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Chinese central bank proactivity

​​​​​​Today's news headlines:

  • ‘PBOC to offer first batch of special re-lending funds on Monday’. Several major and local banks across China qualify for special re-lending funds that are being rolled out today by the central bank. The People’s Bank of China (PBOC) has said the funds are aimed at production and business activities related to combating the Coronavirus. (Bloomberg)
  • ‘Johnson to order boardroom shake-up at UK’s HS2 rail project’. Boris Johnson is due to announce a boardroom change for the UK’s High Speed 2 (HS2) rail project to cut costs today. Last year, the estimated cost of the HS2 project was £56 billion but more recent estimates are as high as £106 billion. The first phase of the project from London to Birmingham is due to open between 2028-2031. (Financial Times)
  • ‘Oil hovers near $50 as expectations of urgent OPEC meeting fade’. The outbreak of the Coronavirus has spread fear that global oil demand would be cut, prompting OPEC to consider cutting production ahead of the scheduled March meeting. However, recent reports from OPEC nations have suggested the emergency meeting will not go ahead. The news has supported oil prices around the $50-per-barrel level, down from $63 in early January. (Bloomberg)

Continued support

As the number of Coronavirus deaths surge above 900 and transportation to affected regions grinds to a halt, the Peoples Bank of China continues to step in and support liquidity in Chinese lending markets. This proactivity by the Chinese central bank is not only helping protect Chinese businesses from funding pressure and is also extending indirect support to other countries in the region. For instance, those who are being hit by some of the travel shutdowns, delays and drops in demand. Overnight, Chinese CPI came out higher than anticipated at 5.4%, continuing Q4 2019’s acceleration above the circa 1.5% - 2.5% band predominating throughout the 2013 – 2019 period.  Normally this would be a good sign of increased domestic demand, but Coronavirus brings to mind an altogether more sinister interpretation of the rise in costs.

Bottom line: In this case, oil remains a good barometer of global growth and is hovering around 54USD per barrel. Aside from the sell-off in December 2018 – coinciding with the larger market sell-off in risk assets – this marks the lowest level after the 2015-2017 oil doldrums, where Brent crude reached as low as 28USD per barrel. With few economic data points out today, the market seems to be focused on the political news headlines out of Ireland and Germany, where shift in power appears to be taking place.


Cable edged lower on London open this morning, pushing the pair below the 1.29 level after ticking above the big figure in overnight trading. Various Federal Reserve members will be speaking later today which may bring some volatility for the pair in a light data for the economic calendar. On a trade weighted basis, Sterling trades near the bottom of its two-month range while the US-Dollar extends year-to-date highs.


With Sterling and the Euro extending losses against the US Dollar in February, the currency-cross has remained relatively flat. The pair opened London this morning just below the 50-daily moving average at 1.1787 which may provide short-term resistance ahead of tomorrow’s UK GDP release. A continuation of the pair’s recent weekly range can be expected as the Euro remain pinned to its trade-weighted lows while the Sterling index continues to be range bound.


The pair traded relatively flat in Asia’s overnight trading session around the 1.0950 level. Low volatility can be expected to continue amid a light economic calendar in today’s session, although Federal Reserve members - who are speaking later this afternoon and into the evening - could prompt some short-term volatility for the pair. This morning’s weak Italian industrial production adds more gloom to the Eurozone outlook, making a significant uptick in the short-run unlikely.