last week.

“Covid infection curves moving in the wrong direction are part of the reason, while renewed restrictions are being imposed in Austria and the Netherlands,” said Ray Attrill, head of FX strategy at NAB.

“The implications or both growth and ECB policy are not being lost on currency markets.”

European Central Bank President Christine Lagarde will appear before European Parliament later on Monday.

Inflation concerns kept gold in demand at $1,860 an ounce, after notching its biggest weekly gain since May.[GOL/]

Oil prices had a tougher week, hit by a strengthening dollar and speculation that President Joe Biden’s administration might release oil from the U.S. Strategic Petroleum Reserve.[O/R]

Brent reversed early gains on Monday to lose another 52 cents to $81.65 a barrel, while U.S. crude fell 48 cents to $80.31.

 

(Reporting by Wayne Cole; Editing by Sam Holmes)

Economy

Dollar up against safe havens as risk sentiment improves on Omicron news

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The dollar edged higher against safe-haven currencies such as the yen and Swiss franc after reassuring news on the Omicron COVID-19 variant, while units like the Australian dollar that had weakened in recent weeks on growth worries also advanced.

U.S. Treasury yields rose and stocks gained after news that initial observations suggested Omicron patients had only mild symptoms, reversing some of Friday’s heavy selloff.

While Omicron has spread to about one-third of U.S. states as of Sunday, Dr. Anthony Fauci, the top U.S. infectious disease official, told CNN that “thus far it does not look like there’s a great degree of severity to it”.

“The absence of negative developments surrounding Omicron over the weekend appears to be helping markets stabilize today after the dramatic moves at the end of last week,” Marc Chandler, chief market strategist at Bannockburn Global Forex, said in a note.

The dollar climbed 0.5% against the Japanese yen and rose 0.9% against the Swiss franc. The yen and the franc typically draw investors looking for safety when economic or geopolitical tensions rise.

The dollar fell 0.3% against the Japanese currency on Friday..

The greenback’s losses on Friday had also followed a below-forecast jobs report, though the data did little to shake market expectations the Federal Reserve will accelerate the pace of unwinding stimulus and raise interest rates, starting next year.

The U.S. Dollar Currency Index, which measures the greenback against six rivals, was 0.1% higher at 96.309, not far from the 16-month high of 96.938 touched late last month.

Investors have grown more bullish on the dollar in recent weeks, with net long bets on the greenback climbing to the highest level since June 2019, data from the U.S. CFTC showed on Friday.

Meanwhile, the Australian dollar rose as much as 0.64%, rebounding from the 13-month low hit last week.

Russia’s rouble slipped into the red in late trading on Monday after U.S. President Joe Biden warned his Russian counterpart Vladimir Putin of severe economic consequences in case of a Ukraine invasion ahead of a call between the two men on Tuesday.

The Canadian dollar strengthened against its U.S. counterpart on Monday as oil prices rose and attention turned to a Bank of Canada interest rate decision this week, with the currency recovering from its lowest level in more than two months.

Elsewhere, cryptocurrencies nursed big losses from a wild weekend that at one stage crushed bitcoin more than 20%. Bitcoin slipped 0.6% to around $49,166.35 on Monday.

(Reporting by Saqib Iqbal AhmedEditing by Paul Simao/Mark Heinrich)

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China cuts reserve requirement ratio as economy slows – BNN

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China cut the amount of cash most banks must hold in reserve, acting to counter the economic slowdown in a move that puts the central bank on a different policy path than many of its peers.

The People’s Bank of China will reduce the reserve requirement ratio by 0.5 percentage point for most banks on Dec. 15, releasing 1.2 trillion yuan (US$188 billion) of liquidity, according to a statement published Monday. 

The reduction was signaled by Premier Li Keqiang last week when he said that authorities would cut the RRR at an appropriate time to help smaller companies, and is the second reduction this year. The decision comes after recent data showed the economy and industry stabilizing, although Beijing’s tightening curbs on the property market have led to a slump in construction and worsened a liquidity crisis at developer China Evergrande Group and other real-estate firms. 

The cut is a “regular monetary policy action,” the PBOC said, pre-empting expectations that the decision was the start of of an easing cycle. “Prudent monetary policy direction has not changed,” it said, adding that the bank “will continue with a normal monetary policy, maintaining the stability, consistency and sustainability of policy, and won’t flood the economy with stimulus.”

However, with the U.S. Federal Reserve and other global central banks looking to tighten policy, the move to add stimulus by the PBOC makes the divergence between China and much of the rest of the world even clearer. 

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What Bloomberg’s Economists Say

“We think the reduction would help offset the headwinds facing the economy, particularly in the first quarter of 2022. We maintain our view that an additional 50-100 basis points of RRR cut would come next year.”

– David Qu, economist

Separately, the Communist Party’s Politburo said China will continue to implement a proactive fiscal policy in 2022, and prudent monetary policy will be flexible and appropriate, and maintain reasonably ample liquidity, the official Xinhua News Agency. The Monday meeting of the Politburo will be followed by the Central Economic Work Conference sometime this month, which will flesh out economic policy plans for the next year. 

The cut will be applied to all banks except those that are already on the lowest level of 5 per cent, which are mostly small rural banks, according to the statement. The weighted average ratio for financial institutions will be 8.4 per cent after the cut, down from 8.9 per cent previously, the PBOC said in a separate statement.

Some of the money released by the RRR cut will be used by banks to repay maturing loans from the PBOC’s medium-term lending facility, and some of it will be used to replenish financial institutions’ long-term capital, the central bank said. There are almost 1 trillion yuan worth of the 1-year loans maturing on Dec. 15, the day the cut takes effect. 

Even with the deepening housing market slump, authorities had been restrained in adding new support policies, holding monetary policy steady and maintaining a measured pace of fiscal spending. However, the PBOC signaled an easing bias in the latest monetary policy report last month, while the State Council urged local governments to speed up spending. 

“The aim of the RRR cut is to strengthen cross-cyclical adjustment, enhance the capital structure of financial institutions, raise financial services capabilities to better support the real economy,” the PBOC said. The cut will effectively increase long-term capital for banks to serve the real economy, and the PBOC will guide banks to step up their support for small businesses, it said. 

A cut in the reserve ratio doesn’t directly lower borrowing costs, but quickly frees up cheap funds for banks to lend. The reduction will lower the capital cost for financial institutions by about 15 billion yuan each year, which will lower the overall financing cost of the economy, the PBOC said.

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China think-tank warns of economic slowdown – Aljazeera.com

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Advisers to Beijing will recommend a 2022 growth target that’s lower than the target that had been set for 2021.

Ongoing stress in China’s property sector is likely to slow down the country’s economic growth next year, a government think-tank has warned.

The world’s second-largest economy is expected to have expanded by about 8 percent this year, according to the annual blue book on the economy from the Chinese Academy of Social Sciences (CASS), a top government think-tank. It warned that the property downturn was likely to persist and weigh on the expenditures of local governments next year.

China’s economy is expected to grow about 5.3 percent in 2022, bringing the average annual growth rate forecast for 2020-2022 to 5.2 percent, CASS said on Monday.

Advisers to the government will recommend that authorities set a 2022 economic growth target lower than the target set for 2021 – or “above 6 percent” – Reuters reported, amid growing headwinds from a property downturn, weakening exports and strict COVID-19 curbs that have impeded consumption.

It urged the central government to proactively engineer a soft landing for the property sector, to avoid failed land auctions in big cities and to fend off risks of quickly falling property prices in smaller cities, the report said.

China’s move to wean property developers away from rampant borrowing has translated into loan losses for banks and pain in credit markets, as cash-strapped builders fall into distress, increasing risks across the economy.

Property behemoth China Evergrande is facing one of the country’s largest defaults, prompting the authorities to step in and oversee risk management at the company.

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