Daily Economic Update

China: PBoC holds key lending rates steady. As widely anticipated, the People’s Bank of China (PBoC) left its benchmark lending rates steady for a fourth consecutive month today, keeping the one-year loan prime rate (LPR) at 3.0% and the five-year LPR – the benchmark for mortgage rates – at 3.5%. The decision follows last week’s decision to keep the seven-day reverse-repo rate on hold. Last week, China also reported weaker-than-expected activity indicators for August, with retail sales rising 3.4% y/y and industrial production up 5.2%, a sign that the economy is losing some momentum. The authorities are expected to implement modest monetary easing in Q4 to support its 5% annual growth target, including a likely cut to benchmark lending rates and the reserve requirement ratio.

Chart 1: China's loan prime rates  (%)  Source: Haver

Chart 2: Oil prices  ($/bbl)  Source: Haver

Oil: Prices largely unchanged last week though attacks on Russian energy infrastructure escalate. Brent futures settled at $66.7/bbl on Friday, falling 0.5% w/w with continued Ukrainian strikes on Russian energy assets and the threat of further US and NATO sanctions on Russia failing to nudge prices higher. Indeed, Ukraine continued with its deliberate policy of targeting Russia’s revenue-generating assets on Thursday with drones launched at two refineries deep inside Russian territory; the Ukrainians would have been encouraged by a recent International Energy Agency report that noted the decline in Russia’s oil revenues in August to $13.5 billion, their lowest since the start of the war as discounts on crude and petroleum product exports widened (amid US secondary sanctions pressure on buyers of Russian oil, mainly India). Meanwhile, US President Trump called for renewed sanctions on Russian energy, reiterating the US’s readiness to implement these sanctions – but only if all NATO nations agree to stop buying Russian oil. He also urged the bloc to impose 50-100% secondary tariffs on Chinese imports to further curb Russia’s war efforts. The weekly EIA energy report leaned bullish, with commercial US crude and gasoline stocks dropping by 9.3 mb and 2.3 mb w/w, respectively, though a larger-than-expected build-up in diesel inventories weighed on sentiment. The oil market, with volatility largely subdued amid the lack of a strong catalyst to jolt prices, will likely continue to trade in a tight range, though the impact of continued OPEC+ supply increases on prices could begin to be felt over the next two quarters amid seasonally weak oil demand.

Global: US PCE inflation and global flash PMIs for September key data releases this week. In the US, Fed Chair Powell will deliver a speech on the economic outlook on Tuesday. In terms of data releases, PCE inflation for August will be out on Friday and expectations are for an easing core rate to 0.2% m/m from 0.3% in July. On Tuesday, the S&P Global Flash September PMIs will be released, and the street projects a slowing expansion across manufacturing (to 51.6 from August’s 53) and services (to 53 from 54.5). The final Q2 GDP growth print will also be released on Thursday, confirming or not the latest estimate of 3.3% (annualized) growth. In the Eurozone, flash PMIs for September are due on Tuesday with expectations for the composite and manufacturing PMIs to inch up to 51.1 and 50.8, respectively, (from 51 and 50.7) and the services one remaining steady at 50.5. In the UK, flash September PMIs (due on Tuesday) are expected to show continued contraction in manufacturing (47.2 from 47 in August) and moderating growth in services (53.6 from 54.2).  Finally in Japan, September’s flash PMIs are due on Wednesday with the manufacturing measure expected to improve to 50.2 from 49.7 in August. Meanwhile, Tokyo’s September inflation is due on Friday with consensus projecting that core CPI will increase 2.8% y/y from 2.5% in August.

Download Full Report >