Chinese real estate developer Evergrande to be liquidated. The RBNZ has become hawkish

The Dallas Fed’s survey of the US manufacturing outlook for January fell by 17.0 points to an 8-month low of negative 27.4, weaker than expectations of negative 11.0.

According to preliminary data, the French economy showed no growth in Q4 2023 compared to the previous quarter. The figures were in line with market forecasts. On an annual basis, the economy grew by 0.7% in Q4 after growing 0.6% previously. For the full year, the country’s GDP grew by 0.9%, much softer than the 2.5% growth in 2022 and 6.4% growth in 2021.

“Dovish” comments from ECB officials have increased speculation that the ECB will start cutting interest rates as early as April. ECB Vice President Gindos said that inflation risks are declining, and this will soon be reflected in monetary policy. His counterpart, ECB Governing Council representative Centeno, said the ECB should cut interest rates sooner rather than later as it sees plenty of evidence that inflation is falling steadily. Swaps estimate the odds of a 25 bps ECB rate cut at the next meeting on March 7 at 28% and fully discount (100%) the odds of the same rate cut at the April 11 meeting.

WTI crude oil prices fell by 1.6% on Monday as a Hong Kong court ordered the liquidation of Chinese real estate giant Evergrande, adding to concerns about the economic health of the world’s largest oil importer. WTI prices climbed above $77 a barrel at Tuesday’s market open, recovering some of the previous session’s losses as the risk of a broader geopolitical conflict in the Middle East continued to fuel supply concerns. Traders were particularly concerned about the growing risk of the US being forced into a direct confrontation with Iran following a drone attack by Iranian-backed militants that killed US servicemen in Jordan. This will harm Iran’s oil exports, which accounted for 1.5% of global oil supply in 2023.

Asian markets traded mixed yesterday. Japan’s Nikkei 225 (JP225) was up by 0.77%, China’s FTSE China A50 (CHA50) decreased by 0.35%, Hong Kong’s Hang Seng (HK50) was up by 0.78% on the day, and Australia’s ASX 200 (AU200) was positive by 0.30% on Monday.

Australia’s December 2023 retail sales fell by 2.7% month-on-month, worse than market forecasts, which expected a 1.0% drop. This was the sharpest retail sales decline since August 2020.

Japan’s unemployment rate fell to 2.4% in December from 2.5%, which was in line with the consensus forecast. It was the lowest unemployment rate since January as the number of employed rose 380,000 to 67.54 million and the number of unemployed fell 20,000 to 1.56 million.

China’s 10-year government bond yield fell below 2.5%, hitting its lowest level in nearly 22 years, as traders bet that China will further ease policy to support its struggling economy. Expectations that other major central banks will start cutting interest rates this year also give the People’s Bank of China (PBoC) flexibility to cut interest rates. Last week, the People’s Bank of China announced it would cut banks’ reserve requirement ratio by 50 basis points in February, which is expected to free up about 1 trillion yuan of long-term capital for the economy.

The New Zealand dollar rose to $0.615, nearing two-week highs, as the country’s central bank (RBNZ) opposed bets on a soon-to-be lower interest rate. The Reserve Bank of New Zealand’s chief economist said inflation is still too high, even if tight policy is helping to cool prices. Nevertheless, markets believe there is a 2/3 chance of a rate cut in May and have already fully priced in the possibility of such a move in July.