The People's Bank of China (PBOC) maintained its benchmark loan prime rates unchanged in August, aligned with expectations even after a surprise cut in July. The one-year LPR remains at 3.35%, and the five-year LPR is at 3.85%. China's efforts to support economic growth through ultra-loose monetary policies have seen minor success. The PBOC's approach is constrained by shrinking interest margins at lenders, while economists believe additional policy measures, including potential reserve requirement ratio cuts and policy rate reductions, will support growth and achieve the government's targets. In response to the PBOC's decision, Chinese and Hong Kong stock markets showed minor declines in its already down trending markets, with investors hoping for further policy easing to stimulate growth in the world's second-largest economy.
EQUITY
Wall Street saw indexes open the week on a positive note ahead of key retail corporate earnings and the Jackson Hole economic symposium. Communication services and technology are the main contributors, while the market is particularly focused on Powell's speech. Bank of America analysts are optimistic on equities, predicting continued growth as long as growth remains steady.
GOLD
The gold price breezed through an all time high right after consolidation in the Asian session, expecting to hold above $2500 and higher, although the chance of a rate cut held steady. A Reuters report revealed PBoC allocations for new gold import quotas to several commercial banks that could boost demand. Combined with a weakening dollar index that dipped below 102, there is a bright future for gold, as rate cuts usually point towards an economic downturn.
OIL
Oil prices have detached from positive gains in commodities and declined due to Israel's acceptance of a proposal to address disagreements blocking a Gaza ceasefire. China's economic weakness is also weighing on the demand outlook, while market sentiment towards commodities has become more cautious, with investors eyeing potential U.S. interest rate cuts and an eventual recession.
CURRENCY
The US dollar has fallen to a seven-month low in anticipation of interest rate cuts, with a high probability of 25 basis points in September and 100 points before year end. Traders and economists are closely watching for signals from Fed Chair Jerome Powell's upcoming speech at the Jackson Hole conference, as well as the release of minutes from the Fed's last meeting. This weakness in the dollar has boosted other currencies, with the euro reaching a seven-month high and emerging market currencies hitting record levels.
