Daily Insight
Group Economics Macro & Financial Markets Research Nick Kounis, Arjen van Dijkhuizen & Aline
‘Better Tuesday’ for markets
Schuiling, +31 20 343 5616
26 August 2015 • • •
Investor sentiment improved on Tuesday following Monday’s rout… …as China finally delivered cuts in policy rates and banks’ reserve requirements… …and August economic surveys in the Eurozone and US point to ongoing recovery
Market sentiment improved Tuesday, but we may not be
banks with additional resources to finance infrastructure
out of the woods yet
spending.
After Black Monday on the global financial markets, we saw a
China cuts key policy rate by another 25 bps
‘Better Tuesday’. Investor sentiment improved and Monday’s moves partially reversed with equity markets outside of China recovering, while the yen and Treasuries headed lower as safe haven support eased. The EUR/USD fell back following the sharp rise seen at the start of the week. Commodities and EM
%
10 8 6
currencies also firmed. The VIX declined after surging on
4
Monday. However, in a reminder that we may not be out of the
2
woods yet, it remained at historically high levels and US
0
equities fell back into the red at the end of the session. -2 08
The better sentiment reflected a sense that Monday’ hysteria
09
10
11
12
Key policy rate
13
14
15
Headline inflation
may have been overdone and policy easing by the Chinese authorities (see below). In addition, a string of good data
Source: Thomson Reuters Datastream
provided some re-assurance on the global economic outlook (also below).
Germany’s Ifo unexpectedly rises There was also a timely reminder in the data that the economic
Chinese authorities easy policy
recovery is continuing in many big economies. Germany’s Ifo
With market concerns on China’s growth rising and the
business climate indicator increased to 108.3 in August, up
country’s stock markets having suffered further blows, the
from 108.0 in July. The details of the report show that the
Chinese authorities finally reacted on Tuesday. The PBoC
expectations component was almost unchanged at a level of
decided to cut the benchmark 1-year lending and deposit rates
slightly above 102, which is consistent with GDP growth above
by another 25 bps, to 4.6% and 1.75%, respectively. The
the trend growth rate. The current conditions index increased
PBoC also decided to cut banks’ reserve requirements ratio by
to the highest level since April 2014. Although concerns about
50 bps, to 18%.
China are a risk to sentiment, domestic fundamentals for the German economy are good, and the past fall in the euro
We expect more stimulus measures
should support exports.
The steps were in line with our view that the authorities will keep adding stimulus to keep growth on track to reach the
US consumer confidence jumps
2015 target of 7%. The PBoC’s policy statement also
Meanwhile, consumer confidence in the US jumped in August.
confirmed this. It adopted a more dovish tone, stressing the
It rose to 101.5 from 91 in July. It was driven by optimism on
need to use monetary policy tools more flexibly. Overall, we
the outlook for the labour market. It must be said that the
expect more monetary easing to come. We also expect the
survey was of course take before the recent market turmoil,
authorities to allow more CNY weakness and to add more
and if lower equity prices persist, this will be a negative for
targeted (fiscal) stimulus, for instance by providing policy
confidence going forward. But again the survey is consistent with good macro fundamentals.