January 24, 2024
A quick update on charts after the PBoC governor Pan all but announced an RRR (reserve requirement ratio) cut by 50 bps on February 5th, releasing CNY 1tn of liquidity. The bank will also lower re-lending and re-discount rates by 25bp for bank lending to agriculture and small businesses and promote the steady decline of “comprehensive social financing costs”.
Market reaction was initially muted, given that markets expected such a move for a while now, given lacklustre economic performance and weak domestic equity performance.
The move has lifted HSI (Hang Seng) after we had a reversal buy signal (green arrow) already in place since Tuesday.
The move in domestic Chinese equities (China H-shares) was also noteworthy, with the index surpassing the 20 ema line from a reversal buy signal that was triggered yesterday.
We also saw Bloomberg reporting that China is considering a stabilization fund to support its stock market (Bloomberg, Jan 23, 2024). If this should become a reality, it would certainly be a meaningful signal to markets, although not necessarily a home run, as we have learned from previous attempts to stabilize markets.
In 2015, for example, the attempted market stabilization didn’t follow through until there was a clear end to the property downturn and prolonged deflation. With both of those issues still lingering, it will be interesting to see how this one pans out. Note that the momentum model did not change its negative stance and that we are only bouncing from quite oversold conditions in related equities.
Meanwhile, Japanese frot-end rates saw a meaningful bounce after Governor Ueda revived hopes for an April normalization yesterday.
2-year JGBs bounced by 5 bps, which is a relatively large move. Technically, we are still short in momentum, but we saw a noticeable bounce off the 200 ema.
USDJPY saw only modest strength, still hovering close to the recent levels, while our momentum indication is still pointing higher for now (weaker JPY).
Let’s now look at what else has been flagging since my last update earlier this week.